Special thanks to Emily Egan for her thoughtful contributions, writing and ideas for this post.
In 2010 President Obama told the American public that if they liked their health care coverage, they would be able to keep it. And, despite his signature health reform law, the Affordable Care Act (ACA), intending to expand the country’s employer-based health insurance system, many now estimate that the law will, in fact, do just the opposite. It is projected that a consequence of the coverage provisions implemented in 2014 will be for many companies to drop health care coverage for their employees.
To date, the majority of research studies, modeling estimates and employer surveys have predicted some level of employer insurance drop. While this is usually framed as a negative consequence of the law, moving away from our employer system may actually have positive implications for the health care system and individuals.
As a result of an expanded individual market, Americans participating in the health care system might see benefits in three specific areas: cost, transparency and portability.
The benefits would not manifest through Americans losing employer sponsored coverage, but in gaining new coverage from a choice of plans in a more robust individual market.
The individual market for health care insurance is historically underdeveloped compared to the employer-sponsored market due to high costs, individual underwriting, and the ability of insurers to deny applicants based on pre-existing conditions. This system began as a result of wage caps during World War II, and then expanded when preferential tax treatment for employer plans was codified into law. The dominance of employer-sponsored insurance (ESI) was solidified in an era of single income households where the breadwinner rarely changed jobs.
However, the individual market will soon experience substantial changes as a result of the ACA, and could become much more attractive to individuals as their choices increase. Further, knowing that employees will be able to find decent coverage elsewhere could become an incentive for employers to dump ESI.
In terms of improving cost, it is possible that when individuals have more consumer choice with regard to plans (rather than a single plan or a choice of several tied to one employer); most would be likely to choose lower-priced plans that require higher deductibles and out-of-pocket spending. This price sensitivity would not only reduce the aggregate amount spent on insurance, but may work to reduce unnecessary utilization of medical services and more price sensitivity when it comes to choosing providers, medications, and treatment plans. Which could, in turn, lead to an additional improvement: transparency.
Anyone who has attempted to navigate through the health care system can attest to the lack of transparency from providers and health systems. Most individuals do not ever see pricing information, as they are largely shielded from health care costs via their insurance providers. However, if individuals begin paying for treatment out of pocket up to a certain deductible, the demand for transparent and bundled prices should increase, and providers would be forced to respond or risk seeing patients walk away. We’ve already seen the popularity of retail clinics among those who are uninsured and use of high-deductible health plans by many Americans, in part, because of the clear pricing structure.
The third potential positive implication of significant ESI drop could be felt through an increase in the demand for portability of plans. Labor markets of 2013 look very different from those of the post- World War II era. Job transitions occur much more frequently, and with ACA implementation, health insurance providers are likely to alter their network of physicians. For patients with complex or chronic conditions, switching networks and losing access to a trusted physician as a result of a job transition, a job loss, or early retirement, can have harmful health consequences. However, with individual insurance coverage, loyalty to providers exists outside of ESI. Americans could soon have more flexibility to keep their coverage by not using ESI.
While it would certainly be preferable for major shifts in health care to be the result of thoughtful and well-researched strategy, there are potential unintended positive results of new ACA policies that align incentives such that it no longer makes sense for employers to purchase expensive insurance plans on behalf of employees.
Consequentially, the transition is unlikely to be a smooth one in the coming years, but the benefits of changes in individual market insurance coverage could outweigh the unavoidable growing pains of the changing market.
If a cycle of positive individual market results increases, more and more people could move to the individual market, by choice or force. Only time will tell.
February 20, 2013 at 4:49 pm
This is an interesting post. I may be misunderstanding your point, but won’t all insurance plans on the exchanges still have to meet state-mandated standards for “basic benefits?” In that case, consumers will not likely have access to “high-deductible” plans as HHS rejected Nebraska’s plan to offer such a plan on the exchange. How does the need to provide “basic benefits” (many of which are not basic benefits), tie into your point on lower cost and greater consumer choice?
February 20, 2013 at 6:48 pm
Breaking the link between employers and coverage may also facilitate the eventual transition to single payer which
February 22, 2013 at 3:11 pm
@healthpolicyanalysis You are absolutely right, there will be a lot of services covered that aren’t right now, and there are deductible limits. However, Kaiser did an analysis of the likely cost sharing requirements in each of the metal tiers/actuarial values and found that deductibles are likely to be much higher than in the current ESI plans.
