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Small Business Employee Benefits and HR Blog

Employer Health Insurance - Is it Really a Ticking Time Bomb?

bombWhen the Affordable Care Act (ACA) was signed into law in 2010, economists and industry experts began predicting a massive shift from employer-sponsored health insurance to individual health insurance.

Fast forward to 2015 and the ACA dust has settled. So, what are industry experts saying now about the future of employer-sponsored health insurance? Here is a round-up of recent analysis on the health insurance industry.

Will Employers Drop Health Insurance? And, When?

Facing escalating healthcare costs, the individual market now offers employers something it didn’t before the passage of the ACA - affordable, guaranteed-issue coverage. As such, much of the buzz around the health insurance market has been that employers will drop expensive group-based health insurance and transition employees to individual coverage with, or without, an employer contribution.

Recent market research continues to predict a shift from employer-sponsored health insurance to individual health insurance, although when the majority of companies will make this switch is still debated.

A May 2014 analysis by S&P Capital IQ projected that 90 percent of employees currently receiving health insurance through their employers could be shifted to individual health insurance and public exchanges by 2020, now just five years away.

Similarly, Dr. Ezekiel Emanuel predicted in book, “Reinventing American Health Care,” that by 2025 fewer than 20 percent of workers in the private sector will receive traditional employer-sponsored health insurance. Considering the majority (56 percent) of the non-elderly population still purchase health insurance through work today, this is a massive transition.

Other reports, however, come to different conclusions. The Mercer National Survey of Employer-Sponsored Health Plans (2014) suggests change may not be right around the corner. According to Mercer's report, just four percent of all large employers say it is likely they will terminate their employee health plans within the next five years, down from 6 percent in 2013. And while small employers are still more likely to switch to individual health insurance, the number of employers with 50-199 employees that say they are likely to drop their plans fell from 23% in 2013 to just 16% in 2014. Instead, the report found an increase in measures to control cost escalations such as Wellness programs, consumer directed health plans, and cost-shifting.

Then again, it may only take a few large corporations to influence the market and create a tipping point. Recently, we’ve seen powerhouses such as Walmart, Target, Trader Joes, and Walgreens switch some employees to individual health insurance models.

The Impact of Small Business

While much of the focus is on large companies, who are much more likely to offer health insurance coverage than smaller businesses, do not discount the power of small businesses.

All across the U.S., small businesses have been quick to adopt individual health insurance models because of their affordability, accessibility, and because small employers are not mandated to offer group health insurance.

While larger corporations may be slower to drop employer-sponsored health insurance, it is already becoming a norm with smaller businesses. In a recent Whitepaper, we estimate that 60 percent of small businesses (with fewer than 50 employees) will transition to individual health insurance reimbursement by 2017.

The Common-Sense Solution?

When you look at the numbers, the decision to transition employees to individual health insurance is an economic no-brainer. The immediate cost savings are obvious.

But as Brigham Young University professor David Cherrington points out, it is not all about rational decisions. There is an emotional factor as well.

In Utah Business Cherrington explains, “I am surprised that more companies have not immediately abandoned the whole benefit-providing game and gone to offloading this. [Employers could say] we will give you this much money and you can go to a federal exchange or a state exchange… I am personally just surprised that rational decision making hasn’t eliminated healthcare from the employer's plate.”

Conclusion

Is a shift in employer health insurance happening? Yes. Small businesses are leading the way. When will the shift to individual health insurance really hit the masses? While the exact timeline is unknown, a tipping point will likely occur as large, influential companies lead the way.

What do you think? Will companies ever transition away from employer-sponsored health insurance? Join the conversation in the comments below.

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