Self-Insured Health Plans Growing, Driven by Large Employers

Large private-sector employers are driving a trend toward more “self-insured” health plans, according to a new report by EBRI.

Among employers that offer health coverage to their workers, there are two basic types of insurance plan:

* A self-insured plan, in which the employer assumes the financial risk related to health insurance; or

* A fully insured plan, in which an insurance company is paid to assume the risk.

Historically, large employers have been far more likely to self-insure than have been small employers, the EBRI report notes, and there are significant incentives for them to do so: Large multi-state employers can provide uniform health benefits across state lines if they self-insure (lowering administrative costs) and also are not required to cover state-mandated health care services—as are fully insured plans.

Following the passage and implementation of the Patient Protection and Affordable Care Act (PPACA), there has been speculation that an increasing number of smaller employers would opt for self-insurance. As the EBRI report explains, some employers think that components of PPACA, such as the strict grandfathering requirements, the minimum-creditable-coverage requirement, the breadth of essential health benefits, affordability requirements, as well as taxes on insurers, medical-device manufacturers, and pharmaceutical companies and reinsurance fees will work to drive up the cost of health coverage.

“Employers generally, and small employers particularly, concerned about the rising cost of providing health coverage may view self-insurance as a better way to control expected cost increases,” notes Paul Fronstin, director of EBRI’s Health Research and Education Program and author of the report. “This new analysis provides a baseline against which to measure future trends.”

Among the findings of the EBRI report:

  • The percentage of workers in private-sector self-insured health plans has been increasing. In 2011, 58.5 percent of workers with health coverage were in self-insured plans, up from 40.9 percent in 1998. To date, large employers (with 1,000 or more workers) have driven the upward trend in overall self-insurance. The percentage of workers in self-insured plans in firms with fewer than 50 employees has remained close to 12 percent in most years examined.
  • Massachusetts, the only state to have enacted health reform similar to PPACA, has seen an increase in the percentage of workers in self-insured plans among all firm-size cohorts, except among workers in firms with fewer than 50 employees.
  • Overall, 58.5 percent of workers were in self-insured plans in 2011, but the percentage ranged by state, from a low of 30.5 percent to a high of 73.8 percent.

Full results are published in the November 2012 EBRI Notes, “Self-Insured Health Plans: State Variation and Recent Trends by Firm Size,” online at www.ebri.org

Employment-Based Health Coverage Continues Decline; Uninsured Rate Shrinks as Public Coverage Grows

The uninsured rate for working-age Americans ticked down in 2011, but only because public program coverage grew faster than employment-based health insurance coverage declined, according to a new report by EBRI.

While employment-based health coverage is still the dominant source of health insurance in the United States, it has been steadily shrinking since 2000. The latest data show that it continued to do so last year.

The EBRI analysis finds that the percentage of the nonelderly population (under age 65) with health insurance coverage increased to 82 percent in 2011 (up about half a percentage point from 2010), which is notable since increases in health insurance coverage have been recorded in only three years since 1994.

However, different trends are taking place behind that overall result: Among the nonelderly population, employment-based coverage is trending down (58.4 percent had employment-based benefits in 20011, down from the peak of 69.3 percent in 2000), while public-program coverage is trending up (accounting for 22.5 percent of the nonelderly population, up from the low of 14.1 percent in 1999).

Enrollment in Medicaid (the federal-state health care program for poor) and the State Children’s Health Insurance Program (S-CHIP) increased to a combined 46.9 million in 2011, covering 17.6 percent of the nonelderly population, significantly above the 10.2 percent level of 1999. Other sources of public health insurance include Medicare (which covers many disabled as well as the elderly), Tricare, CHAMPVA, and Veterans Administration (VA) health insurance.

Full details of the EBRI report, “Sources of Health Insurance and Characteristics of the Uninsured: Analysis of the March 2012 Current Population Survey,” are published in the September 2012 EBRI Issue Brief, no. 376, online at www.ebri.org  The report is based primarily on the March 2012 Current Population Survey (CPS) conducted by the U.S. Census Bureau, with some analysis based on other Census surveys.

The full report is online here. The press release is online here.

Americans Still Confident About Health Care, But Concerned About Cost

The recent U.S. Supreme Court decision upholding the constitutionality of the Patient Protection and Affordable Care Act (PPACA) appears to have had little impact on Americans’ confidence about their health care, according to a new report by EBRI.

