In his recent New York Times column on the roots of employer-based health insurance in the United States (a quick, essential read), researcher and pediatrician Aaron E. Carroll notes how competition for workers during WWII was the impetus for the modern-day employer-based system. Fearing a wage battle in a very tight labor market, the Roosevelt administration enacted an executive order that froze wages but also led to a significant, if unintended, consequence:
Businesses were smart, though … they began to use benefits to compete. Specifically, to offer more, and more generous, health care insurance.
Within a few years, the IRS granted tax exemption for employer-based health insurance. And with that, the uniquely American employer-based healthcare system was born. While much has changed in the past 80 years, one constant remains: insurance companies have something that employers need, because employers provide something that employees need. It is a synergistic supply chain that differs from pretty much the rest of the world, one that fuels the majority of U.S. healthcare coverage.
The question is, with everything that has occurred with healthcare in the past decade — from Obamacare to private exchanges to the proliferation of voluntary benefits — what do employers, carriers and, ultimately, individuals want and need from benefits and from their relationships with each other?
As benefits professionals, we frequently hear the term “paternalistic” used to describe the employer/employee dynamic. We just take care of our employees. They are family. Indeed, when you are providing something as personal and essential as health insurance, it’s easy to see the family dynamic become not just an attitude, but a necessity.
Yet, as costs continue to rise, and as the employment market continues to favor employees, we have seen strains on that dynamic. Aon Hewitt’s Health Value Initiative Database study from 2015 showed that while the decades-long upward trend in healthcare costs has slowed in recent years, cost-shifting is at least partially to credit for that slowing. In 2005, total annual employee (premium and out-of-pocket) costs were $2,001. By 2015, they had risen to $4,698 — an increase of 134%. Employees are under substantially more stress to pay both premiums and medical costs.
Which brings us to the dynamic between employers and carriers. What employers need from carriers is threefold, and almost entirely based on what employees need from employers: real partnership in controlling costs, more diversity of options and relevant administrative relief.
I recently listened to a benefits manager for a company of 125 employees explain her company’s decision to adopt a self-funded model. When I asked her why a company of her size would do so as a cost-saving measure, her answer was not at all what I expected. “It was the only way we could access our claims data to help us reduce costs,” she said. I asked her if she would have stayed fully insured if her carrier had given her access to her data. “Yes.”
She got her claims data and, with the help of a very engaged broker, found trends in usage and a means to address patterns of overspending in provider claims and prescription drugs that helped them reverse, not just slow down, their cost curve in less than a year. That such circumstances arose from something with a comparatively easy solution should be a wake-up call for carriers to change their perspectives on data transparency both with their employer customers and with their customers’ employees.
Another emerging challenge that carriers and employers must face together is the expanding demand for more diverse voluntary benefits. These benefits are filling in new concerns for employees, like covering medical needs under high-deductible health plans and paying down student loan debt, as well as “lifestyle” options like pet insurance and identity theft protection. Such benefits are typically touted as “free to employers” to make them seem like a no-brainer to add. But benefits professionals are still involved in burdensome administration. Plus, companies with an engaged, paternalistic outlook don’t offer new benefits just because they don’t cost employers anything. They want to offer employees relevant benefits, which takes time — something administrators don’t have in vast reserves.
Perhaps the strongest recent indicator of employees’ desire for a benefits enrollment experience that more closely resembles the way they shop for everything else online is the private exchange trend. These online marketplaces were supposed to usher in a new era of healthcare consumerism. Yet they have underperformed due to both conflicting and unclear goals. Employers saw them as saving them money. The major consultancies that established the largest private exchanges wanted to keep their customers and sell more benefits. Carriers saw them as a threat to their way of doing business. When they didn’t save money and, in many cases, actually added to the workload of employee benefits administrators, they fell out of favor. Yet, employees still want more consumer-centric experiences, so carriers (and consulants/brokers) should wash the sour taste from their mouths and take the positive lessons of private exchanges to better serve employers and their employees.
Add to these strategic factors the ever-present need for compliance, which has increased in complexity with the passage of the Affordable Care Act and the recent healthcare reform debate in Washington, and you have employers that are in need of administrative relief in order to serve their employees’ needs, paternalistically or otherwise.
Health insurance carriers must always control their costs while differentiating themselves from other carriers. Voluntary benefits carriers need to prove that they’re relevant in an increasingly competitive market. What has been set up for both of them — by their own accord and through both private and public intervention — is not one healthcare and benefits system but thousands of systems, each with their own risk pools, negotiated rates, provider networks, coverage levels and ancillary offerings. It’s not uncommon for health and ancillary insurance carriers to create plan designs with tens of thousands of complex variations for sales and marketing purposes, only to see a fraction of them ever sold and put into effect. Each new plan is added effort. Each new effort makes it harder to control costs.
Rather than the strategy of “capturing the customer” with monolithic (read: big and expensive) health plan offerings, carriers would do well to become partners with employers to solve the real issues of rising costs and a lack of offerings that speak to employees’ practical needs.
Such an approach is what has taken over in the post-ecommerce world, where providing value to customers is the key differentiator. Rather than spending all of your time with a customer discussing actuarial charts, share an employer’s data with them and track trends together. Then, take action by providing them with the administrative tools to help them help their employees become smarter, and healthier, healthcare consumers. It’s already happening in small pockets, like the example of the midsized employer and their engaged broker above — notably, without carrier support. Carriers have the power and influence to make those pockets larger and more frequent.
The rising tide of shared knowledge can lift all boats, but only if the key players let it.
Carriers would rightly tell you that there is another, extremely important player in the healthcare and benefits equation: providers. Carroll’s NYT article notes that the formation of the Blue Shield plans by doctors was a response to the formation of Blue Cross plans by hospitals because they didn’t like the competition and they didn’t want to miss out on their share of the growing healthcare spend.
That was the better part of a century ago and here we are still talking about what we can do to curb costs. The provider equation can easily fill its own column. For today, there is much that can be accomplished by first focusing on the relationship between carriers and employers. Because, ultimately, they are serving the same master: you and me. And we’re getting impatient.
Editor's note: This post was contributed by Shandon Fowler, founder and principal of Four8 Insights, a provider of strategic direction on healthcare, benefits and HR technology. He was previously Senior Director of Product Strategy for Benefitfocus.