Rising Health Insurance Premiums: A Burden for Employees and Employers Alike and What You Can Do About It
Alt title: The High Price of Health Insurance: How to Find Affordable Coverage
In today’s job market, health insurance is a crucial benefit that employees consider when evaluating a company’s compensation package. In 2020, a staggering 163 million nonelderly Americans (6 out of 10 people) were under an employer-sponsored insurance plan. While most employees report being satisfied with their coverage, the rising costs of ESI are causing financial strain for many individuals and families.
A 2019 Kaiser Family Foundation and Los Angeles Times survey found that 40 percent of adults with employer-sponsored insurance had trouble paying for medical care, premiums, or drugs.
These rising costs have forced some people to make tough financial decisions, such as taking on additional credit card debt or reducing contributions to retirement savings to cover premiums.
The increasing cost of ESI is a burden for employees and a concern for employers who rely on offering robust health insurance as a recruitment and retention tool. So what’s driving these rising costs, and what can you do to address them? That’s what we’ll explore in this article.
Factors Contributing to Rising ESI Premiums
Several factors contribute to rising health insurance premiums, including:
Higher Prices for Healthcare Services
One of the main drivers of rising ESI premiums is the increasing cost of healthcare services.
According to a Health Care Cost Institute report, two-thirds of the increases in per-person medical and pharmacy claims between 2015 and 2019 are due to rising prices for healthcare.
These high prices reflect in the cost of private insurance plans, which on average, pay 224% of Medicare rates for hospital inpatient and outpatient services. This means that as the cost of healthcare services continues to rise, so too will the premiums for private insurance plans, including ESI.
Limited Bargaining Power of Employers and Insurance Plans
In many markets, even very large employers and insurance plans negotiating on their behalf lack the sufficient market power to obtain fair prices from health systems.
One way employers and insurance plans can gain more bargaining power is by forming group purchasing organizations (GPOs) or self-insured groups. These collaborations allow multiple firms to pool their resources and negotiate better prices with healthcare providers. However, even with these types of partnerships, it can be difficult for employers to negotiate lower prices due to the high cost of healthcare services.
Many providers also do not disclose their prices upfront, making it difficult for patients and insurers to compare costs and make informed decisions about their healthcare. This lack of transparency gives employers a hard time when negotiating lower prices, as they may not know a fair price for a given service or treatment.
Although employers and insurance plans try to negotiate lower prices for their subscribers, securing fair prices from healthcare providers can be challenging. As a result, ESI premiums can increase significantly over time. In addition, employers and insurers may be unable to control their healthcare costs when faced with rising prices and growing demand for services.
Rising Deductibles and Shift Towards High-Deductible Health Plans (HDHPs)
ESI premiums have also been affected by the shift towards high-deductible health plans (HDHPs) and the rising deductibles that come with these plans.
A growing proportion of ESI plans now require beneficiaries to pay a deductible, and the average deductible is rising. Employees are responsible for paying a larger share of their healthcare costs upfront before their insurance kicks in.
HDHPs are a type of health insurance plan that requires beneficiaries to pay a higher deductible before their insurance coverage begins. The idea behind HDHPs is that by requiring beneficiaries to pay more upfront, they will be more likely to think twice before seeking unnecessary medical care. This, in turn, should help to control costs. However, while HDHPs may help control costs in some cases, they can also be financially burdensome for employees, especially those with unexpected medical expenses.
Employers have increasingly turned to HDHPs to control costs, but this shift has also put a financial strain on employees responsible for paying a larger share of their healthcare costs upfront.
This can make it more difficult for employees to afford necessary medical care, ultimately leading to higher healthcare costs in the long run.
Impact of Rising Premiums on Employees and Firms
The rising cost of health insurance premiums is having a significant impact on both employees and firms. Here is how:
Financial Strain on Employees
Rising health insurance premiums impact employees by putting financial strain on them. As the cost of coverage increases, it becomes a more significant portion of an employee’s total compensation.
This can reduce take-home pay, making it harder for employees to afford necessary medical care or other necessities. In some cases, employees may have to make financial decisions that put them in a worse position, such as taking on additional credit card debt or reducing retirement savings contributions to cover premiums.
This can be especially concerning for lower-income workers who struggle to make ends meet. The rising cost of health insurance can also be a barrier to accessing necessary medical care.
This can seriously affect both the health and financial well-being of employees.
Disproportionate Burden on Lower-Income Workers
The burden of rising health insurance premiums is not equal among all employees. In particular, lower-income workers tend to bear a disproportionate burden of these rising costs. Firms with a higher number of low-wage employees tend to contribute less towards single coverage and family coverage premiums than firms with fewer low-wage employees.
On average, these firms contribute 10% less towards single coverage premiums and 13% less towards family coverage premiums. This means that lower-income workers are often left to bear a more significant share of the cost of their health insurance.
This can be especially concerning for these workers, who may already be struggling to make ends meet and may not have the financial resources to cover these additional costs. The disproportionate burden of rising health insurance premiums on lower-income workers can lead to financial strain and barriers to accessing necessary medical care.
Increased Cost as a Share of Total Compensation
As health insurance premiums continue to rise, the cost of coverage is also growing as a share of total compensation. This means that an increasingly large portion of an employee’s pay is towards health insurance rather than being available for other necessities or financial goals.
For many employees, this can be a significant burden that cuts their take-home pay. It can also make it harder for employees to afford necessary medical care or other necessities.
Health insurance’s cost grows as a share of total compensation, but it can also impact an employee’s overall financial well-being.
