By 2020, 90% of American employees who currently receive health insurance through their employers could be shifted to individual health insurance and government Exchanges, according to a projection by S&P Capital IQ, a division of McGraw Hill Financial.
We talk a lot about how employer-sponsored health insurance is broken, and how the health insurance market is undergoing a significant shift from a group-based market to an individual-based market. While these changes have been happening slowly over the past decade, the Affordable Care Act (ACA) accelerates this shift.
The analysis by S&P Capital IQ concludes that the ACA will result in a profound change in how employers offer health benefits, and in how the average U.S. employee purchases health insurance.
90% of Employers to Shift Employees to Exchanges by 2020
For the report, S&P Capital IQ analyzed S&P's 500 companies, which employ around 138 million people, or about 20% of the U.S. workforce for companies with more than 50 employees. The S&P 500 is considered to be largely representative of the U.S. economy.
According to the analysis:
By shifting insurance responsibility to the employee, the ACA presents an opportunity for U.S. companies to radically redefine the role they play in the health care system.
S&P Capital IQ Global Market Intelligence estimates that the Affordable Care Act could save S&P 500 companies nearly $700 billion through 2025. For U.S. companies with 50 or more employees, total savings to businesses could amount to $3.25 trillion through 2025.
According to model estimates, employers are set to benefit the most as the government takes on a larger funding role.
Many industry experts and economists have related this shift in healthcare to the shift that happened with retirement benefits -- from “defined benefit” pension plans to “defined contribution” 401k plans.
Increasing Health Care Costs and Government Tax Subsidies Accelerating the Shift
The analysis notes that the ever-increasing cost of health care is a substantial financial burden for individuals and corporate America alike, and is a key driver in the long-term shift away from employer-sponsored health insurance. When you look at the actual and projected average cost of health care premiums from 2003 to 2025, it's not surprising.
The report projects that among larger companies, the shift away from traditional employer-sponsored health insurance will take a few years to take off. The report predicts 10% of S&P companies will begin transferring coverage to workers by 2016, 30% by 2017, 70% by 2019 and 90% by 2020.
The biggest concern for larger companies - at first - will be maintaining the legacy of providing employer-sponsored health insurance and what it means for recruiting and retention. However, the report notes that once a few notable large companies start to depart from their traditional approach to health care benefits, it's likely that a substantial number of firms could quickly follow suit.
The report predicts that employee costs for healthcare will more than double by 2025, although they will be paying the same percentage (about 26%) of their premiums over that period. Employers’ share of premiums will drop from roughly 70% to 33%, while the government’s share is predicted to jump from less than 4% to about 41%.
Do you think traditional employer-sponsored health insurance is going the way of pensions? Are we approaching the end of group health insurance? Join the discussion below.