The future for employer-sponsored health insurance coverage is a mixed bag. The good news is that employees value these benefits, and employers play a more significant role in health system transformation.
The bad news is, employers’ traditional benefits strategies might not be enough to control costs while keeping their workforce healthy and happy.
Arguably, of the three major catalysts that control coverage for healthcare — Medicare which covers 56 million, Medicaid which covers 63 million, and employers who cover 181 million — employers have the most leverage in reshaping the healthcare landscape.
Last week, the Kaiser Family Foundation released its 2018 Employer Health Benefits Survey. The headline results were these:
The majority of employers provide health benefits: 56% of small ﬁrms and 98% of large ﬁrms oﬀer health beneﬁts to at least some of their workers, with an overall oﬀer rate of 57%.
Their costs increased for the 7th straight year: Individual premiums increased 3% to $6,896 and family coverage increased 5% to $19,616.
Mercer, Milliman, Deloitte, PwC and others forecast employer healthcare costs will continue to increase between 3-6% in coming years. At the same time, consumer prices will increase 2-2.5%, medical inflation will increase 3-3.5%% and the national Gross Domestic Product will increase 3-4%. It’s a trend that has continued for more than 20 years: the costs for employer health have exceeded annual inflation, consumer prices and overall economic growth (GDP). That means healthcare is consuming a bigger share of the overall economy (18% today) and is cutting into corporate profits and household discretionary spending. What’s notable is this: cost increases for employers are not the result of higher utilization of health services by their employees. Rather, they’re the result of the higher prices they pay for the hospitals, specialists, devices and drugs they use.
Traditional strategies used by employers to control their costs have been effective in containing costs. Utilization review, negotiations with providers for lower prices, cutting benefits for retirees and dependents, implementing wellness activities, contracting directly with narrow networks of providers, sponsorship of on-site and near-site primary care clinics and encouraging employee enrollment in high-deductible plans have been staples. But what’s ahead requires more.
Looking ahead, the good news for employers is this:
Recent laws and proposed regulatory changes give employers more latitude in their benefits designs. The administration’s support for association health plans, greater transparency in hospital pricing and drug price controls, and the expansion of Medicare alternative payment programs are among policies and regulations that should enable employers to purchase services more effectively.
The individual insurance market has stabilized. In the second quarter of 2018, the medical loss ratio for insurers in the individual market was down to 69% from 93% in 2015, and profit-per-member up to $155.70 from a $21.40. Coupled with the release of cost sharing subsidies that had been withheld by the administration and the entry of new issuers (Oscar Health, et al), enrollment in the individual market which serves 14.4 million has stabilized. For employers, the individual market represents a safety net so that their individual contractors and lower-income part-time/full-time employees may purchase coverage. And more than 9 million of these receive subsidies through the Healthcare marketplaces which appear stable as well.
Employers have access to more sophisticated analytics to enable smarter purchasing. Investors, benefits consulting firms and insurers are building powerful analytic tools to equip employers to purchase services that are evidence-based, necessary, efficient and accessible to their employees. The impact of Amazon, Apple, and other recent entrants is predicated on their use of precision analytics and novel technologies to drive costs down for employers without compromising the quality, accessibility and safety of services for their employees.
New delivery models are creating competition for incumbents. In 90% of the U.S. Metropolitan Statistical Areas (MSAs), provider consolidation is “highly concentrated/super concentrated” translating to costs that can be as much as 15% higher for employers. But new delivery models that operate at a lower cost are in play: micro-hospitals, retail clinics, urgent care and freestanding emergency clinics, on-site and near site primary care, virtual and distance medicine and more. Many of these are funded by private investors who target employers as customers for their lower-cost options.
Employees value their health benefits. Surveys show 71% of employees value their health benefits. It continues to be key to their employment decisions ranking just behind compensation (AHIP).
But there’s bad news as well:
The ACA’s employer mandate, requiring employers with more than 50 full-time employees, to provide essential coverage that’s affordable (9.86% of adjusted gross income) is still the law. Though rumored to be set aside, the IRS ruled in May its intent to enforce the mandate. Employers must continue to be vigilant about the regulatory climate for employer-sponsored insurance and related benefits.
The labor market is tightening. Friday, the Department of Labor issued its latest employment report noting that the economy added 134,000 jobs in September, fewer than the 185,000 economists had expected. Unemployment decreased to 3.7%, the lowest level since 1969, while wages rose 2.8% from a year earlier. Surveys show health benefits matter to workers but the market for talent and shifting appetite among younger workers for more holistic care means employers must be creative in their benefits designs. It’s not a one-size-fits-all scenario.
