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Policy, Market Changes May Harm Employer-Sponsored Insurance

Changes involving healthcare policy and market conditions could lead to an end of the employer-sponsored insurance market.

Employer sponsored market could end from significant policy and market changes

Source: Thinkstock

By Thomas Beaton

- Significant changes to the employer-sponsored insurance market, such as increasing medical costs, policy changes, and improvements in other payer markets may cause employers to stop providing health insurance

An analysis from the American Health Policy Institute (AHPI) entitled “‘Tipping Points’ of Employer-Sponsored Insurance” suggested that employers will start to experience a poor return on investment when providing benefits to employees, which may prompt them to stop offering the option to their employees.

“Trying to ascertain the tipping point at which employers would find it either necessary or desirable to end health care coverage for active employees is very much a process of weighing the alternatives,” said Henry C. Eickelberg, AHPI Senior Fellow and author of the analysis.

“Every employer faces unique challenges and will need to weigh each factor outlined in this paper differently.”

Eickelberg believes that healthcare costs could be a major driver for employers to end health plan sponsorship. Healthcare inflation has outpaced general inflation 2 to 1 and could force more employers to drop coverage.

“It’s safe to assume that for many employers, annual cost growth in the 40 percent to 60 percent range would be so significant that they would be left with only very hard choices, including ending health care coverage as it currently exists,” Eickelberg said.

The use of high-risk pools at the state level may accelerate the rate at which employers stop providing employees health benefits.

High-risk pools can help states lower the costs of unhealthy individuals by spreading healthcare costs across a broad population. Subsidizing the high-risk pool also allows a state to separate healthier individuals into another pool and keep their healthcare costs low.

Employer-sponsored plans are usually not eligible to participate in high-risk pools and would experience much higher costs for unhealthy individuals than other groups.

“In such cases, this would serve as a factor that causes certain employers to decrease or eliminate health care coverage they currently sponsor,” Eickelberg argued.

The possibility of a single-payer system at both the federal and state level would likely create a rapid decrease in the number of employers that sponsor health benefits, which moves responsibility to provide health insurance from employers to governments.

Eickelberg suggested that a single-payer system may gradually gain wider support based on early conversations from key stakeholders like Senators and other political representatives.

Additionally, some state governments including Vermont and California are open to state-based single payer systems. Eickelberg referenced a survey from the HR Policy Association that found many employers would drop coverage under single-payer systems.

“The majority (59 percent) of respondents said that they would not drop coverage nationwide, but only in those states that implement single-payer systems,” Eickelberg said. “Another 20 percent said that more than 20 states would have to implement their own single-payer systems for them to consider dropping health benefits nationally.”

Stabilizing individual insurance markets through new policies could cause the employer-sponsored market to become obsolete, Eickelberg suggested.

The current instability of the individual market allows the employer-sponsored market to provide health plans at much lower premiums with higher cost-effectiveness. A stable individual market would create health plans that outclass many employer-sponsored offerings.

“According to HR Policy Association’s February 2018 survey, when asked to select the top three factors out of seven that would serve as ‘tipping points’ for their company, 49 percent of respondents selected ‘Stabilized individual ACA exchanges that offer the same quality of healthcare coverage at a reasonable cost,’” Eickelberg said.

Healthcare costs and policy changes may drastically alter the healthcare industry with employer exits, Eickelberg concluded.

“The key question remains: at what point will employers decide that costs and effort in offering broad-based health care programs is outweighed by the cost (and burden) of doing so? In the end, every employer will need to consider these factors.”

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