“While the results from the
three firms vary significantly, they all suggest that a bronze plan would require that patients meet a
substantial upfront deductible, ranging from $2,750 for single coverage with 30% coinsurance once the
deductible is met to $6,350 with no coinsurance. Family deductibles would be twice this amount
(ranging from $5,500 to $12,700). These deductibles are considerably
higher than the minimum for a
-deductible plan that qualifies for a Health Savings Account ($1,200 for single coverage in 2011,
which would rise to $1,300 in 2014 based on current projections of inflation).
In fact, all the firms
estimate that deductibles in bronze and silver plans would be high enough to qualify as high-deductible
plans and could be paired with a Health Savings Account”
I wrote a paper that goes into this argument in more depth if you’re interested: http://americanactionforum.org/sites/default/files/Employer%20Drop%20Paper%201-24%20Final2.pdf
Would love any of your thoughts on it! Thanks, Emily Egan
February 22, 2013 at 5:59 pm
Thanks for the link. I thoroughly enjoyed your paper, and I enjoyed the angle you took of a “positive” shift from ESI to exchange-based plans.
There were two areas, however, where I found some detail lacking: 1) the understanding (or modeling of assumptions) of what plans potential health exchange users are (originally) coming from and the efficiency loss arising from direct subsidization of preventive services; 2) the mischaracterization of ESI and the non-inclusion of private health care exchange plans.
I will take each point in kind.
A lot of Kaiser’s analysis seems to focus on the estimated calibration of future exchange plans vis-a-vis- currently offered plans, at least from the perspective of assessing actuarial value. Thus, a “Bronze” plan is equated to roughly an HSA. I understand this. But the point, at least from efficiency, is to understand which workers (in what proportion) are likely to access plans and what type of insurance coverage they are initially coming from.
Based on admittedly anecdotal and survey analysis, low-wage workers and those working at small businesses seem to be most at risk to be dumped on the exchanges. Currently, they are already (disproportionately) on high-deductible plans, certainly with fewer subsidized benefits than the exchange plans offer. If this is the largest group to transition to the exchange (which it will likely be as employers have incentives to dump them), I don’t see how utilization and costs will go down.
That is, a majority are moving from high deductible plans without highly subsidized preventive services to a rough equivalent of an HSA, that is probably a step-up from what they have. I would also imagine there will be a fairly profound (efficiency) loss due to (over) consumption of subsidized preventive services: the literature on preventive services generally shows that they do not necessarily save money over time, particularly the ones the government has selected to subsidize.
The other important point is to understand that mid-to-high wage workers probably will not be dumped on the exchanges (at least not in as great proportions), and the current options they have to access insurance via private health insurance exchanges. Anecdotal and survey evidence indicates that not a lot of these workers will be dumped on exchanges (at least initially).
One of the main reasons is the proliferation of “private health exchanges” offered by Aon and others are notably proliferating. Unlike the public health care exchanges, the private health exchanges are not bound by legislation nor a basic benefit package; consumers have a lot more choice to pick and choose what coverage they want (For example, single men can opt out of maternal services). This transition, if it continues, represents a substantive reshaping of the ESI market towards a more efficient, consumer-friendly alternative that will likely lead to greater increases in efficiency and satisfaction as consumers can opt in and out of the services they want, while also receiving rewards for efforts to control potential health risks.
Thus, I think that while comparing shifting a portion of workers to the exchanges may result in minor improvements and efficiency (although it might be washed out by the preventive service subsidiy), that may not be the case if low-wage workers are the majority shifted over. Mid-to upper wage workers might not be dropped onto the exchange, not only because employers see benefits as a way to attract better workers, but also because the proliferation of the private health care exchanges that improve consumer satisfaction and reduce costs.
Thus, the right counterfactual for ESI might not be the “old” gold-plated plan system, or even the quickly emerging “high-deductible plans” (with incentives for disease management programs), but the private health exchange that actually could represent a substantial improvement in efficiency and reduction in utilization and costs. If benefit plans are measured against this emerging standard, I think the benefits are far less.
I realize that these are just initial thoughts (and specualtion)- but I would appreciate any comments you might have on how existing studies have tried to capture these points.
February 22, 2013 at 9:59 pm
Thank you for your thoughtful response, Erik. I admit I am not very familiar with these private exchanges, but that’s an interesting thought. I will definitely try to learn more about them and watch to see if they emerge as a more popular avenue for coverage in the coming years.
March 4, 2013 at 2:09 pm
Depending on what state you’re in, there are already policies for purchase that may be better than COBRA.
January 12, 2014 at 12:54 pm
Be sure and evaluate each carrier’s plans. Deductibles, co-pays, networks etc. The differences, even within one company’s plans can be tremendous. What seems cheap can really be expensive.