Employee cost-sharing strategies are increasingly problematic for employers. Cost shifting of health costs to employees vis a vis high-deductible plans, co-pays and other tactics have been successful for employers, but employees are pushing back. Affordability— the ability to pay medical bills, deductibles or pay for prescription drugs worries workers more than their ability to pay for their food, housing and transportation. Between 2013 and 2018, premiums for an employer-sponsored PPO plan for a family of 4 increased 28%, but employer premiums increased only 23% compared to employee premiums that increased 38% and deductibles that increased 31% (Milliman). Employees know they’re paying more: they’re worried about their ability to pay their share.
High-deductible plans are drawing attention. 43% of workers had a high deductible plan in 2017, up from 39% in 2016 (CDC). It’s anticipated employers will continue to promote them to employees as an option reasoning it allows employees to pay lower premiums while sensitizing them to costs. Eighty-two percent of workers see their medical costs as the biggest challenge but only 25% rank contributing to a health savings account (HSA) as a priority— below saving for retirement in a 401(k), paying for essential day-to-day living expenses and paying off debt. Seventy-nine percent think their deductible will increase, and 80% think they’re getting less value for high-deductible plans. And research has shown a correlation between high-deductible plans and willfully delayed care—a potential concern to policymakers. So, the intended impact of high deductible plans—to encourage smart purchasing by employees— might be offset by their unintended consequence: delayed care due to out of pocket costs that ultimately costs more (AHIP, Willis Towers Watson).
Mid-term election results might change federal policies about employer-sponsored health benefits. It is anyone’s guess as to how the election results 29 days from tomorrow might alter policies governing health benefits provided by employers to their employees. But it’s certain health insurance will be prominent in political debate continuing after November 6 through the Presidential campaign of 2020. Healthcare, and the role played by employers, matters to voters.
Since 1943, when the IRS declared that employer-based insurance coverage was exempt from taxation, health benefits have played a unique role in the U.S. economy. Premiums paid for employer-sponsored health insurance are excluded from taxable income, reducing the amount workers owe in income and payroll taxes by about $260 billion in 2017. It is the federal government’s single largest tax deduction— significantly more than the mortgage interest deduction. It’s a regressive tax: the benefit accrues to higher-income individuals and is less to lower-income populations. But employers have successfully defended the exemption on the grounds that it benefits the sharing of risks across the entire population.
For employers, health benefits are 7.5% of their total compensation costs and a key to differentiating themselves in workforce recruitment and retention. But many are re-thinking their strategies: there’s growing resentment…
They resent escalating health prices for hospitals, drugs and devices that seem to increase regardless of demand.
They resent cost-shifting by providers: the “hidden taxes” hospitals embed to make up for under-payments by Medicaid and Medicare.
They resent employers who don’t provide health benefits and get a free ride on the backs of those that do.
And they resent systemic waste in the system which they attribute to its culture of disregard for market forces with which other industries contend.
Today, employees want more: attention to their well-being, work-life balance, and a healthy workplace culture that supports their personal and professional development… in addition to a full complement of health services and programs.
For employers, it’s a good news-bad news scenario: they know their health benefits are a necessary investment, but balancing escalating costs against their benefit is becoming more complicated.
For providers, it’s a wake-up call: employers will no longer be the bank that makes up for underpayments by Medicare and Medicaid. Operating at break-even on Medicare rates is an imperative.
For insurers, it’s a reminder: employers want innovative solutions to their employee health programs.
For employees covered by their employers, it’s a heads up. Employers might exit benefits altogether or make dramatic changes if their investments do not result of more accountability for smart purchasing by their workforces.
PS: For the last two weeks, media attention has centered on the confirmation of Judge Brett Kavanaugh to the U.S. Supreme Court (SCOTUS). While speculation has centered around the implications of a conservative-majority court’s potential to overturn Roe v. Wade, other decisions might significantly impact the future of the health system i.e. does the elimination of the ACA’s individual mandate essentially nullify the entirety of the Affordable Care Act (Texas v. United States), challenges to work requirements for Medicaid enrollees (Stewart v. Azar), the legality of association health plans that do not meet the ACA’s essential health benefits’ requirement (New York v. Acosta), and a lawsuit against the Trump administration alleging it has breached its constitutional requirement to enforce the Affordable Care Act (Columbus v. Trump). Each of these is currently being considered in lower courts. None is among the 38 cases on SCOTUS’ current term docket, but might be added. The high court usually hears about 70 cases per term of the 5,000 petitioned. In the event it does not elect to hear any of these, the rulings of lower courts are settled law.
