The Future of Employer-Sponsored Health Insurance

Vol. 59 No. 9 Will health care remain employers’ responsibility in the post-ACA landscape?

By Susan Wells September 1, 2014

Gary Kushner, CEO of Kushner & Co., encourages HR to think strategically first and then tackle compliance second with regard to the Affordable Care Act

0914cover.jpgWhen it comes to predicting the future of employer-sponsored health insurance, the crystal ball is cloudy. Some observers foresee employers heading for the exit in nothing less than a wild stampede; others expect considerably less disruption. Few would disagree, however, that in many ways employer-provided benefits in the wake of the Affordable Care Act (ACA) are at a crossroads.

Consider some recent assertions:

  • By 2020, 90 percent of employees currently receiving health insurance through their employers will be shifted to individual health insurance and private and public exchanges, according to a May 2014 analysis of S&P 500 companies by S&P Capital IQ Global Markets Intelligence, a financial research and advisory group.

  • “By 2025, few private-sector employers will still be providing health insurance,” declares Ezekiel J. Emanuel, author of Reinventing American Health Care (Public Affairs, 2014) and advisor to the Obama administration during the drafting of the ACA.

“Welcome to the new conventional wisdom,” says Tevi D. Troy, president of the American Health Policy Institute (AHPI) and former deputy secretary of the U.S. Department of Health and Human Services. The AHPI is a new nonpartisan think tank in Washington, D.C., that examines the impact of health policy on large employers. “The question of the future of America’s employment-based system of health care has been the subject of constant discussion since the passage of the ACA,” Troy says, “and employers have mixed feelings about these predictions.”

On the one hand, U.S. companies with 50 or more employees could realize major savings—of $3.25 trillion through 2025—by redefining their role in health care, according to the S&P Capital IQ Global Markets Intelligence report. On the other hand, employers are hesitant to mess with something that is such an effective recruitment and retention tool: In the 2013 Mercer Workplace Survey of 1,500 U.S. employees, 93 percent said their health benefits ranked just as high in importance as their compensation—even as deductibles have risen and benefits have generally become less rich, says Tracy Watts, Mercer’s U.S. leader for health care reform.

94% of large employers remain committed to offering health plans for at least the next five years.

Source: Mercer’s 2013 National Survey of Employer-Sponsored Health Plans.

“A full-scale exit at the expense of talent, predictability and affordability—for both employers and employees—remains a highly unlikely proposition,” Watts says.

Examining the Trends

The AHPI recently tried to shed more light on the opinions and plans of the senior executives who have responsibility for their companies’ health care benefits policy: the chief human resource officers (CHROs). The institute asked 360 CHROs whether they agreed with the statement “My company will continue to offer health care coverage for the foreseeable future regardless of what most other large employers do.”

Fifty percent agreed, 16 percent disagreed, and the remainder had no opinion—meaning they’re likely keeping their options open. “So, only half the employers surveyed indicated they were still wedded to the status quo,” Troy says.

That doesn’t totally surprise Massachusetts Institute of Technology economics professor Jonathan Gruber, who helped craft the ACA as well as the Massachusetts health care reform law.

But Gruber says predicting the future of health care post-ACA is at best an area of great uncertainty. “If anyone’s telling you otherwise, they’re wrong,” he maintains. “The temptation is to draw conclusions, but we are several years away from being able to do that with any certainty.”

What we do know is that the percentage of Americans with employment-based health insurance coverage has declined for more than a decade—from 69.7 percent in 2000 to 59.5 percent in 2011, according to a report by the Robert Wood Johnson Foundation. In total, 11.5 million fewer Americans receive their health insurance coverage through their job, or a family member’s job, than did at the start of the century, according to the report. The ACA could further encourage this shift by providing a nonemployer market in which everyone can shop for coverage.

Gruber’s forecast?

“The very likely prediction over the near term is that slight erosion continues in employer-sponsored insurance,” he says. “Over a longer term—say, a 25- to 50-year horizon—only the biggest employers may be still in the game.”

Examining Exchanges

One of the strategies being eyed by more employers is private insurance exchanges, which work similarly to the federal and state public exchanges set up for the ACA. The International Society of Certified Employee Benefit Specialists believes that exchanges will become a “permanent and significant avenue” of the benefits-purchasing landscape.

According to a 2014 research report by consulting company Accenture, private exchange participation will approach state and federal public exchange enrollment levels as soon as 2017 and surpass them soon after.

By 2018, approximately 40 Million Americans will purchase insurance through private exchanges, up from 3 million this year.

Source: Accenture 2014 research report.

In these private marketplaces, employees exchange funds (a defined amount provided by their employer, their own funds or a combination of the two) for the benefits they choose.

Many of the major HR and benefits consulting companies now offer private exchanges and report brisk interest, including Aon Hewitt’s Aon Active Health Exchange, Buck Consultants’ RightOpt, Mercer’s Mercer Marketplace and Towers Watson’s OneExchange. All major insurance carriers, such as Aetna, Cigna and United Healthcare, also operate exchanges on which they offer their own benefits packages.

When AHPI polled CHROs, 77 percent said they were either considering or had considered private exchanges; 16 percent said they had no interest in private exchanges. In addition, 23 percent were exploring enrolling some or all of their employees in public exchanges. Another 10 percent have already started directing some part-time employees to them.

In January 2014, for example, Minneapolis-based retailer Target Corp. announced that it would end health insurance coverage for its part-time employees beginning in April. Similar plans also were announced last year by other retailers, including Home Depot Inc. and Trader Joe’s Co.