“Public confidence about various aspects of today’s health care system has remained fairly level both before and after the passage of the health care reform law,” said Paul Fronstin, director of EBRI’s Health and Education Research Center and author of the report. “The Supreme Court decision did not change how people view the system.”

Data from the EBRI/MGA 2012 Health Confidence Survey (HCS) show that two years after passage of the Patient Protection and Affordable Care Act (PPACA), implementation of a number of provisions in the legislation, and three months after the Supreme Court upheld the law, Americans offer a diverse perspective: 28 percent consider the nation’s health care system to be “good,” 28 percent say “fair,” and 26 percent rate it “poor,” while 12 percent rate it very good and 5 percent say it is “excellent.”

Fronstin noted that, in contrast with the ratings for the health care system overall, Americans’ rating of their own health plans continues to be generally favorable—more than half of those with health insurance are extremely or very satisfied with their current plans, and a third are somewhat satisfied.

On the other hand, just 22 percent are extremely or very satisfied with the cost of their health insurance plans, and only 16 percent are satisfied with the costs of health care services not covered by insurance. Among those experiencing cost increases in their plans in the past year, 31 percent state they have decreased their contributions to retirement plans, and more than half have decreased their contributions to other savings as a result.

The report, “2012 Health Confidence Survey: Americans Remain Confident About Health Care, Concerned About Costs, Following Supreme Court Decision,” is published in the September EBRI Notes, available online at www.ebri.org  The HCS examines a broad spectrum of health care issues, including Americans’ satisfaction with health care today, their confidence in the future of the health care system and the Medicare program, and their attitudes toward health care reform.

Everybody Into the Pool?

By Nevin Adams, EBRI

Adams

As a teenager, I remember the occasional visits to the local swimming pool. I also remember that about once an hour, the lifeguards on duty would periodically clear the pool, ostensibly to clean out debris, to enforce a certain rest break on the swimmers (and doubtless for the lifeguards), and perhaps to assure that all the swimmers were still able to get out of the pool. Then, after what seemed to my teenage senses like an eternity, the lifeguards would blow a whistle—the “all-clear” signal for everyone to jump back in the pool. They were very strict about this—and kids were routinely banned for an hour, or even the rest of the day for jumping in “early.” As a result, even after the whistle, most of us would hesitate and look around to make sure that we weren’t the only ones going in.

With the Supreme Court’s recent decision on the constitutionality of the Patient Protection and Affordable Care Act (PPACA) behind us, industry surveys suggest that employers are turning to the issue of the next phase of implementation. Moreover, the combination of insurance market reforms and the embodiment of the exchange structure in the PPACA have brought a renewed focus on limiting employer’s health care cost exposure, much as changes in funding requirements and accounting treatment led many to reconsider their approach to retirement benefits.

A recent EBRI Issue Brief¹ notes that it was only about a decade ago that defined contribution (DC) health plans, arrangements that shift choice of health insurance from employers to employees, were the focus of much attention. As far back as the late 1990s, more than 62 percent of health care leaders predicted that employers would move to DC health plans by 2010.

That trend never fully emerged, of course—employers were hesitant to drop group coverage in favor of offering individual policies, some were likely concerned that many employees would not be able to secure coverage in the individual market, some others drawn to the tax advantages. Many viewed the benefit as an important tool in attracting and retaining a strong work force, and surveys, including EBRI’s Health Confidence Survey (HCS), suggest that workers do, in fact, appreciate the offerings.

EBRI’s Paul Fronstin notes that the combination of insurance market reforms and the embodiment of the exchange structure² in PPACA have brought a renewed focus on limiting the employer’s health care cost exposure by providing a fixed-dollar contribution that workers could use to purchase individual policies. He notes that the vehicle that some are interested in using for providing coverage is a private health insurance exchange, through which employers might be better able to accelerate the drive toward a more mass consumer-driven insurance market—and in the process gain more control over their health care contribution costs, while shifting to employees the authority to control the terms (and to some extent, the costs) of their own health insurance.

This should sound familiar to those who have watched similar motivations lead to the shift in retirement plan emphasis from pension plans to defined contribution/401(k) retirement benefits. The question is, will the combination of factors provide employers with the “all clear” sign to undertake changes they have, thus far, been hesitant to take? And if that all clear sign is given, will employers all jump in at once?

