Last week, the Kaiser Family Foundation announced the results of its 13th annual survey of small and large employers, revealing that the costs of employer-sponsored group health plans increased to $15,073 this year, up a shocking 9% over 2010.
In reporting the survey results, Fox News and others noted Kaiser’s conclusion that early provisions of the Patient Protection and Affordable Care Act (PPACA)—more than 2 million young adults under the age of 26 were added to their parents' health plans this year under a provision of the law—are partly to blame.
Consumer advocates argue that the rate increases are also due to insurers raising rates in advance of a provision of the law that goes into effect in 2012, which would require them to justify any rate increase higher than 10%. Both conclusions are no doubt correct. But the real test of PPACA and its impact on the cost of employer-sponsored health benefits won’t occur until 2014. Why?
In 2014, under the law's guaranteed issue provision, private insurers will no longer be able to deny individuals health coverage or charge them excessive premiums because of pre-existing conditions. This will create a competitive market for individual health plans for the first time, enabling millions more Americans to obtain health care coverage. But it will also open up the greatest cost savings opportunity for employers since they began offering health benefits.
That's because employers will be able to start transitioning their employee and retiree populations to an individual health plan market where competition and transparency provide more choice and greater value. By setting up and funding tax-advantaged health reimbursement arrangements (HRAs) for their employees—out of which employees can pay premiums and out-of-pocket medical costs not covered by their plans—employers can stay in the health benefit game indefinitely while managing costs. This is important; numerous studies show that of all the benefits an employer can offer an employee, the most important is health care.
Employers are already transitioning their Medicare-eligible retirees into the individual market and funding HRAs for them, because Medicare is already guaranteed issue. In 2014, the next logical group to transition will be pre-65 retirees. And in 2017, PPACA provisions will make it attractive to transition active workers. In the meantime, however, employers need to take control of health care costs. Even employers who have no option besides legacy group health plans should ask themselves this question: What can we do to reduce short-term health care costs now?
Two things: First, shop around with different carriers for new group plans every year. Insurers expect a certain amount of churn in their customer base and there is little benefit to being a loyal customer. Give your business to the carrier who can offer you three different plans with benefits aimed at employees at different stages of their lives. Let employees choose the plan that meets their needs. Not only will you save money by fostering competition for your business, you'll end up paying for benefits that your employees actually use, instead of paying for benefits that most of your employees will never use.
Second, move to higher plan deductibles and offset your employees' increased out-of-pocket costs by contributing fixed dollar amounts to HRAs. Your premiums will be lower, and your employees will be responsible for a portion of the cost of their health care services and costs. By giving them a budget in the form of your fixed contribution, you'll make consumers out of your employers and motivate them to shop for quality care at good prices.
Forward-looking employers have been doing these things for some time. But with PPACA provisions coming that will radically change the picture for employer-sponsored health care, there is no excuse for any employer not to leverage the tools that are available now to manage health care costs.
Bryce Williams is the President and CEO of Extend Health. Mr. Williams holds a J.D. degree from George Washington University and a B.A. from Baylor University.
[Image: Flickr user Frank Jacobi]