In a previous article, we discussed the outlook for employers and healthcare, now that the Supreme Court has ruled that the Affordable Care Act (ACA) is constitutional.
In particular, we believe that the newly institutionalized ACA gives employers leaders a clear choice between only two options:
-
They can choose to self-insure—and commit to helping their employees understand their healthcare benefits and improving their health outcomes.
or
-
They can choose to decide that the provision of healthcare benefits distracts from how they serve customers. If so, they should simply give employees a voucher to use to buy health insurance for themselves on the health insurance exchanges that the ACA created.
A Road Map to the Self-Insurance Route
We believe that businesses that decide to self-insure must realize that they will “own the issue.” A decision to self-insure means a commitment to figure out how to use benefit dollars, typically about 20% of payroll, to improve employee health. But too many businesses, even if they hire a broker to guide them, have no idea about how their benefits will improve the health of their people.
What Self-Insurance Commits You To Do
A decision to self-insure should mean that the business owner/manager:
-
Takes a substantial role in designing healthcare benefits and helping employees to achieve wellness.
-
Understands how far stop loss insurance, which is an integral part of a self-insurance program, goes in mitigating risk.
-
Understands the impact of the underwriting process that establishes the risk pool for companies with 100 employees or more.
-
Understands that-- while over five years or so self-insurance should cost less than the traditional approach--just one high cost employee can produce a near-term spike.
-
Is prepared to manage costs. Self-insurance is a commitment to work with employees to get healthier, make better choices and get better care at lower cost. This means emulating big employers, who often select a few locations around the country to provide procedures like implants—and fly their employees there.
-
Uses data analytics that will for example tell employees how the cost of procedures varies among local healthcare providers.
Employer Motivations Vary
Businesses whose operating model does not involve building a high talent, high motivation workforce will follow a strategy of turning over their workforce every five years or so and ridding it of employees like cigarette smokers who drive up their costs. For technology companies whose payroll is a small portion of total costs, healthcare costs will remain a less critical issue. And today’s reality (and likely tomorrow’s) is that employee turnover is fairly low. Today’s employees who don’t take better care of themselves will turn into tomorrow’s high healthcare cost employees.
New Insurance Products
Our firm has discussed with several nascent insurance start ups the kind of innovation in insurance offerings we expect to see more of:
-
Captive health insurance programs for middle market employers who want to actively manage their healthcare/ACA exposure and benefit from the prospective savings.
-
Health insurance providers offering a low cost ($100/employee) health benefit for the employer who wants to minimize their healthcare costs while be guaranteed an ACA compliant plan for their employees.
A Possible Solution: Professional Employer Organizations (PEOs)
Many businesses that are offering plans today but failing to manage healthcare costs may find it impractical to switch to one of the two options outlined above. The healthcare cost crunch is a major reason for the recent rise of professional employer organizations. PEOs in effect are providers of outsourced employee services, resources that function day to day just like employees but are, for purposes like healthcare benefits, viewed as “on the books” of the PEO.
PEOs may offer a compelling opportunity to scale a company’s work force up and down, providing as-needed access to experienced HR management to deal with high risk issues like employee terminations. A key benefit of the PEO is that they can offer employees benefits that are closer to what they would get from big companies, and the PEO can better manage how effective such benefits are for improving employee health.
For employers who have no particular competency in healthcare, a PEO offers economies of scale: the opportunity to delegate healthcare benefit planning and execution to experts who provide these services to a broad range of companies.
Healthcare: The Road Ahead
The Supreme Court decision has settled the constitutionality of the ACA. While the ACA could cost the federal government billions if not trillions in subsidies and tax credits over the next 10 years, it does provide health insurance stability for millions of citizens. Yet a host of challenges remain. Premium rates in most markets will increase for the foreseeable future by double digits. The overall health of individuals is likely to continue to deteriorate. Both trends are unsustainable.
Healthcare costs and health outcomes need to come under control. Only businesses (and other payers) that are “in the game” have a chance to break these trends at their sources. Unfortunately, for many businesses, they never have been and never will be “in the game.” Thus, we recommend that many businesses should simply exit the healthcare benefit field, instead providing their employees with vouchers to purchase health insurance on the exchanges.
Despite the steps forward that the ACA takes, it still leaves many low and middle income families with greater personal exposure to health care costs than they realize. Employers can better serve their needs by continuing to help offset the cost of health insurance, while improving their employees’ awareness of how to purchase insurance and take better care of their health. By exiting the direct purchase of health insurance, businesses can better focus on these educational imperatives.
Meanwhile we believe that innovation and new, information-based models for wellness and care delivery have a large part to play in promoting change and accountability—thereby creating improvements in both cost and quality.
We look forward to partnering with innovators and employers who will drive the reshaping of healthcare in the years ahead.
About The Authors
Larry Aldrich, Mike Condron, Fred Fink, and Kevin Fleming are leaders of Newport Board Group’s healthcare practice. Click on links above to learn more about their backgrounds and to contact them.