 Notes

¹ In addition to a historical perspective, the July 2012 Issue Brief examines the issues related to private health insurance exchanges, the possible structure of an exchange and how it can be funded, as well as the pros, cons, and uncertainties to employers of adopting a private exchange. MORE.

² Fronstin notes that private exchanges are already in development partly because of the uncertainty related to the status of state-based exchanges. Development of several of these were postponed, pending resolution of the PPACA’s constitutional challenge. Several Republican governors have said they will refuse to establish state-based exchanges, leaving them to the federal government to run. As recently as March 2012, the majority of states had still not taken the necessary steps to establish an exchange.

Interest in Private Health Insurance Exchanges, “Defined Contribution” Health Plans Likely to Gain Ground Post-PPACA

Federal health care reform legislation and the desire of employers to limit their health insurance costs are likely to fuel interest in so-called “defined contribution” health benefits and private health insurance exchanges, according to a new report by EBRI.

The EBRI report says the combination of insurance market reforms, especially the health exchange structure in the Patient Protection and Affordable Care Act of 2010 (PPACA), as well as rising health costs, have brought a renewed focus on limiting employer’s health care cost exposure.

Paul Fronstin, director of EBRI’s Health Research and Education Program and author of the report, said the vehicle that some employers are interested in using for providing coverage is a private health insurance exchange. Through these exchanges, in tandem with a defined contribution (DC) funding approach, employers can accelerate the drive toward a more mass- consumer-driven insurance market and gain more control over their health care contribution costs, capping their contributions, and shifting to workers the authority to control the terms (and to some extent, the costs) of their own health insurance.

“Ultimately, whether and how the movement to private health insurance exchanges and DC health plans will occur is still subject to various influences and remains highly uncertain,” Fronstin said. “But the enactment of PPACA and employers’ interest in reducing the risk of their health benefit costs indicate this is a field that is likely to grow.”

EBRI notes that employers have long been interested in the concept of DC health benefits, but never moved in that direction for a number of reasons, both because they were hesitant to drop group coverage in favor of individual policies, and because they were concerned that many employees would not be able to secure coverage in the individual market. Recently, however, the combination of insurance market reforms and the embodiment of the exchange structure in PPACA has brought a renewed focus on an approach that limits employers’ health care cost exposure by providing fixed-dollar contributions that workers could use to purchase individual policies.

The full report is published in the July EBRI Issue Brief, “Private Health Insurance Exchanges and Defined Contribution Health Plans: Is It Déjà Vu All Over Again?” online at www.ebri.org

The Employee Benefit Research Institute is a private, nonpartisan, nonprofit research institute based in Washington, DC, that focuses on health, savings, retirement, and economic security issues. EBRI does not lobby and does not take policy positions. The work of EBRI is made possible by funding from its members and sponsors, which includes a broad range of public, private, for-profit and nonprofit organizations. For more information go to www.ebri.org or www.asec.org

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Provider Networks, Premiums Key Factors in Health Plan Choice

When given a choice, most individuals with traditional health coverage say they chose that option because it offered a good network of providers, according to new findings by EBRI.

In contrast, among those with so-called consumer-driven health plans, most cited the lower premiums and opportunity to save money in a health account.

While close to half of all private-sector workers who have health insurance are offered a choice of health plans, most of those with a choice work for large firms, according to the report.

“Most Americans get their health insurance coverage from employment-based plans, yet most employers do not offer a choice of health plans,” said Paul Fronstin, director of EBRI’s Health Research and Education Program and author of the report. “Health plan choices are likely to expand via the expansion of insurance exchanges under the Patient Protection and Affordable Care Act, so it’s important to know how people make their decisions when they do have a choice.”

The EBRI analysis examines issues related to private health insurance exchanges (an integral component of the Patient Protection and Affordable Care Act, or PPACA), possible structures of an exchange, and funding, as well as the pros and cons of adopting them. A summary of recent surveys on employer attitudes are examined, as are other benefit program changes that might serve as historical precedents for a move to some type of defined contribution health benefits approach.

Full results of the report are published in the July EBRI Notes, “Health Plan Choice: Findings from the 2011 EBRI/MGA Consumer Engagement in Health Care Survey.”  