Jodee Kozlak, Target’s executive vice president and CHRO, says the decision stemmed from the launch of the public exchanges, which “provide new options for health care coverage that we believe our part-time team members may prefer”—in part because of the subsidies available to many individuals to help them pay for insurance. Another factor influencing Target’s decision, she says, is the fact that most of the company’s part-timers who are eligible for health insurance coverage don’t enroll. To help offset the transition to the public exchanges, the company gave employees previously covered under Target’s plan for part-time employees a one-time $500 cash payment.

Health Care Gets Accountable

The accountable care organization (ACO), which ties provider payment to improved care metrics and reduced costs, is a health care model that was born out of the ACA. ACOs will be part of the future of health benefits.

Leavitt Partners LLC, a Salt Lake City-based health care research group, has tracked ACO growth since 2010. The first quarter of 2014 had some of the largest increases since 2012, bringing the total number of ACO-covered lives to more than 20 million and the number of ACOs to 626 nationwide.

Here are two companies that have made the move

to ACOs:

Boeing will offer 27,000 of its employees in 2015 the option of joining health plans under new accountable care contracts through three health systems in Washington state, with financial incentives to encourage ACO use.

Intel Corp. last year contracted directly with Presbyterian Healthcare Services in Albuquerque to provide health benefits for its manufacturing employees and their dependents in Rio Rancho, N.M. As part of the ACO arrangement, Presbyterian and Intel share financial risks and rewards if results exceed or fall short of specific care, cost and performance targets they set. Intel employees choose from 11 medical practices, including Intel’s onsite clinic, which is managed by Presbyterian.

One year after its inception, 60 percent of Intel’s New Mexico employees remain enrolled in the ACO and 98 percent of those are satisfied with the quality of their care, says Tami Graham, director of global benefits at Intel.

“Health care reform is transforming the benefits landscape and affecting how all employers, including Target, administer health benefits coverage,” Kozlak says.

Meanwhile, Walgreen Co., the largest U.S. drugstore chain, moved about 160,000 of the 180,000 employees and their dependents for whom it provides health insurance coverage to a private exchange this year. The Deerfield, Ill.-based company pays them a fixed amount toward their coverage options. Sears Holdings Corp. and Darden Restaurants Inc. have made similar moves.

Companies are also reworking their retiree benefits. IBM reported last year that it would send 110,000 retirees to Towers Watson’s private Medicare exchange. The company will give retirees an annual health retirement account contribution of $3,000 to $3,500 to buy coverage on the exchange.

Employers' Health Strategies
Now3 to 5 years
Manage risk via "house money/house rules" approach*40%36%
Move to private health exchange3%33%
Exit health care completely1%5%
Maintain traditional cost-trend mitigation approaches52%51%

*“House money/house rules” refers to requiring employees to take a more active role in managing their health by offering them a few plan options plus initiatives designed to improve health and reduce costs.

Source: Aon Hewitt 2014 Health Care Survey.

Focusing on Cost Drivers

Companies considering a private exchange/defined contribution strategy without thinking about how to manage the underlying health care cost trend are simply engaging in an elaborate cost-shifting process, says Rob Harkins, vice president of private exchanges with the New York City-based human capital and benefits practice of Willis Group Holdings, a risk advisor, insurance and reinsurance brokerage.

Making a real dent in health care spending comes through the lower use of care, but exchanges aren’t designed to reduce health care usage, he says.

“Exchanges are a shopping mechanism, and employees who save $200 a month in premium cost because their employer uses an exchange model haven’t really lowered the utilization of medical care if they still have to go to a hospital once a week,” Harkins notes.

“The exchange does nothing to control [the cost] trend,” he explains. “That’s why wellness and health management programs are also so important.”

Trek Bicycle Corp. has increased its wellness offerings and strengthened health-related incentives for employees since the company first introduced voluntary health risk assessments in 2005. However, at that time only 21 percent of employees participated. Offering a $100 cash incentive helped, but not as much as the company had hoped; participation rose to 61 percent.

So the Waterloo, Wis.-based manufacturer took another tack, making its contribution to employees’ and spouses’ insurance premiums dependent on their taking the health risk assessments and undergoing biometric screenings. That move quickly pushed participation to nearly 100 percent.

“Our philosophy is rooted in two pillars: making employees healthier and controlling the cost of care. Those ideals aren’t going to go away,” says Jennifer Pagels, Trek’s director of HR.

This year, employees must earn “wellness points” to avoid paying more in premiums. They can earn points by completing preventive exams, health screenings, health coaching, nutrition counseling or fitness activities. Being a nonsmoker is assigned a value of 350 points, for example, and having low blood glucose translates to 100. Those who score 750 points or above maintain the current Trek premium contribution; those who score below 750 pay an additional $1,800 annually.

The company has experienced decreases in employees’ health risks, absences and treatment costs for major diseases since taking the stronger stance on wellness.

The Business Imperative

In trying to envision the future of employer-sponsored health care, Thomas Parry, president of the Integrated Benefits Institute, a nonprofit health and productivity research organization, currently sees two camps emerging.

“One camp is focused on minimizing health care costs in the short run,” he says. “The other is thinking strategically about how to use the value of employee health to achieve desired business outcomes.”

Health care has largely been viewed as a cost, but Parry encourages employers to look closer at the business dimension of it. “Health is a top-line business performance issue,” he says, adding that responsible employers have a stake in keeping their employees healthy.

“There’s a critical difference between employers’ decisions about financing health care and their choices about managing workforce health and its business performance outcomes,” he says. “The smart employers see that health becomes a very strategic business issue and an advantage for them.”

While Parry doesn’t see employers running for the exit, he says that “the ACA has forced a lot of questions that get to the very issue of what is the real importance of the employer’s role in health.”

Over the long run, the ACA may come to be seen as the catalyst for the largest change in employer-provided health benefits in history. Only time will tell.

Susan J. Wells, a contributing editor of HR Magazine, is a business journalist based in the Washington, D.C., area.



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