As the nation awaits a Supreme Court decision on the constitutionality of insurance mandates within the Patient Protection and Affordable Care Act (PPACA), employers continue to reshape employer-sponsored health benefits out of necessity. 

The employer's evolving role in health care benefits


By necessity, employers continue to help shape the future of health care coverage.
As the nation awaits a Supreme Court decision on the constitutionality of insurance mandates within the Patient Protection and Affordable Care Act (PPACA), employers continue to reshape employer-sponsored health benefits out of necessity.

Studies are finding that the controversial health care reform law may be reinforcing employer trends that have been under way for years as organizations evaluate the design of future employee health benefit plans.

Cost-saving alternatives to dropping health coverage
While every organization will need to weigh its employee health benefits options carefully, below are a few possible strategies companies may use in the coming years to contain health care costs without dropping coverage altogether.

  • Offer consumer-directed health care (CDHC). Employers often pair a Health Savings Account or Flexible Spending Account with a high-deductible health plan. Today's successful CDHC strategies involve a phased, multiyear plan or "continuum" for fully engaging employees in their health and health care, and make good use of plan-stacking, health promotion and incentives.
  • Invest in employee wellness. Many employers are finding workplace wellness programs and incentives lead to lower organizational health care costs. While it may take two or three years to realize the savings, it is becoming clear that healthier employees are more engaged and productive, and cost less to insure.
  • Play within the rules. Employers may devise new ways to cover fewer lives but still avoid play-or-pay fines and stay in compliance with nondiscrimination rules. For example, a company may expand its proportion of part-time workers, or set premiums high enough that lower-wage employees can opt out and qualify for exchange subsidies.
  • Move from defined benefit to defined contribution. In a defined contribution model, employers give each employee a fixed dollar amount toward health care, rather than sharing a percentage of the costs. Therefore, health care costs are more predictable and controllable for employers, and employees are more accountable for their spending habits.
  • Bring medical care in-house. Some large, self-insured employers are opening on-campus health centers to help reduce absenteeism and gain greater control over the cost of services. Plus, by making preventive care more convenient, these clinics help to improve workforce health and reduce insurance claims.

"Employers, small and large, are gradually reinventing what is meant by employer-sponsored health benefits," said Jim O'Connell, Ceridian's consultant on legislative and regulatory affairs in Washington, D.C.

For an increasing number of employers, that has meant making the decision to offer health care coverage to fewer employees and their dependents, a recent study reports.

The Employee Benefit Research Institute (EBRI) found that between 1997 and 2010, the percentage of workers offered health benefits from their employers decreased from 70.1 percent to 67.5 percent, and the percentage of workers covered by those plans decreased from 60.3 percent to 56.5 percent.

The decrease in coverage does not necessarily mean that employers are "dropping" coverage. They could be offering it to fewer employees, or even raising the costs to the point where employees decline coverage. The results of the study suggest that employers have been gradually shifting away from offering employee health benefits for years, according to EBRI, which released its results last month.

"I think the Great Recession was a major factor in the drop in the percentage of workers offered employer-sponsored health care coverage from 2007 forward," O'Connell said. "But the central, over-arching reality is innovation in the design of employee health benefits."

As employers confront persistently rising health care costs and several key provisions under PPACA, such as "play or pay" and the 40 percent excise tax set for 2018, they are changing their benefit plan strategies and their approach to employer-sponsored health care coverage.

The Congressional Budget Office (CBO) and the Joint Committee on Taxation (JCT) last month released a special report that addresses what may be the biggest concern about health care reform: that when full implementation starts in 2014 employers may quit sponsoring health benefits for their employees.

"What may be of greatest interest to HR and benefits professionals in the CBO/JCT report is the idea that in a few years' time employers may re-imagine how they configure employee health benefits," O'Connell recently wrote in his blog.

Among the most common employee health benefit adjustments employers made for 2012 was to increase in-network deductibles and employees' share of the premiums.

In addition, many employers are now convinced that to see real health care savings, they have to pay closer attention to the health of their workers. More companies are investing in wellness, health management and disease prevention. A Towers Watson survey recently found that 35 percent of large employers are currently using penalties or rewards to discourage smoking, for example, and another 17 percent plan to do so next year.

Employers also are moving in greater numbers toward consumer-directed health care, which places more responsibility for attaining and maintaining good health on their employees. Enrollment in Health Savings Accounts nationally, for instance, has nearly doubled over the past three years, according to American's Health Insurance Plans (AHIP).

"Redesign will take many forms and will evolve over years, including the new option of referring some employees to state exchanges, where many may qualify for tax credit subsidies," O'Connell said.

Starting in 2014, PPACA requires most Americans to obtain health insurance, whether through an employer, a government program or by buying their own policies. The constitutionality of PPACA's mandate for individuals to have health insurance will be decided by the Supreme Court. The court held six hours of hearings over three days in March. Its landmark decision, expected in late June, will impact the provision of health care and health insurance for decades to come.

Regardless of the outcome, rising costs will remain the one giant force behind the strategic reinvention of employee health benefits in the next few years.

"We have to remember that the employer health coverage 'model' existed more or less unchanged for over a half-century, roughly from World War II until the end of the 20th Century," O'Connell said. "But when you accept that average family coverage premiums hit $15,000 in 2011 and that the average cost of health coverage per employee will hit $10,000 in 2012 (Aon Hewitt), you realize that employers must reinvent the model."

What is the biggest challenge health care reform poses for your employee health benefits program? Share your perspective in the comments below.

For more information:

  • Read Jim's recent blog post
  • Review the EBRI's study results
  • Download the CBO/JCT special report