Anyone who has health insurance through their work might want to take a look at the Covered California website. For better or worse, something like it is coming your way.
The site is an explosion of choice. In easily compared tiers, Covered California lays out the premiums and deductibles charged by several competing insurance carriers. Click on a plan, and the details cascade into view.
Large employers are beginning to join private exchanges that mimic the government-created exchange, including the metallic benefit tiers of platinum through bronze. Here is the rub: All that choice likely signals a big shift of financial risk to employees.
Most of the largest employers traditionally self-insure, meaning they bear most of the burden of health benefits for employees and pay an insurance company to manage the plan. This worked pretty well as long as annual health cost increases stayed under control. But faced with years of spiraling increases, big companies began loading more cost, in the form of premium and deductible responsibility, on employees.
Companies now are contemplating the next step: eliminate their own plans, replace them with a defined dollar contribution for each employee, and send workers to a private exchange to pick insurance plans.
This is similar to big companies’ eliminating pensions in favor of 401(k) plans. The companies contribute a set amount, while employees make the investment choices and bear the market risks.
Companies see the potential for controlling their health benefit costs in the private exchanges. Illinois-based Aon Hewitt, a leader in corporate human resource services, already is setting up such exchanges for a growing list of clients. A variety of studies point to more than half of medium-to-large employers using defined contribution strategies by 2020. Growth among small businesses could be even faster.
Insurance companies will lose the fees they charge companies for administering health plans but stand to make much more by selling policies directly to customers on the exchanges. In a presentation to security analysts in December, insurance giant Aetna predicted that it would gain $4 billion in revenue for every million policies it sells on private exchanges.
For employees, the outlook is decidedly mixed. They will have an employer subsidy to help pay for a plan that suits them, but they will no longer have expert benefit managers creating plans geared for them or their workplace. And they will have to shoulder most of the risk of rising costs.
Competition among insurers should drive down premiums, but most of the competition is likely to be in plans with high deductibles. Consumers in those plans pay a big percentage of the cost of care until they reach out-of-pocket maximums, so they will have little incentive to seek early treatment that could forestall more expensive procedures later.
There is an alternative model: Employers could contract directly with clinics and wellness centers to provide preventive care and to make referrals to high-quality specialists as needed. That won’t offer much choice to employees, but it might make them healthier. And by cutting out the insurance middleman, it could be surprisingly cost-effective.
For employees worried about the trend toward defined contribution strategies, it is not unreasonable for them to ask: If employers are saving more money and insurance companies are making more money, who is likely to be paying more money?
I think we all know the answer.
Roger Smith is managing editor at the CHCF Center for Health Reporting (www.centerforhealthreporting.org) based at USC’s Annenberg School for Communication and Journalism and funded by the nonprofit California HealthCare Foundation. The center partners with news organizations to cover California health policy. He wrote this for this newspaper.
