Group insurance worked well in the past when employees stayed with companies for a whole career, and when there were not costly medical procedures driving up the cost of health care. That's not the case anymore. Today, many employers are saying goodbye to group insurance and looking for alternative ways to offer employees health insurance coverage.
Each employer has different goals when it comes to health insurance, which means employers are exiting group insurance for a variety of reasons.
Here are eight reasons employers of all sizes are saying goodbye to group insurance, and adopting new approaches to employee health benefits such as a "pure" defined contribution strategy.
1. Employer can't afford group insurance.
Cost is the number one force driving employers out of group insurance. When you look at the numbers, it's not surprising that the cost of group insurance is unsustainable to employers and employees.
From 1999 to 2013, the annual cost to cover a single employee with group insurance increased from $2,196 to $5,615 (166%). Family coverage increased even more, from $5,844 a year to $16,351 (191%).
2. Employer can't meet participation requirements.
Another reason employers look for health insurance solutions outside of group insurance is they can't meet participation requirements. They want to offer health insurance, but they simple don't qualify for group insurance.
3. Employer wants to provide premium assistance, yet has low income employees that would be better off with subsidized insurance.
Employers with a low income employee population exit group insurance because employees are better off with subsidized insurance.
This employer compares the cost of a group insurance plan to that of subsidized individual insurance premiums via the Health Insurance Marketplace, and sees that employees will pay less via a subsidized plan. Employees are eligible for a subsidy if they make less than 400% of the federal poverty line, which is just under $46,000 a year for an individual in 2013.
If the employer offers a group insurance plan, they disqualify employees (and often their families) from the subsidies.
At the same time, these employers don't want to just let employees shop on the Marketplace. They also want to offer assistance to employees via a formal benefits plan. Employers are doing this with a "pure" defined contribution health plan.
Click here to read an example about pairing defined contribution and the health insurance subsidies for overall cost savings.
4. Employer is tired of the increasing liability and administrative complexity of group insurance.
It is happening today. Employers are exiting group insurance because the liability of having a plan is increasing as administration complexity rises. These employers are tired of dealing with renewals, tired of the time it takes to administer the plan, and tired of the cost uncertainty from year to year.
Employers are increasingly expressing this worry going into 2014 with "ObamaCare". The administration estimates that 65% of small employers will see premium increases in 2014 directly related to ObamaCare (source). These increases are happening because of guaranteed issue, guaranteed renewability, and premium rating provisions of ObamaCare. Other factors affecting rates such as changes in product design, provider networks, or competition were not even considered in this estimate, and will also drive up group insurance premium costs in 2014.
5. Employer offers a "skinny plan", but wants to offer additional contributions for better coverage.
It's becoming more common for larger employers who do not currently offer a health plan today to implement a "skinny plan" to pass the ACA's employer shared responsibility penalty in 2015. However, many of these employers realize that the coverage provided through these plans is bare-bones and want to offer some form of premium assistance for those that want better coverage.
These types of employers are saying goodbye to group insurance by deciding not to offer a minimum value group plan, and instead offering some form of premium assistance for those that want better coverage. Though, these larger employers must be open to the employer shared responsibility penalties for those that purchase a subsidized plan.
6. Employer (and employees) who will spend less on coverage in the individual market.
As mentioned previously, employers are crunching the numbers and see that their business and employees will spend less on insurance by not offering group insurance.
To assess cost savings of moving away from group insurance, employers should work with a health insurance professional to assess:
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Premium quotes for group insurance vs. a defined contribution health plan paired with individual insurance
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Employee eligibility for health insurance tax subsidies
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Tax implications
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Penalties for not offering group insurance (only for groups 100+ employees in 2015, and 50+ employees in 2016).
7. Large employer (100+ employees) absorbing large annual renewal costs each year.
Larger employers absorbing 25%+ premium increases each year are growing tired of group insurance because of the cost unpredictability and decreased value of the benefits. Because of the size of their plan, these employers are not able to absorb large health claims. As a result, their premium increases are unsustainable. These employers start to eventually see value in the "law of large numbers" in the individual market, where the risk pool is tens of thousands.
However, a cost analysis is required with larger employers who are subject to employer shared responsibility fees. Employers should work with a health insurance professional to assess to cost (and value) of group insurance vs. the cost (and value) of a defined contribution health plan + penalties if employees purchase subsidized plans.
8. Employer with an emphasis on value.
There are many employers out there who can afford group insurance and meet participation requirements, but want a better value.
These employers want their investment in health benefits to stretch farther. These employers want to provide a contribution to employees' health insurance, and they are looking to get the best value.
This type of employer is saying goodbye to group insurance and is often very attracted to a defined contribution and individual health insurance approach.
Conclusion
As the years pass, more and more employers are thinking about exiting group insurance (and for good reasons). These employers are both large and small, and this is likely a trend that will continue for years.
While the trend is starting out quietly, adoption of alternative approaches will become more common. There will always be a group insurance market, but the pains and challenges employers face with group insurance is opening up a market of health insurance alternatives.
Health insurance professionals who offer these new alternatives will see increased success, and employers who adopt these new alternatives will see increased value and cost savings with their health insurance program.
What do you think? Why else are employers saying goodbye to group insurance?
Image source: Zane Benefits Infographic
