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Employers

Employers are, by and large, forced to offer healthcare insurance as a benefit in order to stay competitive in the employee marketplace. It’s in the employers self interest to minimize their operating expenses (including employee benefits) so that the total costs of delivering their products or services allow them to be competitive in the marketplace. The pressure to control healthcare insurance expense is especially acute when the employer competes internationally against companies who have less expensive labor costs overseas.

Employers are the customers of health insurance companies, since it’s the employer who decides what company and which plan(s) to offer to their employees. Before the 1990’s and the beginning of skyrocketing healthcare costs, employers looked at their relationship with their health insurance company as a normal win/win – they were buying a service. Unfortunately, neither the employer nor the health insurance company is involved in the decisions on which or how much healthcare services are consumed, except in the extreme case of limiting benefits or the membership in provider networks. Both employers and insurers feel they’re in a lose/win relationship with their individual employees who consume more than preventative healthcare services. It’s a rare CEO in a company of <200 people who doesn’t know the first name of every diabetic child of their employees. Both employers and insurers feel a lose/win relationship with providers, who have steadily increased utilization rates for procedures, and applied newer and more expensive technologies.

This results in a cascade of unfortunate (in the eyes of the employer) interactions during the next health insurance enrollment period;

  • Insurers either increase premiums or decrease benefits, or both. Insurers generally win or are, at worst, neutral, since they protect their profit margins with these changes.
  • Employers either pass on increased premiums or increase the employee’s share of the premium, or both. Employers and employees both lose.
  • Employees either experience increased out of pocket expenses or lose benefits, or both. Employees lose immediately, and employers can lose over the long term if their benefits don’t allow them to retain and attract top talent.
  • Sometimes employers are forced to switch insurance plans or companies in order to offer their employees the best available value and control their costs. Employers and most employees lose, since most employers can offer only one or a very short list of plan options; this pushes employees into a ‘one size fits all’ model, and any plan changes can mean that at least some of the employees’ providers are now out of network.
  • Generally healthy and younger employees lose, but employers win, when these relatively healthy employees participate in employer sponsored health insurance. Since young, healthy people can generally get the lowest cost insurance in the open market, when they opt to stay in employer sponsored health insurance plans, they’re effectively subsidizing older, less healthy employees. Depending on the degree to which employers pay for some or all of individual or family premiums, or contribute to an employee’s HSA, younger and healthier employees may find better cost/benefit/value plans in the open market, which is better for the healthy individual and their family. As a result, however, the remaining pool of employees becomes higher risk, which justifies a higher premium on the part of the insurer. And if enrollment drops below 75% of all employees, the insurer may decline to cover the employer all together, leaving them to either switch to a ‘defined contribution’ relationship with their employees or drop coverage completely.
  • Healthcare insurance expense pressures international employers to favor growth overseas, and can even pressure them to move existing jobs overseas. US employees lose.
  • Likewise, increasing healthcare insurance expense encourages employers to ‘deconstruct’ full time jobs (with healthcare insurance and other benefits) in favor of part time jobs (without benefits). Employers and employees both lose.

 

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