Group health insurance is broken - unlovable, even. And because of this, the landscape of employer health benefits is changing for the better. Here's why.
Health insurance is the single most important consumer financial product Americans purchase today. One wrong step can bankrupt even the most affluent family. Yet, most Americans don’t get to pick their own health plan or doctor network. Rather, they get a one-size-fit-all group health insurance plan chosen by someone else.
Due to recent health care reforms to the individual health insurance market, it no longer makes financial, logical, or social sense for employers to continue offering group health insurance plans to employees. This is because group health insurance:
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Is unaffordable,
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Limits employee choice, and
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Has become socially irresponsible.
1. Group health insurance costs are unaffordable
The average cost to cover an employee with group health insurance has increased from $2,196 per year in 1999 to $5,884 per year in 2013, according to the Kaiser Family Foundation. For family coverage, the cost has increased from $5,791 per year in 1999 to $16,351 per year in 2013. This is not sustainable for employers or employees.
On average, individual health insurance plans cost 20% less than traditional group health insurance, and special "discounts" are now available for plans purchased in the Health Insurance Marketplaces. These discounts, called “premium tax credits,” help eligible employees buy individual plans at a greatly reduced price. (See: Why Individual Health Insurance is More Affordable Than Group Health Insurance.)
2. Group health insurance limits employee choice
Group health insurance is broken because you have an employer picking a one-size-fit-all plan for employees and families with very different needs. As a result, most employees have no idea what their health insurance plan is, what it really costs, or what it covers.
With individual health insurance, employees choose the coverage and doctors that best fits their family's needs. Individual plans are categorized by four standard levels of coverage called "metallic tiers" to make it easy to compare options.
3. Group health insurance has become socially irresponsible
When an employee terminates employment, their family loses coverage unless they elect COBRA, which is often unaffordable. Moreover, when an employer offers employees a qualified group health plan, their employees become ineligible for federally-subsidized coverage which typically offers the same or better coverage to employees for a fraction of the price.
For example, Target recently dropped group health coverage for its part-time workers. By just offering health insurance (which only 10% of part-time workers enrolled in), they were shutting out the other 90% from being eligible for federally-subsidized coverage.
Individual health policies are superior to group coverage for all employees because they are permanent and portable, independent of their employment. As a result, there is no more need for expensive, temporary COBRA.
If Not Group Health Insurance, Then What?
Employers do not want to cancel health benefits all together - and they won't. But businesses need new ways to offer the same (or better) health benefits at a controllable cost.
Defined contribution health benefits is a solution because it offers predictable costs to the business, while providing employees access to quality health insurance.
With this type of strategy, employers offer employees health insurance allowances. Employees can use their allowance to be reimbursed for individual health insurance. With health reform, all employees are covered regardless of health conditions and have access to the health insurance tax credits. Employees purchase the plan that best fits their family's health needs, and employers have complete cost predictability as there are no minimum contribution amounts.
Defined contribution health benefits reduce the cost and time associated with traditional group health insurance, while maintaining all of the benefits employees love.
Do you agree or disagree? Leave a comment below.
