The increase in the cost of employer-sponsored health and dental benefits plateaued in 2012, but expenses are expected to swell again due to the prevalence of high-cost specialty drugs and the aging of the population, according to a survey.

A Towers Watson study shows that for active employees, the overall employer healthcare spend increased just 2.1% in 2012, down from 2.7% the previous year and far below the double-digit increases seen not so long ago.

Drug costs are trending at -0.2%, and the cost of dental care is up by only 1.3% from 2011 to 2012, according to the survey.

One reason for this phenomenon is that many commonly prescribed drugs have recently come off patent, so employers have been using more generics at significantly lower costs, says Wendy Poirier, Canadian health and group benefits leader at Towers Watson.

“[Employers] are also benefiting from drug plan management strategies that mitigate waste and increase efficiencies, and the effect of beneficial plan design features such as early exposure to preventative dental coverage,” Poirier adds.

Costs expected to rise
While overall healthcare costs will likely remain moderate for the next year, they are expected to rise afterwards due to the prevalence of specialty drugs and the aging population.

Specialty or biologic drugs are typically used by less than 5% of employees but account for 15% to 25% of the total drug spend, according to Towers Watson research.

However, in the next three to five years, they are expected to account for 30% or more of drug plan costs, says Christiane Bourassa, a senior health and group benefits consultant with Towers Watson.

That’s because advances in medical research are producing expensive drugs to fight common health conditions, many of which are chronic and require treatment for life, explains Bourassa.

The upward trend on healthcare expenses, other than drugs covered by employer-sponsored plans, is another area plan sponsors need to watch carefully, according to Towers Watson. For active and retiree plans, the cost of these healthcare claims—which typically include services such as physiotherapy, chiropractic and naturopathic treatment—went up 6% from 2011 to 2012, the survey reveals.

“It is important for employers to keep an eye on the increased utilization of these healthcare services,” says Bourassa. “They can be an important part of a wellness program but, left unmanaged, may increase active and retiree costs unnecessarily, due to the effects of an aging plan membership and the continued delisting of services covered by government programs.”

To address the expected increase in drug costs, employers should look at how workforce health and productivity strategies might help control the costs of drug, dental and other benefits, says Poirier.

“While employers have added more prevention and support to their benefits foundation, more work is needed to understand the cost drivers and to implement specific actions to manage both current and future costs,” she explains. “Mandatory generic substitution, drug supply limitations and restrictions, therapeutic substitution strategies, drug formularies, preferred provider networks and healthcare spending accounts have all proven effective strategies for ensuring sustainable healthcare plans.”

The survey polled 193 organizations representing 875,000 active and retired employees across all major industries and regions of Canada.

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