Fact File: Employer Health Benefits Coverage
Of 323 million in the U.S. population, the percentage with health insurance coverage for all or part of 2017 was 91.2%, not statistically different from the rate in 2016 (91.2 percent) and up from 86.7% in 2013. In 2017, 8.8% of the U.S. population (28.5 million) were uninsured—unchanged from 2016 and down from 13.3% in 2013. U.S. Census Bureau
In 2017, among those insured, private health insurance coverage (67.2%) exceeded government coverage 37.7%. Employer-based insurance was the most common, covering 56.0% of the population followed by Medicaid (19.3%), Medicare (17.2%), individual purchasers (16.0%), and military coverage (4.8%). Between 2016 and 2017, coverage by employers, Medicaid and individual purchases did not change statistically while Medicare coverage increased by 0.6% and military coverage increased 0.2%. U.S. Census Bureau
Among those uninsured in 2017, 84.6% are working age adults (19 to 64 years old), 54% are male, have less than a high school education and/or have lower incomes. The percentage of children under age 19 (5.4 %) was not statistically different from the percentage in 2016; for children under age 19 in poverty, the uninsured rate (7.8%) was higher than for children not in poverty (4.9%) and the uninsured rate did not statistically change for any race or Hispanic origin group. U.S. Census Bureau
Between 2016 and 2017, the percentage of people without health insurance coverage at the time of interview decreased in three states and increased in 14 states. U.S. Census Bureau
Premiums and deductibles in employer-sponsored insurance increased for the 7th straight year: individual coverage premiums increased 3% to $6,896 and family coverage increased 5% to $19,616, and individual deductibles rose 4.5% to $1,573, outpacing income growth and inflation, which rose 2.5%. Kaiser Family Foundation 2018 Employer Health Benefits Survey.
From 2008 to 2018, inflation increased 17%, workers wages increased 26%, family premiums increased 55% and deductibles for individual plans increased 212%. Kaiser Family Foundation 2018 Employer Health Benefits Survey.
As a percentage of total employee compensation for 2004-2018, health benefits have increased slightly from 6.4% to 7.5%. For companies of fewer than 50 employees, from 5.8% to 5.9%, for companies with 50-99 employees from 6.4% to 7.0%, for companies with more than 500 employees, from 7.5% to 8.7%. Kaiser Family Foundation 2018 Employer Health Benefits Survey.
Worries about healthcare are significant: 67% of adults worry about unexpected medical bills, 53% about health insurance deductibles, 45% about prescription drug costs, and 42% about health insurance premiums. By contrast, concerns about food costs (37%), utility bills (43%) and rent/mortgage costs (41%) are considerably lower. Kaiser Family Foundation Health Tracking Poll Aug. 23-28, 2018
From 1999 to 2016, the consumer price index increased 2.1%, medical inflation costs increased 3.5% and family insurance premium costs increased 6.6%. US Department of Commerce
Blame for rising health costs is attributed to business practices by drug companies (78%), hospitals (71%) and insurance companies (70%)—considerably less than blame attributed to the Affordable Care Act (39%) and the policies of the Trump administration (38%) Kaiser Family Foundation Health Tracking Poll Aug. 23-28, 2018
Individual market medical loss ratio: 84% (2013), 98% (2014), 103% (2015), 96% (2016), 82% (2017) Mark Farrah Associates
Provider market consolidation: 47% of 363 MSAs “highly concentrated” and 43% “super concentrated” vs. insurer concentrated 55% “highly consolidated” and 5% “super consolidated” American Hospital Association’s Annual Survey Databases; SK&A Office-Based Physicians Database provided by IMS Health (now IQVIA); and Managed Market Surveyor from HealthLeaders-InterStudy, a Decision Resources Group Company
Family of 4 PPO coverage: Milliman
|Total Premium $||Employer Premium $||Employee Premium $||Employee Out of Pocket $|
Hospital prices were shown to be 15% higher in concentrated markets than non. “Health Care Market Concentration Trends In The United States: Evidence And Policy Responses” Brent D. Fulton Health Affairs September 2017