Why It’s a Good Thing for Employees
Salt Lake City, UT - More than 3 million small businesses have decided to go without employer-provided health insurance. The primary reason? Cost.
“It no longer makes financial, legal, or social sense for any U.S. employer to continue providing health insurance to its employees,” says Rick Lindquist, who along with Paul Zane Pilzer coauthored The End of Employer-Provided Health Insurance: Why It’s Good for You, Your Family, and Your Company (Wiley, 2014, ISBN: 978-1-119-01211-5, www.zanebenefits.com/book).
Since 2000, the percentage of Americans covered by employer-provided health insurance has declined annually. “This trend is indicative of a shift that’s only going to accelerate,” say Lindquist and Pilzer. But it is not the end of the world.
Why? Because in the face of the rising cost of providing group health insurance, the Affordable Care Act has made it easier and cheaper for most individuals to buy their own insurance.
“This doesn’t mean that small businesses won’t help employees get health insurance,” adds Lindquist. “Many business owners will replace their group policy with a defined contribution plan that offers a stipend to employees to buy the health insurance that best suits them in the Health Insurance Marketplace. Everyone wins.”
Across the nation, consumers are realizing that individual health insurance policies that cover the same medical providers as employer-provided health insurance are now available, regardless of their health, at one-half (pre-subsidy) to one-fourth (after-subsidy) the cost of employer-provided coverage.
At one time, of course, the group policy model did make sense. Since the mid-1960s, employer-sponsored health insurance has been the primary way Americans bought health insurance. The reason it was so popular was that employer-paid health benefits were tax-free. Both employers and employees got big tax exclusions on this “unreported income.”
But then healthcare costs began to rise. As Lindquist and Pilzer explain in their book, from 1999 to 2013, annual premiums for employer-provided health plans increased approximately 182 percent to roughly $16,350 per family (Kaiser Family Foundation, 2013). As a result, only 57 percent of all jobs offered health benefits in 2013, down from 66 percent in 1999.
Pilzer and Lindquist make a bold prediction: Over the next three years, 60 percent of small businesses will stop offering employer-provided health insurance in favor of employees buying individual health plans. Small businesses will lead the charge.
Each year, small business health insurance costs go up by nearly 10 percent on average. Few businesses can sustain that kind of financial hit year after year. As a result, employers are forced to pass the increased cost along to their employees. As the costs get higher, healthier employees start dropping out and buying individual plans. This leaves older and less healthy employees on the employer-sponsored group plan. And costs continue to rise as fewer employees participate. This is a cycle that usually ends with employers dropping the health insurance altogether.
“This death spiral is happening faster than expected,” notes Lindquist. “Consider what’s happening with the nation’s largest insurer, WellPoint.”
According to 2014 reports, WellPoint has watched 218,000 members, or 12 percent, of its health plans disappear because small businesses have ended their employer-provided health plans. WellPoint expects this trend to play out over the next two years. “We think [that the trend of our small business customers ending their group health plans] will be in a more accelerated timeframe over a shorter window of time, meaning this year and next, than over a longer period of time,” said WellPoint Chief Financial Officer Wayne DeVeydt during a July 30, 2014 conference call with investors.
Lindquist and Pilzer point out this is good news. Employees with pre-existing conditions are now able to purchase individual health insurance plans without exclusions. Healthier employees can get the coverage that is more flexible and portable. And when employers are willing to reimburse their premium costs through defined contribution plans, employees find they are much happier buying their own plan.
“Employees have more choice in the marketplace,” says Lindquist. “They’re no longer forced into a one-size-fits-all policy. And if they lose their job, they can keep their health insurance regardless of employment.”
About Zane Benefits, Inc.
Zane Benefits is the leader in individual health insurance reimbursement for small businesses. Since 2006, Zane Benefits has been on a mission to bring the benefits of individual health insurance to business owners and their employees. Zane Benefits' software helps businesses reimburse employees for individual health insurance plans for annual savings of 20 to 60 percent compared with traditional employer-provided health insurance. Zane Benefits' software has been featured on the front-page of The Wall Street Journal, USA Today, and The New York Times. Learn more at www.zanebenefits.com.