Health insurance increases are unsustainable, new polices might help employers gain leverage

Employer based insurance (ESI) might be approaching a tipping point, as years rising costs have both consumers and employers feeling that health insurance is increasingly unaffordable.

This is the conclusion of a new report from the Center for American Progress (CAP), which has published an analysis entitled: “Health Insurance Costs are Squeezing Workers and Employers.” It’s not a new theme for anyone in the benefits business, but the CAP report lays out the numbers to illustrate the ways ESI has been adjusted to address rising costs — without addressing the root cause of the problem.

“Employers have attempted to contain health care costs in a variety of ways, including increasing the share of employee premium contributions, raising deductibles, and using high deductible health plans (HDHPs), as well as other tactics, such as offering a narrower network of providers or joining with other employers in provider negotiations,” the study says. “However, these strategies have limited impact on a key underlying cause of rising ESI costs: high prices for care.”

A persistent economic burden

The study outlines how the problem of high health care costs has been an ongoing issue for employers and consumers. “Over the past decade, ESI premiums have risen above the rate of inflation and have outpaced wage growth,” the study notes. Those costs have been addressed in different ways, by shifting costs to employees, or by companies trying self-funded plans, but the rising costs continue, and the strategies have failed to keep up. “As provider markets become more concentrated, even very large employers and the insurance plans negotiating on their behalf lack sufficient market power to obtain fair prices from health systems in many markets,” the CAP report says.

The move to HDHPs was designed to make consumers better shoppers for lower-cost health care, but the result has been that consumers just put off care, or can’t afford prescriptions, studies find. And recent labor shortages have made HDHPs less attractive; companies are trying to attract and retain employees with better benefit offerings — rather than just shifting costs.

“The employer benefits consultancy Mercer observed that in 2021, cost shifting as a cost-containment tool now ‘seems to be off the table for many employers,’ resulting in an ‘unexpected reversal’ of some cost-sharing trends in plan benefit design,” the CAP study says.

Self-funded plans — a limited solution?

The report also questions whether self-funded plans, used by many companies to achieve more flexibility and cost-savings, are really holding down costs in the long run. It notes that average premium costs have risen over the past five years for both fully- and self-funded plans: at 13% and 18%, respectively.

“An additional concern for self-insured plans is whether the plan’s third-party administrator will actually act in the best interest of the sponsoring firm,” the report says. “In most instances, the employer funds the plan but does not actively participate in negotiations with providers. Instead, the third-party administrator negotiates with providers and then offers plan packages to the self-insuring employer. Third-party administrators are typically paid a percentage of the total claims processed or on a per-member, per-month basis, both of which create a disincentive for the third-party administrator to reduce costs.”

Policy reforms might give employers more leverage

The report concludes by noting there is consensus in the business world that health care costs are too high; the question is how to address the problem. The CAP researchers say legislation may be needed to give employers more leverage at the bargaining table.

Read more: Health care costs expected to be $13,800 per person in 2023

“Reforms to the insurance system, such as an employer public option or default contract, could provide insurers and purchasers with leverage to secure lower prices or introduce a degree of provider rate regulation,” the report says. “Other interventions that could help lower the price of care include robust state and federal enforcement of existing antitrust laws and outlawing anti-competitive contracting practices — such as anti-steering, anti-tiering, or all-or-nothing clauses — that hamper insurance plans’ ability to tailor networks of higher-quality, lower-cost providers.”