Who can say if PPACA changed benefits for the better?

Employer-sponsored health insurance market has been eroding subtly and gradually over the past decade. Most employers have noticed the downward spiral in their plans, but they’ve been unable to effectively identify or counteract the issues. Changes to the health insurance market have been (and will continue to be) inevitable, regardless of the decision on health care reform. But many of your clients are now modeling one to three year strategies for their plans, using predictive modeling tools like our CHROME Compass.  These tools that were created as a response to health care reform, but they are also revolutionizing the way that employers see compensation.

Health care reform has changed the way everyone thinks about benefits programs… regardless of the decision.  Hear us out, and let us know if you agree.

While many in the employee benefits business are taking a “wait and see” attitude toward the Supreme Court deliberations and inevitable announcement in late June, others are taking a fresh look at their benefits program in light of the new opportunities and incentives created by health care reform. Is this a waste of time or are they gaining valuable insights leading to strategies that may increase their competitive advantages in their total employee rewards program? Won’t the game change entirely if health care reform is overturned?

Employer-sponsored health insurance was eroding long before health care reform

The rising cost of health insurance over the last ten years has significantly changed where people receive their coverage, how much they pay for it, and how much protection the benefit provides. Let’s start with a brief look at where people are receiving their coverage and how this has changed over the past decade. 

From 1999 to 2010, according to information from the U.S. Census, the number of people in the U.S. grew 10.6%. Surprisingly, the number of individuals who accessed health insurance at their employer dropped by 4.7%. Now, before you jump to a conclusion about changing demographics and the aging population, consider that when we look at the same data for the non-elderly (<65) population, we see an overall growth rate of 10.8% but a reduction in employer-sponsored health insurance of 5.7%. While the overall growth rate is within .2%, the reduction in the number of non-elderly individuals who accessed health insurance at their employer is greater by 1%.

Older people are staying on their employer plans longer. This is surprising, especially in light of the significant migration in benefits away from retiree health programs during this same time period.  Unfortunately, the corollary is that younger employees must be leaving their employers’ plans at a disproportionately high rate, accelerating the impact of rising health care costs on employer plans.

The second conclusion you might want to explore is whether the most recent recession and the reduction in employment is a major contributor to this erosion. Here again, the data says otherwise. Using the same period from 1999 to 2010, the Bureau of Labor Statistics reports the number of employed Americans actually grew from 133.5 million to 138.9 million (4.1%). While this obviously did not keep pace with population growth, it was still positive growth and does not explain the sharp reduction in employer-sponsored coverage over this time period.   

So, if people are leaving employer-based coverage, where are they going?

The answer, in terms of percentage growth from highest to lowest, is Medicaid (+78%), military (+51%), uninsured (+32%) and Medicare (+20%).

And remember, this is without health care reform. 

The erosion of the employer sponsored health insurance market has been both subtle and gradual. For this reason, most employers have been unable to effectively identify or counteract this downward spiral in their plans. Changes to the health insurance market have been (and will continue to be) inevitable as long as the growth in cost outpaces overall growth rates.

Enter health care reform.

In the words of Doug Elmendorf from the Congressional Budget Office, “Many of the effects of the legislation may not be felt for several years, because it will take time for workers and employers to recognize and to adapt to the new incentives.” Employers who were drawn to model the impact of the dramatic reform changes are not only better prepared for health care reform, but they have also gained insights into the erosion they have been experiencing over the past ten years. 

Health care reform changes the mandated eligibility requirements in three of the five health insurance markets (Medicare, employer and individual) while at the same time significantly changing the tax structure in all three of these markets. Among other things, health care reform attempts to reduce the number of uninsured people in this country by offering new opportunities and incentives which affect three existing markets. Health care reform mandates expanded eligibility for both Medicaid and the employer markets. The individual market, too, is significantly reformed with the elimination of medical underwriting and, for the first time ever, significant tax subsidies for individual premiums are equal to or greater than those available in the employer market. 

By analyzing the potential impacts of these accelerated market shifts brought on by health care reform, employers are gaining valuable insights into what has been happening to their plans for the past 10 years. Whether health care reform is overturned or not, these employers are leveraging these insights to plot new strategies that are more proactive and intentional – transforming them from victims of health care inflation to strategic players in the allocation of employee compensation.

The light switch

Over 600 employers are now using our proprietary CHROME Compass planning platform to conduct the detailed analysis required to truly understand the intricate interdependencies of alternative insurance markets and tax policy changed by health care reform. In light of the upcoming Supreme Court decision, we asked many of these customers what insights they are gaining from the detailed modeling around health care reform and what value they see in it if heath care reform is overturned by the high court.

The most common responses we received across our diverse group of clients were:

We had never really looked at where all the dollars were going, especially in the area of favorable tax treatment.

We had been feeling the erosion of our benefit plan over the years, but, with this, it was like someone flicked on the light switch and we saw where we are in an entirely new light.

We now know how to ask ourselves, “Is this where we want to be? If not, how do we begin to work ourselves into a new place?”

These employers were only moved to review their benefits program because of the legislation. Once these tools made them aware of the possibilities in overall compensation strategy, though, their benefits programs will never be the same. The light switch is on.

This article was first featured in the May 22nd edition of our e-newsletter, Directions. If you'd like to receive that weekly email, contact directions@continuoushealth.com. (Your email will never be shared, sold, or otherwise distributed, and you will receive only the type of content for which you sign up.)

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