About half of all Americans get their health insurance through work as part of their total compensation package.
Most insurers will curate the choice menu to a very small number of choices. I’ve been employed at places where the choice menu ranged from a single choice to a half dozen choices. This is not an unusual experience. The insurance contracts are almost always for a year although there is no reason that prevents a shorter or slightly longer contract. At the end of the contract, the employer has a lot of choices.
- Keep the same choice menu
- Not offer insurance at all
- Change some or all of the choice menu
Unless there is a union contract involved, these are relatively unconstrained choices that an employer has.
It is quite plausible that in year one the employer offers Big Blue Super Duper Coverage and in year two they only offer Mayhew Insurance Garbage Fire coverage as Mayhew Garbage Fire is 80% cheaper. The employer could spend $20,000 per employee on health insurance or $2000 per employee on health insurance. The employer may choose not to switch because they don’t want to piss off their employees on a power weighted basis but there is no legal constraint to prevent a switch.
During the contract year, health insurance is mostly a defined benefit. As long as an employee works enough hours and is not committing obvious fraud and the employer is still a going concern, the employee receives a well defined benefit no matter what actually happens to their health. However over time, the defined benefit nature of the insurance contract morphs into a defined contribution as the employer gets to re-assess every year how much they want to spend as part of the total compensation package on health insurance and then they shift the choice menu that they present to their employees as a reflection of that new budget constraint.
The Individual Contribution Health Reimbursement Account (ICHRA) makes the long run defined contribution explicit in the short run. In an ICHRA, an employer makes a direct contribution to a managed account. This contribution can vary by business unit and employee age and family size if family coverage is offered. The employee then takes that money and buys ACA individual market insurance or enroll in their partner’s plan while using the ICHRA money to pay for the non-employee portion of premium.
ICHRAs came out of the Trump Administration as a creature of regulation. I think these have a potential to be a fairly big thing. We have strong reason to believe that most employer sponsored insurance plans are optimized for senior management. Most people most of the time would be better off in narrower networks with lower premiums or less cost-sharing than what they currently see. The big caveat is, as my research and thinking shows, is that we need to make good decision making easy as a default for individuals. I think that rethinking employer sponsored insurance as a defined contribution instead of a defined benefit is both intellectually clearer and a way to better match needs with plans while putting price pressure on some hospitals and provider groups.
Let’s not forget Nixon came up with health insurance through employment. Which has a kind of stark capitalism about it…
When employers switched from defined benefits to defined contributions for worker retirement plans, workers got screwed. Maybe it would be different for health benefits but the framing doesn’t inspire confidence.
The University System of Georgia now offers Blue Choice HMO, Kaiser Permanente, and HSA and a “Comprehensive Care” plan to employees. When you retire and reach medicare you are given a monthly stipend that covers supplemental insurance. My wife is on the plan but pre-medicare so we are able to purchase the HMO at employee rates and, when she hits 65 this year, she’ll also get the stipend. It’s a pretty decent deal for us.
@Raven: Now that I’m early-retired (I always emphasis this because I took a real hit on that financially) Uncle Joe Biden is giving me free medicaid. Which helps a LOT.
@WereBear: My wife bailed at 62 and I kept at it to 70, right before covid hit. My old man used to say “you can’t look up a dead horse’s ass” so I’m just tryin to keep goin!
@Betty Cracker: It is marginally better than the switch from pensions to 401(k)/IRAs, but not that much better.
It still shifts the risk (in this case of increased premiums) to the employee, but that risk is at least mitigated by the ACA’s regulations on what counts as insurance. Though not entirely as the story a few months ago about the poor lady who was sucked into that religious not-insurance package that refused her claims shows. Or the general case that the cost-sharing elements in a lot of insurance packages will wipe out the average person’s savings.
I would never trust anything from that Peter Mayhew character. Shifty.
That is an interesting article about how employer health care plans are optimized for older employees. Is a better way to think about it that it’s not age per se that is important, but that there’s a balance between what’s best for low and high health care utilizers, and this study suggests the balance leans toward the latter?
Moving from an employer insurance menu, with only a few choices, to throwing everyone into the ACA market, where there are dozens and scores of choices, seems like a recipe to enhance poor decision making, which might mean everyone in aggregate is worse off, even if the potential exists for better outcomes.
@The Castle: On the other hand, current employer health insurance isn’t necessarily optimal for employees, especially in small firms.
The Moar You Know
Anecdata: I can say, as a member of “senior management” (age 55) that our insurance is optimized for nobody. The five major surgeries I had last year have left me in some serious debt, making payments on that “out of pocket maximum” for the next couple of years. Out of pocket maximums are so high now that they’d financially ruin anyone who isn’t making far more than the national average. We are back to the days of a hospital stay wrecking people’s lives. I’m fortunate. This is an inconvenience for me, nothing more.
And I’m on the best plan we could get. That we are a small company makes getting decent insurance plans very difficult.
Our CEO has one thing really going for her: she spent a couple of decades as a psychiatric provider and several years working directly for Blue Cross, so at least she knows how insurance works and stays heavily involved with the procurement of it, as opposed to standard practice, which is shove it all onto HR and tell them to keep expenses to a minimum.
@The Moar You Know:
That’s the truth. We have insurance through my husband’s medium-sized employer. The plans they offer are a better deal than we could get through the ACA, but they still suck. Basically, it’s preventive care and catastrophic coverage.
What do you have against Chewbacca?
Here in Socal, it seems most employers who offer health insurance offer a Kaiser option.
50 years ago there were only one or two plans and it was the most expensive option for employers, but most employees and unions demanded it. Now they offer a wide variety of options for copays, etc. A few years ago it was far cheaper than the PPO option offered to retirees, and for the last couple of years we haven’t even been offered a different choice. It is far less out of pocket cost than any of the privately purchased Kaiser offerings.
Now throw the Federal Employee Health Benefits Plans into the formula. Yes I’m that evil.
Defined contributions would be good for small employers to be able to provide a benefit to employees, who make too much for any cost sharing or premium reductions via the ACA, while giving them more choices via the ACA marketplace.
In NJ, the small business insurance marketplace is extremely limited versus what’s available for medium (50+ employees) and larger firms. When I worked at a small non-profit, the small business exchange had three or four carriers with different metal bands and slightly different rates. Rates were based on monthly premium adjusted for age of covered individuals and location in the state.
The individual ACA plans offer more and better options. Very few employees took what health insurance the company offered.