 The Employee Benefit Research Institute is a private, nonpartisan, nonprofit research institute based in Washington, DC, that focuses on health, savings, retirement, and economic security issues. EBRI does not lobby and does not take policy positions. The work of EBRI is made possible by funding from its members and sponsors, which includes a broad range of public, private, for-profit and nonprofit organizations.

Decision Decisions

By Paul Fronstin, EBRI

ImageMost employers find that while they would like to continue providing health benefits to employees and their dependents, longer-term cost trends are unsustainable.  Those trends, combined with the forthcoming decision by the Supreme Court of the United States (SCOTUS) on the constitutionality of the Patient Protection and Affordable Care Act (PPACA) (in whole or in part – notably the individual mandate), and uncertainty related to the future of health care delivery and financing in the United States are causing many employers to start to rethink their role as a provider of health coverage in the workplace.

While there is a possibility that the entire law could be declared unconstitutional, most of the controversy surrounding the PPACA has involved the law’s requirement that individuals either purchase insurance or pay a penalty, the so-called “individual mandate.”  There are basically four ways1 in which SCOTUS might rule on the constitutionality of this provision in the PPACA:

  1. Rule that the individual mandate is constitutional and let implementation of the law proceed;
  2. Rule that the individual mandate is unconstitutional, but that the individual mandate is severable and therefore implementation is allowed to proceed with all other parts of the PPACA;
  3. Rule that the individual mandate is unconstitutional but severable from the remainder of the law, but discards other connected parts of the PPACA, such as guaranteed issue and community rating;
  4. Rule that the individual mandate is unconstitutional, and that the individual mandate is not severable from the PPACA, therefore the entire PPACA is found to be unconstitutional.

As of this writing, only the justices know the decision, but speculation (and odds making) is occurring on a daily basis.  It is unlikely that the court would strike down the individual mandate and discard other connected parts (option 3 above), because it does not have the equivalent of “line-item” veto power of laws passed by Congress.  If the ruling finds the mandate severable from the rest of the law (option 2 above), Congress will inevitably try to fix the PPACA, but it is impossible to predict what the fix may look like given the current political climate and the potential for political gridlock regardless of the outcome of the next election.  If the court rules that the law is unconstitutional (or that the individual mandate is, and is inseparable from the rest of the law, necessitating its rejection), the status quo of the past will return, but with a potential nightmare scenario where the parts of the PPACA that have already been implemented would need to be  “unimplemented” (such as funding provided to the states to establish exchanges, or the deductibility of health care coverage offered to the newly created category of adult dependents under the PPACA that would ostensibly now be subject to taxation), potentially triggering numerous lawsuits and additional political ill will.

While health care reform discussions that ultimately led to the passage of the PPACA started out as discussions regarding system reform that would result in lower health care costs, they quickly morphed into discussions about coverage that largely ignored the overall cost of health care services and health insurance coverage.  Thus, regardless of the outcome of the Supreme Court decision, or the fall elections, health care costs are expected to continue to increase in the future.

What Will Employers Do?

If employers go down the current road they are on and stay with the status quo, we will likely continue to see cost-shifting to workers and the introduction of and experimentation with carrots and sticks in order to change the health behaviors of workers and their dependents.

However, were employers to decide to move away from traditional employment-based health coverage, there are a number of alternative approaches they might consider:

1) De-link health coverage from work.  Employers might endorse a system where they have absolutely no connection to health coverage.  Some have proposed a single-payer system, and others have proposed a purely individual market; there are precedents for both.  Medicare began as the equivalent of a single-payer system for health coverage for seniors but has since evolved into a hybrid public-private partnership, as private plans are an alternative for Medicare beneficiaries.  The private-plan part of Medicare could be expanded to move away from the predominant single-payer-system aspect of Medicare to one that looks more like an individual market (such as that contemplated in the proposal put forth by Congressman Paul Ryan (R-Wisconsin)). Under a single-payer system alternative to the current employment-based system, employers would no longer provide coverage.  Instead, either the federal government or the states would provide coverage, with financing provided through some type of tax.  Alternatively, a purely individual market might look very much like the exchanges contained in the PPACA, with subsidies for low-income workers, or a voucher-type system (also as proposed by Congressman Ryan for Medicare).  Financing for either would come from some type of tax system as well.

