The percentage of the nation's nonelderly population with employer-sponsored insurance declined by 13.6 million individuals from 69.2 percent in 2000 to 58.6 percent in 2010.a But the Affordable Care Act appears to have alleviated this trend. Even after the Congressional Budget Office (CBO) recently revised its estimate of the impact of the legislation, decreasing projections for employer-sponsored insurance by 3 million individuals, the projected percentage of the population covered by employers in 2019 remains around 56 percent.b
Employers interviewed by HFMA as part of ongoing research for the Value Project support this optimistic view and remain committed to providing health insurance. However, their commitment to the prevailing model will be tested if the nation continues to see double-digit annual growth in premiums. Many of the employers expressed concern about their ability to absorb such premium increases year after year and still maintain financially viable businesses.
Healthcare cost has not yet risen to a C-suite issue at most large employers. Typically, current cost-control efforts nibble around the edges of benefit design. Many large employers make high-deductible and narrow-network plans available while passing cost increases above a threshold on to employees. And so far, the perceived human resources "retention and attraction" benefits and concern over the threat of federal penalties continue to be strong factors in preserving employer-sponsored insurance. However, if the current cost trend continues, a slack labor market and Affordable Care Act provisions that reduce the value of employer-sponsored insurance as a a tool to attract and retain talent (guaranteed issue, simplified shopping through a health insurance exchange, and decreased value as a tax shield resulting from the "Cadillac Tax") could outweigh these factors, leading employers to transition employees into an exchange.
Smaller employers and those in low-margin, labor-intensive sectors are feeling financial pressure more acutely. These employers are more aggressively deploying narrow-network and high-deductible plans. Although models predicting the impact of exchanges on employer-sponsored insurance vary considerably, they all tend to agree that smaller employers will likely be the first to transition their employees into an exchange.c
The Impact of Health Insurance Exchanges
More than two-thirds of CFOs interviewed at HFMA's Thought Leadership Retreat in Washington, D.C., said they believed that health insurance exchanges would negatively affect payer mix. Analysis of recent Urban Institute modeling of the impact of Affordable Care Act on coverage validates those concerns, indicating that, nationally, 25.2 million individuals will receive coverage through an exchange, accounting for 10 percent of covered lives under age 65 (see the exhibit below). Of those receiving coverage in an exchange, approximately 70 percent are projected to have had coverage prior to reform.
The high percentage of previously insured, combined with the volume of those covered by an exchange, increases the likelihood of rate compression. It is widely anticipated that individuals purchasing insurance with some or all of their own dollars will be far more sensitive to premium prices than persons who continue to receive employer-sponsored insurance. Consider, for example, that the substantial growth in high-deductible plan enrollment over the past decade correlates with a significant decrease in the "use and intensity" component of annual healthcare cost growth. If, as many economists believe, increased cost sharing (along with a sluggish economy) has caused individuals to be more reticent to use healthcare services when they're sick, it stands to reason that they'll be more likely to accept significant trade-offs in network design (and seek out high-value delivery models) to save money when they're relatively healthy.d
Chad Mulvany is a technical director in HFMA's Washington, D.C., office, and a member of HFMA's Virginia Chapter (firstname.lastname@example.org).
a. Gould, E., A Decade of Declines in Employer-Sponsored Health Insurance Coverage, Report, Economic Policy Institute, Feb. 23, 2012, www.epi.org.
b. Congressional Budget Office, Updated Provisions for the Insurance Coverage Provisions of the Affordable Care Act, March 2012.
c. The Affordable Care Act's Impact on Employer Sponsored Insurance: A Look at the Microsimulation Models and Other Analyses, Avalere Health, June 17, 2011.
d. Lowrey, A., "In Hopeful Sign, Health Spending Is Flattening Out," The New York Times, April 29, 2012.
For more information, see Chad Mulvany's "Will 'Local' Hospitals Continue to Be the Center of the Delivery System?," hfm, June 2012
Publication Date: Friday, June 01, 2012