“More and more firms are responding to rising costs by ditching conventional health insurance and … [+]
It’s growing more expensive for employers to offer health insurance.
Employer insurance costs are expected to climb 6.5% in 2024, according to a new survey from major benefits consulting firms Mercer and Willis Towers Watson. Employers spend about $14,600, on average, to insure a single employee, a 5% percent increase from last year.
More and more firms are responding to rising costs by ditching conventional health insurance and assuming direct financial responsibility for their companies’ health plans. Notably, the growth in self-insurance is being driven by small- and medium-sized employers, for whom the switch can be a bigger financial risk.
That growth is largely a function of Obamacare. The law’s mandates deserve a lot of the blame for the skyrocketing cost of insurance. For example, Obamacare requires health insurers to accept all comers, regardless of health status or history.
It forbids medical underwriting. Insurers may only vary premiums within a limited range according to age and tobacco usage.
And Obamacare requires health plans in the individual and small-group markets to cover 10 essential health benefits, regardless of whether people want or need them.
All these mandates have made conventional health insurance a better deal for older individuals—as well as employers with older workforces. After all, older people tend to have higher health costs than younger ones.
By contrast, younger people—and employers with younger workforces—are paying more for coverage than they otherwise would.
Self-funded health plans are not subject to most of Obamacare’s rules and requirements. So employers who self-insure can opt out of the high-cost fully insured market—and create plans that are more affordable. Even better, by self-insuring they can tailor their plans to better meet the needs of their employees.
An employer with a self-funded plan may find that unconventional benefits like gym memberships and health coaching help its employees manage their weight and avoid costly health problems.
It may be able to reduce cost-sharing for its workers if they visit best-in-class surgical providers with lower rates of complications or readmission.
It may be able to analyze claims data to find opportunities to switch people to lower-cost generic drugs or intervene if people aren’t adhering to their prescription regimens—both of which can reduce overall health costs.
From 2017 to 2018, some 2,000 employers shifted to self-insurance, according to a Department of Labor report. That single-year increase brought 1 million people into the self-funded market. All told, some 55% of American workers were covered by self-insurance plans as of 2022.
Smaller and medium-sized employers may balk at the prospect of switching to self-insurance, as it means taking on additional financial risk. Just one expensive claim could jeopardize their finances.
But there is an intermediate step these employers can take on their way to self-insurance. Association health plans allow groups of small businesses, independent contractors, and self-employed individuals in a common industry to band together to purchase health plans in the large-group market.
Forming an association allows its members to act—and bargain—like large employers, which gives them more leverage to negotiate for quality coverage at affordable prices. Association health plans are exempt from some of Obamacare’s costly mandates—yet another reason they tend to be more affordable than standard insurance coverage.
Though association plans are perfectly legal and have been for some time, state and federal regulators have for years imposed such stringent restrictions on these plans that forming them is often impossible.
The Trump administration issued rules loosening these restrictions in 2018. But several states challenged those rules, and in 2019, a federal district court vacated the rules. The Trump administration appealed to the U.S. Court of Appeals for the D.C. Circuit. But the case has not proceeded since President Biden took office.
Fortunately, the House of Representatives recently passed the CHOICE Arrangement Act, which would expand access to association health plans.
It’s a step in the right direction but hardly an unequivocal victory. From the White House to Capitol Hill, Democrats oppose the expansion of both association health plans and self-insurance. Critics say these plans offer shoddy benefits and smear them as “junk” that puts patients at risk.
The only thing that these coverage alternatives threaten is Obamacare’s dominance of the insurance market. Employers in search of a better deal on insurance should consider them.