2)  Re-define the link between health coverage and work.  Employers have been interested in the concept of “defined contribution” for years as a way to provide health coverage to workers.  While there is no one way in which to define such a concept, presumably it would work in a way in which employers are able to better control or “define” their contribution towards health coverage.  Under that scenario, public exchanges as described in the PPACA could be the vehicle through which workers would get their coverage, with employers either paying some kind of coverage charge (such as the $2,000 penalty included in the PPACA), or the employer may itself seek to make coverage arrangements through third-party private exchanges. Such a system may or may not produce short-term cost savings to employers, depending on individual specifics of how employers transition to such a system, but could provide long-term savings if employer contributions do not rise as fast as premiums would otherwise have grown, or if premium growth is flat (due to the more market-driven system). In such a system, employers would no longer be involved in decisions regarding the design of health care.  Rather, they would simply provide the funding mechanism for workers to purchase health coverage through a party separate from the employer.  Employers have shown interest in this concept in the past through position papers published by the CED  and the ERISA Industry Committee as recently as 2007.  Moving towards these private exchanges would not require a change in law, regardless of the SCOTUS decision, and would be permitted under current law unless prohibited by a future Congress.

After three+-plus years of contentious debate and the challenges associated with understanding and attempting to comply with the new law, it seems that employers are at a crossroads: try to continue with the current employment-based system of health coverage, or undertake to try to fundamentally redefine the system that the United States has essentially lived with since World War II.

It is unlikely that employers will simply take the fork when they come to it in the road.

Notes:

1. There is, of course, also the possibility that SCOTUS will remand the issue of severability back to the lower court, tying up the PPACA in court for a longer period of time, creating more uncertainty, but basically leaving things in play for the time being.

May 2012 EBRI Notes: Employment-based Health Coverage Rates Continue to Fall

A new report by EBRI shows that the percentage of workers with employment-based health coverage continues to shrink.

The EBRI analysis, which looks at month-by-month health coverage rates before, during, and after the recession, finds that the brief uptick in employment-based coverage immediately after the recession has not endured.

Employment-based health benefits are the most common form of health insurance for nonpoor and nonelderly individuals in the United States, covering 69 percent of workers, 35 percent of nonworking adults, and 55 percent of children.

Between December 2007, when the most recent economic recession officially started, and June 2009, when the recession technically ended, the percentage of workers with coverage in their own name fell from 60.4 percent to 56.0 percent. While that ticked up almost 1 percentage point by the end of 2009, by April 2011, the coverage rate was down to 55.8 percent.

“While the link between health insurance coverage and employment has long been known, these data underscore the degree to which unemployment rates directly affect the levels of the uninsured in the United States,” said Paul Fronstin, director of EBRI’s Health Research and Education Program and author of the report.

The press release is online here. The full report is online here.

Those in Consumer-driven Health Plans More Educated, Healthier, Wealthier

Those enrolled in “consumer-driven” health plans tend to have higher incomes, higher educational levels, and report better health behavior than do those in traditional health plans, according to a new report by EBRI that examines trends over the 2005–2011 period.

Consumer-driven health plans (CDHPs) generally consist of high-deductible health plans (HDHP) with either a health reimbursement arrangement (HRA) or Health Savings Account (HSA). As of 2011, roughly 21 million individuals, representing about 12 percent of the market, were either in a CDHP or an HSA-eligible health plan.

The full report, “Characteristics of the Population With Consumer-Driven and High-Deductible Health Plans, 2005–2011,” is published in the April 2012 EBRI Notes. The press release is online here.

Fewer Have Employment-Based Health Coverage

Most Americans get their health coverage through their jobs, but new research published in the April 2012 EBRI Issue Brief  shows that fewer workers have access to this benefit.

“Since 2002, the percentage of American workers with health coverage has fallen, mostly because fewer workers have access to coverage through their jobs,” said Paul Fronstin, PhD, author of the report and director of EBRI’s Health and Education Program. “Fewer employers are offering the benefit, fewer workers are eligible for it, and fewer workers are taking advantage of the benefit when it is offered, largely due to cost.”

The EBRI report notes that the percentage of the population with employment-based health benefits is lower, most recently due to the 2007–2009 recession, but also as part of a longer-term trend that has seen fewer workers with access to health coverage.

The full report is online here. The press release is online here.