The Future role of Employer-based health insurance

After promoting my blog on my Facebook page, a few friends caught my train wreck subtlety and waundered over to Roll Away the Dew (or at least told me they did). Their favorite posts were ones where I was mean to MBA applicants or my discovery of Picasso during jury duty. My favorite comment was from one of my wife's relative who told me that my blog was boring and she wanted to hear more about my wife (who we both agree to leave out of my blog). However, the fact that no one seemed to like my wonky health care posts has not dissuaded me from continuing to write them. They help me think about the issues around health care, truly interest me, and allow me to keep dreaming that someday I'll be linked to all the cool health care blogs.

Next addition is the role of the employer in the future of health care. The idea of employers offering health care originated during World War II when their was a labor shortage and wage freezes. In order to compete for workers, companies had to develop other benefits so they began offering this new thing called health insurance that was mainly offered by Blue Cross and Blue Shield (aka The Blues). The fact that they received tax benefits did not hurt. Another blogger, Milena Thomas, chronicles this history in her post along with a view that adds to the conversation and has similar conclusions to me but we have different ways of getting there and different end results.

Health care became an attratictive benefit, the insurance market grew, and providers benefited now that their patients were shielded from the cost. Fast forward to now and you have have employers still providing health care with the tax benefit but it has grown so complicated and costly that they are basically in the benefit administration business in addition to what they actually sell. Small businesses are overwhelmed and large business, like General Motors, have added costs that means they have to produce higer margin vehicles or spend less on the vehicle.

Busineses want to get out of the health care administration business. Various reforms have proposed pay or play (offer health care or pay into into a health care pool) or removing employers from the equation. However, offering a richer health care plan may be a cheaper way to attract workers other than wages. What is the most efficient and best role for employers in health care?

Get out of benefit administration: Winemakers start their own vineyards because they want to make wine not because they want to decide the benefits of an HMO vs a PPO of if they should move to a high deductible plan with a funded HSA account. They don't want to hear that their staff didn't get their health insurance ID cards. I think that moving benefit administration, the selection of health care, and than signing everyone up for the plan out of businesses would be efficient for everyone. Winemakers are not experts in health benefit administration, don't want to be, and someone could probably do it better.

Distribution Costs: The most compelling reason for me to keep the benefit administration with employers is because it is more efficient to sign up people at once than signing them all up individually. At my health plan, our administrative costs for signing up people individually (our individual insurance plan) are double for signing up a group. Removing employers from the health insurance value chain would mean those distribution costs would increase unless we found another distribution system. Government agencies should have enough of our information and are used to working on an individual basis that they could take on that role. The costs of distributing health care outside of the employer model will appear if we change the system. On the other hand, one could argue that would be another savings for employers.

Incentives for employees: The tax advantage (estimated to be around $200 million by the Economist) makes this an incentive that employers can offer where they pay less than the cost. However, employees who never use health care won't value it. Employees that do value it and would value it more than the actual cost are probably high utilizers or really, really risk averse and have emergency boxes in their basements with 6 months of canned food. You could probably estimate that half of company's employees would rather have the money (and buy a cheap health plan individually) and half would rather have the really good health plan (which they could not buy individually for anywhere near the same cost). Offering health insurance sends a signal the company's value employees. However, if health care was available outside of the work place at a fair price, than the value of this incentive would drop and employers could always offer some kind of supplement or buy-up plan. This incentive is not universally valued by all employees the same which suggests it's not a necessary incentive.

Conclusion: Employers don't want to be health benefit administrators, aren't the best at it, and others can take on that role and the accompanying distribution costs. However, I don't see employers completely getting out of the health insurance business having built up all this expertise. If there is another platform for getting insurance out to people individually, employers still have an opportunity to incent and attract workers with some kind of health product. While everyone will have a basic level of coverage, employers can offer buy-up options that could include fun cosmetic dentistry to put more bling in your mouth, private rooms in skilled nursing facilities, some plastic surgery, fancier hip replacement sockets or whatever the imagination could bring. There are some employees who don't want to go to the doctor and will never use it so the costs should be low compared to what's offered. The key is to make the buy-up elective procedures that aren't crucial to basic health care needs like extra days for mental health, brand medication, or services that could really impact the care someone could receive. There will be a gap between basic health care services and the buy up options. If employers fill the gap too completely, they will be back in the business of administering health care benefits.