Re-thinking Employer Health Benefits

The majority of employers plan to provide health benefits for their employees for the next few years despite forecasts of higher costs and uncertainty about what parts of the Affordable Care Act will remain intact. But there’s more to the story.

While the pundits and politicians have been ruminating about the instability of the individual market and the double-digit premium increases its 11 million enrollees will face in the marketplaces, employers have been pouring over ways to reduce costs for the 159 million they cover. The realities are these:

Employer-sponsored coverage is shrinking. Health costs are driving many employers to drop coverage altogether. A poll of employers released last week by the National Business Group on Health found employers expecting their costs to go up at least 5% for the fifth year in a row. Regardless of how the ACA’s employer mandate, Cadillac tax et al fare in the Repeal and Replace debate, many are simply suspending coverage, especially in industries that don’t compete fiercely for talent. Thus, from 2000-2015, coverage for employees shrank from 63% to 56% with the biggest decrease in companies that employ fewer than 200 workers. And 44% of those companies that that currently provide coverage are uncertain they will in coming years (Willis Towers Watson).

What’s covered and who is covered is shrinking. Employers are contracting with fewer providers and covering fewer services to constrain costs. Notwithstanding ACA requirements that qualified plans be affordable and cover essential benefits, employers have found ways to check their ACA boxes (Forms 1094, 1095, 5550 and others) while offering skinnier plans. And eligibility is shrinking at the same time: dependent and retiree coverage has decreased, offset somewhat by the ACA’s allowance for young adults under 26 to stay on a parent’s plan.

Employees are paying more of the cost. Since 2005, premiums for employer coverage have increased 61% but worker contributions toward their coverage has increased 83% (Kaiser/HRET). And for one in four workers’ the cost for this coverage exceeds 20% of their family income making it practically unattainable. (Salam Abdus et al. Health Aff 2016;35:2297-2301).

Employers blame hospitals and drug companies for excess costs. Employees blame insurers and drug companies but employers blame systemic wastefulness by hospitals and price gouging by drug manufacturers. They think doctors are complicit, in part, for lack of attention to costs and consider insurers and benefits consultants necessary partners in the quest to rein in a system run amuck.  (SHSMD, Strategic Health Perspectives).

Employers are implementing new strategies to rein in their costs. 44% of employers consider health costs out of control—up from 32% in 2014 (Kaiser). Shifting financial accountability to employees via high deductible plans, curtailing dependent and retiree coverage and shrinking provider networks have reduced their costs but appear to have run their course. Price transparency tools have had mixed results (Health Affairs August, 2017) and direct contracting with local health systems has been effective for only the largest employers. Being self-insured is an increasingly popular hedge: comparing 2015 to 2011, 14.2% of companies today with fewer than 100 employees vs. 11.9%, 30.1% of all midsize companies vs. 25.3% and virtually all large employers above 500 employees. Now, employers are shifting their attention to how care is actually delivered for the 10% of their employees that are 68% of their costs and the 67% that have one or more pre-existing conditions. Efforts like the Healthcare Transformation Alliance’ “Triple Aim” — better care for individuals, better health for populations, and lower per capita cost — aim to force providers to change the way care is delivered and by whom. (“This Coalition of 20 Companies Thinks It Can Change U.S. Health Care” Harvard Business Review February 16, 2016). And employers are investing in wellbeing programs for employees linked to stronger primary care gatekeeper structures. Other notables are the Leapfrog Group, Catalyst for Payment Reform, and the 50 local business health coalitions affiliated with the National Alliance of Healthcare Purchaser Coalitions: each effort leverages shared data among member companies to measure and compare the value—efficiency and effectiveness—of services provided by providers in their markets.

Against this backdrop, the future for employer-sponsored insurance is dicey. Two issues have regulators’ attention:

Disparity in employee access: Four in five full-time employees who earn at or above 400% of the federal poverty level are offered coverage vs. two in five below 250%. The number of full-time employees covered has remained constant over the past two decades at 72-76% while coverage for part-timers has dropped from 26% to 21%. Are eligibility and participation policies and procedures fair and equitable?

Contracts with providers: Traditionally, employers have shy’d from directing employees to certain providers, offloading network design to brokers, insurers and consultants who use clinical data to choose high quality providers. But is it enough?  An employer’s ignorance about unnecessary tests and procedures, missed diagnoses and inappropriate treatments and avoidable errors may no longer be defensible.

But beyond these issues, cost is the overriding employer concern that’s likely to define the future for employer sponsored health benefits. And employers are taking matters into their own hands around the country. They realize that under-payments by Medicare and Medicaid and non-payments by those lacking coverage have been offset in large measure by higher costs borne by employers. Some call it a hidden tax. But fewer are willing to pay it.

The U.S. economy has recovered, driving corporate profits to new highs and unemployment to 4.3%, a 16- year low. Employers see the value of employee benefits especially in a tight job market, but they’re not keen to subsidize a system that’s wasteful or pay hidden taxes so employers that don’t provide coverage get a free ride. That’s why C suites are re-thinking their employee health benefits strategies. Stay tuned.

Paul

PS: Saturday, the President Trump signed the VA Choice and Quality Employment Act which provides $2.1 billion for the Veterans Choice Program that gives veterans the opportunity to seek private care. Today, I meet with David Shulkin, MD, an old friend and current U.S. Secretary of Veterans Affairs. No doubt, ways in which private providers can collaborate with the Veterans Health Administration will come up. It’s the largest integrated health system in the country with 170 medical centers and 1,065 outpatient sites serving 9 million Veterans annually. It dates itself to the Civil War era when President Lincoln commissioned the Civil War Veterans of the Union Army and President Hoover’s creation of the Veterans Administration in 1930. And since, the VA has been an innovator in areas like clinical information technology use, performance measurement and others that have benefited many in the private sector. David left a distinguished career in academic medicine to serve in this role. Like many in government whose contributions go unnoticed, he did so out of a sense of purpose.