The average annual workplace family health premium has been on the rise since the turn of the century.
From 2001 to 2006, there was a 63 percent increase, it rose another 31 percent from 2006 to 2011 and we got hit with another 20 percent increase in the last five years, according to analysis from the Henry J. Kaiser Family Foundation, a non-partisan health foundation.
Although the increase in insurance premiums have seen a slowdown in recent years — we can expect only a modest three percent rise this year, according to Kaiser — insurance is certainly not as affordable as it once was for employers or employees.
According to Kaiser, annual premiums for employer-sponsored family health coverage reached $18,142 this year, with workers on average paying $5,277 towards the cost of their coverage.
Experts say rising insurance premiums can be pinned on many different causes. Some of the rising costs can be associated with fees added by the Affordable Care Act, as well as coverage expansion designated under the law, says Mike Tilton, senior vice president of sales at Blue Cross Blue Shield of Arizona.
Many different fees have been added since the ACA started, ranging from reinsurance fees to fees placed on healthcare providers and manufacturers. The cost of healthcare has been rising, too.
The market typically shows a medical cost trend increase by about nine percent annually, Tilton says. Tilton compares that rise in price to the most recent three percent premium increase, as reported by the Kaiser foundation.
“Compared with the relative cost of healthcare in the market, I would say (premium increases have) actually been a little favorable,” Tilton says.
Offering healthcare coverage has long been an attractive perk employers use to attract and retain talent, so offering less-than-favorable health insurance isn’t exactly a great option. But with rising costs and no expectation of a retraction in costs, at what point is it no longer the right business move for employers to offer health insurance to their employers?
There are options
One option employers have been taking is changing benefit eligibility requirements for an employee, Tilton says. One way employers have been doing this is by creating more positions within a firm that are less than 30 hours a week.
This tactic has been one of the biggest critiques against the Affordable Care Act: employers being forced to cut employees’ hours so the yearly average would be less than 30 hours a week, and not required to be insured as a result.
Tilton has seen instances of employers cutting hours to save on insurance. An analysis of U.S. Burau of Labor Statistics data by the news site FiveThirtyEight found that thousands of workers have seen their hours cut by employers in a possible response to the health law.
Cutting employees’ hours might not be the best route. Tilton says employers have been hiring part-time workers to replace a full-time employee, who have left their companies.
Tilton says looking into whether or not an employee has a better option through Medicare or Medicaid is another route employers could take to save on insurance.
Other options employers have, Tilton mentions, is that they could change benefits to reduce costs. Another option is focusing on transparency methods, he adds.
By showing an employee all of their potential health insurance costs and comparing them, making the process more like buying a TV or a car, folks start to think more about their healthcare expenses. Blue Cross Blue Shield has invested a lot of money in these transparency methods, Tilton says, and transparency really helps everyone make a more informed decision.
“Those (methods) will really impact the cost of healthcare, as well as the employees’ out-of-pocket costs,” Tilton says.
Setting up a Health Savings Account, or HSA, for employees also helps. An HSA creates a healthcare bank account, essentially, where employees use a specific card, kind of like a credit or debit card, as if it were their own money.
HSAs really show an employee the cost of their healthcare and helps them associate it with the quality of care they may be getting, Tilton says.
Then there are wellness programs employers can use to keep insurance costs down, Tilton mentions. Setting programs up that help healthy employees stay healthy, and that get unhealthy employees healthy are all tactics employers can use to fight rising insurance costs.
Incentives like a 10,000 steps-a-day program, engaging with employees to create healthier lifestyles and assisting employees with chronic illness management are just a handful of examples to manage everyone’s wellness.
Moving away from the group plan
Self-funded insurance is another model employers could pursue to reduce the amount spent on insurance. Many large-scale companies have already been utilizing the self-insurance model, where the employer essentially acts as the insurer, giving them a great deal of control, while also placing more risk on the firm.
Instead of writing a check to the insurer every month, the employer writes the check for the direct healthcare costs, under a self-funded model, says Kathy Steadman, who leads the employee benefits practice group at Coppersmith Brockelman.
Lately, Steadman has been talking about self-funded insurance a lot, giving many presentations about the increase in its usage since the implementation of the ACA.
These types of models are said to give the employers a lot more control over how their insurance dollars are spent, instead of writing a monthly check to an insurance company.
Firms hire a third party to manage the administrative side of things, acting like an insurer in that regards, but the employer is footing every bill.
Ryan Schmid, CEO of Vera Whole Health, one of the third-party firms that work in the self-funded insurance model space, says his company operates in parallel to the typical group insurance route.
“We try and create a realistic opportunity for smaller companies to go self-funded and control their claims,” Schmid says.
The rising premiums are mostly impacting individuals going to the ACA marketplace, or fully insured businesses, he says, because they’re just getting risk pooled with everyone else. Going the self-insured route gives employers of all shapes and sizes more control over how their healthcare dollars are spent, he says.
In the past, large-scale firms have utilized the self-insured model, but smaller firms are starting to look into the model, too, Schmid says.
Vera Whole Health becomes a fixed cost for companies that decide to hire them as the third party for self-insurance, so firms know what they’ll be paying for each of their employees every year. But what Vera Whole Health specializes in, Schmid says, is driving engagement.
By getting folks face-to-face time with their doctor and giving them an hour with the doctor, not just a few minutes, Schmid says, “you’re addressing all of the issues, managing all of the referrals and eliminating any carve-out solutions many employers pay for a la carte.”
The self-insurance model runs off of getting people through the door quickly to reduce costs.
Many health insurers create plans with very high deductibles and co-payments to keep people away from the doctor’s office, says Paul Johnson, CEO at Redirect Health, a Scottsdale-based self-insurance firm.
With a high cost of going to the doctor, people will avoid tending to their health until their illness is serious enough for a hospital visit, Johnson says.
The first step in fixing that problem is by making it as cheap or as close to free as possible to get folks to visit their primary care physician, says Johnson. A self-insurance model is all about creating a system to get people to the right place, where it’s cheaper and where they’ll get the proper care, Johnson says.
Rampant costs
Blue Cross Blue Shield has been getting a lot of questions about self-insured models, Tilton says.
The initial inquiries happened right after the onset of the ACA, from folks thinking they can reduce costs by going self-funded, but Tilton says that’s not always the case. Tilton says a lot of the companies that go self-insured or that look at it believe their employees are healthier than they imagine.
The self-insurance industry hasn’t advanced and boomed as much as many have predicted in would in the wake of the ACA, Tilton says, and BCBSAZ clients who have explored it haven’t seen a massive cost savings, he added.
The one big issue to consider is the possibility that one or several employees could run up major healthcare costs from one incident or health crisis. But protections are in place, experts say.
Steadman, the employee benefits practice group leader at Coppersmith Brockelman, says there is stop loss insurance that can kick in once healthcare costs reach a certain threshold.
So technically, self-insured companies with stop loss aren’t completely self-insured, because stop loss insurance kicks in when prices get too high, keeping a company from going broke.
“Paradigm shifts happen quickly and until enough businesses get into (the self-insured model), we hang onto the old model,” says Greg Vigdor, president and CEO of the Arizona Hospital and Healthcare Association. “We are still far away, but I expect it to grow experimentally and there will be a flashpoint where people say, ‘That old system doesn’t work very well,’ and it will be time to do things differently and things will start to change immediately and it will be a whole new world.”