Sustainability Concerns for Firms
Rising health insurance premiums are also causing concerns about the sustainability of these costs for firms. As premiums continue to increase, it becomes more difficult for firms to afford the cost of providing health insurance to their employees. This can lead to many challenges for firms, including the need to reduce employee benefits or increase employee contributions to afford the cost of coverage.
Firms also have difficulty attracting and retaining employees, as health insurance is often an essential factor in an employee’s decision to accept a job offer. In some cases, rising health insurance premiums may also reduce profits for firms, as these costs eat into the bottom line.
The rise in health insurance costs is a concern for both employees and firms, and it is vital to address these challenges to ensure employer-sponsored insurance’s long-term sustainability.
Options for Addressing Rising Premiums
As health insurance costs rise, both employees and firms are looking for ways to address these rising premiums. Here are some of the options that employers and employees can consider:
Self-funding allows firms to gain greater control over their health insurance costs and benefits, as they bear the claims risk themselves rather than purchasing insurance from a third party.
While self-funding can be a viable option for larger firms, small and medium-sized firms may find it difficult, as they will need a large amount of liquid capital to self-insure.
It’s also important to note that while self-funding can give firms greater control over their health insurance costs, average premiums for both fully insured and self-funded plans have risen in recent years. Self-funding may also be more complex than purchasing insurance from a third party, as firms must establish a claims administration process compliant with federal and state laws.
In addition, some states may require small businesses to purchase group health insurance through an HMO or PPO to offer the same benefits to all employees.
Modifying Plan Benefit Design
Companies can reduce the cost of an insurance policy by shifting costs from premiums to out-of-pocket expenses, such as increasing deductibles or copays.
While this approach can help to reduce premiums, it also means that employees will bear a more significant share of the cost of their health care.
It’s vital for firms to carefully consider the impact that benefit design changes may have on their employees and to ensure that the changes are fair and equitable.
Switching to a different type of plan
Another option for addressing rising premiums is for firms to consider switching to a different insurance plan.
This could include switching from a traditional plan to a high-deductible health plan (HDHP) or vice versa. It could also include switching from one type of HDHP to another. For example, a firm offering a traditional plan with low premiums but high deductibles may want to change to an HDHP with lower premiums and higher out-of-pocket costs for covered services.
It’s crucial for firms to consider the trade-offs associated with different types of plans carefully and to ensure that the plan they choose meets the needs of their employees.
Alternative payment models
Another option is to consider alternative payment models, such as value-based ones. These models aim to incentivize providers to deliver high-quality care cost-effectively.
For example, under a value-based model, providers are paid based on the quality and cost of care they provide. This approach can drive down costs by rewarding providers who deliver high-quality care at an affordable price.
By aligning incentives in this way, it is hoped that these models will help to control the cost of health care and, in turn, reduce the cost of health insurance premiums.
Collaborating With Other Firms Through Group Purchasing Organizations (GPOs) Or Self-Insured Groups
As premiums rise, firms can reduce costs by banding together through group purchasing organizations or self-insured groups.
By pooling their resources, firms can leverage their collective bargaining power to negotiate lower prices with healthcare providers and pharmaceutical companies.
This strategy is particularly effective when firms have similar demographics, such as an industry with many small businesses or a geographic region with many employers with similar workforces.
Offering Defined Contribution Plans or Private Exchanges
In a defined contribution plan, the employer sets a fixed amount that will contribute towards the cost of health insurance premiums, and employees can choose from a range of plan options within that budget.
Private exchanges are online marketplaces that allow employees to find and compare health insurance plans from multiple carriers.
Both defined contribution plans and private exchanges can give employees more control over their health insurance options, which may help to reduce premiums by encouraging employees to select lower-cost plans.
Encouraging the Use of Telemedicine and Other Alternative Care Options
Firms can consider encouraging the use of telemedicine and other alternative care options as a way to address rising premiums. Telemedicine allows patients to access healthcare services remotely, which can reduce the need for in-person visits and help to control costs.
Other alternative options, such as retail clinics and urgent care centers, can provide more convenient and cost-effective alternatives to traditional healthcare settings.
By encouraging the use of these options, firms can help reduce healthcare costs and, in turn, lower premiums for health insurance.
Overall, there are many options available for addressing the challenges of rising health insurance premiums. It’s vital for firms to carefully consider each option’s pros and cons and choose the best approach for their employees and their business.
Rising health insurance premiums are a significant concern for both workers and employers. As healthcare costs continue to climb, it is becoming increasingly difficult for individuals and families to afford the coverage they need and for firms to offer competitive benefits packages.
Finding a solution to this problem is critical, as it can impact the financial well-being of millions of Americans and the competitiveness of businesses. While a range of options is available for addressing rising premiums, finding a solution that balances cost and quality of care is essential.
This may require a combination of strategies, such as self-funding insurance plans, modifying plan benefit design, switching to a different type of plan, encouraging telemedicine and other alternative care options, and more.
Ultimately, finding a way to make health insurance more affordable and accessible for all is essential to ensuring that people have the care they need to stay healthy and productive.
If you are struggling to find affordable health insurance coverage, don’t despair. There are options available to help you find coverage at a reasonable price. One such option is to visit Healthcare Solutions, where you can find affordable insurance plans from the top agents in the industry. With a wide range of plans, you are sure to find something matching your needs and fits your budget.
Healthcare Solutions is a wholly-owned subsidiary of the National General Insurance Group, so rest assured you’re getting quality service. For more information, contact us today, and our teams will be more than willing to help.