With the costs of premiums skyrocketing, it has become increasingly difficult to offer health insurance benefits, particularly for smaller employers.
So how did employers become involved with insurance in America, why are recent attempts to increase the availability of low-cost policies under the Affordable Care Act (ACA) failing, and what should employers and employees expect in the future?
The Connection between Insurance and Employment
America is the only country to connect insurance with employment? Why?
Health insurance started becoming available to the public as early as the 1920s, but the connection between employment and insurance did not get solidified until a solution was offered to address a temporary crisis: World War II.
As an increasing number of men shipped off to war, the number of workers remaining dwindled; this created increased competition between employers. FDR had the National War Labor Board set a wage cap to stop the inflation of salaries, but health insurance benefits were exempt from the cap (and employer contributions towards the benefit were tax-free). The rest, as they say, is history.
Health Care Reform in America: A Hundred Years and Counting
Most presidents since Teddy Roosevelt have attempted reform of the American health care system, including Harry Truman, Dwight Eisenhower, Richard Nixon and Bill Clinton. Some have included insurance through employment as part of the puzzle to achieve universal coverage (loosely defined as health care protection for every legal resident of a country), while others have sought a more government-run-and-operated system paid for through taxation.
The Affordable Care Act (ACA), commonly known as Obamacare, continued the effort to achieve health care reform with the inclusion of employer-based health insurance as a critical component of its plan to obtain coverage for all.
In fact, the ACA requires employment-based coverage for employers with 50 or more employees. Up until the law’s passage in 2010, the only places health benefits were mandatory in this country were in Hawaii (under a 1974 state law requiring employers of all sizes to insure “regular employees”) and Massachusetts (after the passage of Romneycare – the precursor of Obamacare – in 2006).
Insurance Underwriting: Bigger is Better
Employers of all sizes may struggle to insure their workforce, but the difficulty increases as the size of the pool shrinks because it is always easier to insure a large pool of people. The greater the number of people insured grows, the less risk to the insurance company. The majority in the pool with minimal health care costs balances the outlier employee with an unexpected car accident or the birth of a sick child.
This principle, coupled with the negotiating clout of an IBM or Delta Airlines, makes employee benefits significantly smaller per capita than employers on a small scale trying to take care of their people.
Obamacare Exchanges Were Meant to Bring the Advantages of “Big” to the Many
The imbalance between costs for large groups and individuals in the insurance industry is what generated the ACA exchanges, also known as marketplaces.
As designed, multiple insurance companies would compete for newly insured patients not insured through their employer. By definition, that was meant to include many people working in smaller groups, as well as entrepreneurs, self-employed and unemployed people.
But the exchanges as envisioned never came to fruition. The law could not mandate participation of private companies. For that and other reasons, the number of insurance companies participating varied by region but was never as robust as intended anywhere in the country.
With less competition in markets, premium prices increased. Companies that had offered attractive prices could not justify their losses when the anticipated volume of newly insured patients failed to materialize.
The Other Cost Factor: High Deductible Policies
As witnessed in the last election, there is a high level of dissatisfaction with policies offered on the ACA exchanges. It is true that rising premiums are part of that backlash, with some regions experiencing double-digit increases, but for most Americans, the real issue is not the policy premium (the cost of entry) but the deductible (the cost of the
High-deductible plans are policies that require the insured to pay all costs of care up to the deductible – commonly $5,000 or more in most plans available on the exchanges. Many people, especially the young and healthy, have experienced for the first time being “on their own.” Most of them won’t need health care beyond what they are paying out-of-pocket.
These plans were not new to employers, 66 percent of companies with 1,000 employees or more had switched to high-deductible plans by 2013 to decrease their costs, but that trend started in the 1990s.
However, perhaps because of the exchanges, and because the insurance industry loves to blame the law, most American think the ACA created high-deductible plans. In the mind of most voters, getting rid of Obamacare would mean getting rid of high deductibles.
However, Obamacare did not create high-deductible plans and did not mandate them.
This will be a big surprise – and disappointment – to the public if the ACA is successfully repealed. But before that, it will also mean the marketplaces will be further eroded if the GOP tax bill repeals the insurance mandate.
What Will Happen to the Insurance Exchanges if the Mandate is Repealed?
If the law requiring people to have health insurance is gone, how many people will choose to buy insurance on the exchanges when those plans are almost entirely the high-deductible policies everyone hates?
More to the point, will low-deductible plans be available to individuals and small-groups outside of the exchanges, now that the insurance companies have succeeded in shifting risk to patients (as has been their goal for more than two decades)?
With cost-effective choices in the insurance industry dwindling, the inevitable reduction in the number of insured in the country will undoubtedly raise the cost for everyone left in the pool.
Consequently, employers, especially small employers, are going to find it increasingly expensive to insure their workers.
What is an Association to Do?
Health insurance is controlled by state law, so it is always necessary to work with a broker who understands your laws and regulations. Having said that, there are potential avenues that may offer relief:
- Offering employees a stipend to purchase insurance on the ACA exchanges is an attractive option for many employers not required to insure under the law and will continue to be so as long as the exchanges function. With the current uptick in enrollment on the exchanges and political uncertainty of a repeal of either the tax mandate or ACA overall, this could be the best short-term option;
- Many conservatives, including President Trump, are optimistic about the cost-saving implications of offering policies across state lines. Not everyone in the industry agrees, but it may be worth investigating;
- President Trump’s executive order of October 12 opened the possibility of “skinnier” plans with a lower price-tag. If your employees understand the limitations of these plans, they may be a transitional option;
- Stop offering insurance. I know this is the least satisfying option of all, but many think the employment-based insurance system that began more than 60 years ago has reached its end. The number of Americans insured through their employer has decreased steadily since 2000; only 49 percent were in 2016.
Times are changing for reasons far beyond your control as an employer. However you decide to address health benefits, it is important that your employees understand the realities of our changing insurance world. Hopefully, this can help start that important conversation.
Author Sarah Fontenot has a background in nursing, law and teaching and travels around the country speaking to help people better understand what is happening to American medicine, and why, and where our health system is headed. You can sign up for her newsletter, which offers clear information about today’s healthcare system, at sarahfontenot.com.
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