Are we ready for an end to employer-sponsored group health insurance?
Mike Markland, the CEO of an employee benefits consulting firm, certainly thinks so. In a recent viewpoint piece written for Employee Benefit News, he opined that employers that “want to attract talent in this new world will need to offer individual choice of health insurance the same way they now need to offer remote work.” He believes this so strongly, in fact, that the primary focus of his consulting involves showing employers how, exactly, to accomplish this; and in his opinion piece, he presents the idea as something cutting-edge and new.
While his presentation is good, experienced benefits professionals will easily recognize that this is far from a new idea. It has been tried before, more than once. It didn’t work then, and — unfortunately — it’s not going to work now. It’s going to be tried again in the future sometime, and it should be, because hopefully someday we will see an extinction of the dinosaur that is employer-sponsored group health. But we’re not to that point yet. Neither employers nor employees are ready.
All three of these laws led to predictions that employers were better off just “giving their employees the money and letting them be the consumer.” Yet employer group plans still exist.
Make no mistake: I’m no fan of employer-sponsored group plans; my use of the word “dinosaur” above is deliberate. They’re a relic of World War II era wage freezes, and they’ve far outlived their usefulness. Markland is spot-on with respect to his opinion of them. However, it’s important to note that, like many fields, employee benefits is much more concerned with what is than with what should be.
While the advent of ICHRAs and QSEHRAs has changed tax laws, few consumers or employers know about them yet; thus the demand simply isn’t there. At first guess, Markland himself is well-versed in this topic, and no doubt his clients benefit (and it is a benefit) from that knowledge. He clearly believes that critical mass is coming soon. From my view in the trenches, and with several more years of benefits experience under my belt, I’m not so sure.
Here’s what he’s missing: employees don’t want to do the work of selecting a carrier. Any benefits professional who’s done enrollments can tell you how many times they’ve been asked to “just tell me which is the best plan,” and consumers rely more on carrier name recognition than on comparing-and-contrasting. For variety, employers can simply offer a multiple-option plan. Even the smallest groups can usually at least offer two options.
Even then, there’s a marked, long-lasting trend showing that many, if not most, employees are purchasing too much health insurance. They’re terrified by all the anecdotal stories they hear about sky-high medical bills, not realizing that while the average medical cost per capita in the United States is fairly high, that number is seriously skewed when it’s not controlled for demographics.
For the vast majority of people, their health care costs are actually less than the cost of their health insurance. Their plans would go bankrupt if they weren’t!
In addition, while it’s not the prettiest of truths, most employers really don’t want to be on the cutting edge when they’re outside their core business operations. In fact, the proliferation of professional employer organizations such as ADP Totalsource, TriNet, and Insperity is evidence that most employers don’t want to be bothered with anything that isn’t related to their core business.
This is generally a good thing: successful businesses should be properly focused. But it does mean that they want their benefits brokers to do the legwork for them — and for their employees. That is, after all, our core business, and despite the fact that some consolidation is going on within the industry, there are no indications of its demise.
Tax incentives for group plans are still more robust (and better understood) than for the new types of plans, and CPAs are equally in the dark. This means that tax advantages may take a while to really take hold, and that means that the tax advantages aren’t a major selling point for ICHRAs and QSEHRAs. They aren’t meant to be; the primary selling point of these plans is their flexibility and their coordination with the individual market.
In fact, early studies have actually shown that these types of plans actually have a negative impact on those who are least able to afford health insurance; in those cases, the employee is far more likely to simply go without insurance, which was the situation that the ACA was theoretically designed to address. There is also evidence of adverse selection, which raises health insurance premiums for those who are able to purchase it.
Overall, there’s just no evidence that the new health funding arrangements are as innovative and groundbreaking as Markland claims, and that’s why more experienced benefits professionals are approaching them with some healthy skepticism. It isn’t carrier bonuses; those aren’t enough to support a sustainable business model. Rather, the skepticism is based on hard- (and frequently painfully-) earned experience.
To be clear, I’m glad to see such a zealous approach to the benefits in the field; we certainly need that, particularly given the graying of the insurance field and its resulting glut of mid- and late-career professionals, a category which, I reluctantly admit, now includes me, although I’m known among my peers for staying up-to-date on industry trends. Markland’s point about brokers being aware of the latest and greatest to come out is also as spot-on as his opinion of employer-sponsored group plans, as, if nothing else, this shows their clients that they continue to be relevant and can be a “soft” way of encouraging them not to change brokers.
That said, Markland’s excitement about QSEHRAs and ICHRAs has crossed into over-enthusiasm, and if past events are any predictor of the future, it will still be at least another half-decade, if not more, before they start catching on, and that’s assuming these plans even survive upcoming changes in tax laws, which seem to change with every new President.
While he’s correct when he advises brokers to learn about these plans, he’s premature when he advises employers and employees to “stop participating in this broken system.” They’re not ready to hear it yet; and it’s worth noting that the most successful brokers in the business are those who correctly understand what their clients are ready to hear and present just that.
