Employer-supplied health insurance (ESI) is going away. The process of acquiring health insurance is rapidly changing in ways that will put you in charge of the purchasing decision. This represents a fundamental shift in the market, as individuals will be empowered to become the consumer of health plans, not just the beneficiaries of health plans. Think of the disruption to any market when the purchasing decision moves from one group to another. Sellers in that market (in this case, insurance companies) have to adapt their products and their marketing to accommodate the greatly different needs of a new set of customers. Our industry is undergoing that very change!
In the traditional ESI process, an employer offers a minimal number of health plan options to their employees every fall, allowing them to select what their family needs from a limited menu. Self-employed individuals typically have a broader list of options to choose from because there is no employer/HR department excluding all the options that don’t fit the needs of the company. Today’s healthcare marketplace is experiencing pressure that is moving purchase decisions away from employers and towards individuals. There are several vehicles that are driving this change:
- On-line health insurance marketplaces – Everyone is now aware of the Health Insurance Exchanges (HIX) that are part of the Affordable Care Act. These “public” exchanges are places where self-employed individuals can shop for plans offered by a variety of insurers. So-called “private exchanges” are similar in concept in that a variety of insurers offer competing plans for sale. However, the bulk of customers shopping on them are employees of corporations, not self-employed individuals. But why would employees be allowed to shop on private exchanges instead of being restricted to the employer’s limited menu? See the next bullet….
- Defined contributions – Employers see private exchanges as a way to offer defined contributions to an employee’s insurance needs, rather than defined benefits. This means an employer could tell an employee “here is X amount of dollars that we will contribute to your health insurance. Go to this Private Exchange website, and choose any plan offered. If your premiums cost more than what we contributed, you will have to pay the difference.”
- Cost awareness – One of the failures of our traditional healthcare system is that we, as beneficiaries, are effectively insulated from the actual cost of the care we receive from doctors and hospitals. The only things we really care about is our deductible and the co-pays we have to come up with. Many stakeholders, including the federal government, are seeking ways to make us more cost conscious. Putting the healthcare insurance purchasing decision in our hands is one way to do that. Therefore, major players in the marketplace are driving the shift towards making you aware of healthcare costs as you become the person making the purchase decision.
Transitioning from defined benefits to defined contributions will have significant impact on the healthcare industry. Think in terms of retirement pensions; employers used to offer monthly pension payments that featured cost-of-living annual increases, and lasted for the rest of the retiree’s life. Now, 401K plans dominate because the employer can define their contribution, rather than be obligated to pay benefits for decades of a person’s retirement. Private exchanges offer employers a simple means to make defined contributions happen. In fact, in the not-too-distant future more people will shop on private exchanges than will shop on the ACA exchanges. And since private exchanges mean individuals will be making the purchase decisions, insurance companies will be forced to adapt the features and benefits of their products if they hope to capture market share. We can expect to see more emphasis on high deductible plans, narrow networks, and other cost-saving features that this new class of consumers may value when they become sensitive to the actual costs of healthcare.