Providing employees with access to affordable, quality healthcare is one of the greatest economic challenges for employers today. Finding the right balance between a benefit package that is both adequate and affordable — yet financially sustainable — has never been easy. Now, these efforts are compounded by COVID-19 and its significant post-pandemic challenges.   

While Plan Sponsors may be cheering the end to the public health emergency (PHE), organizations face new bumps in the road. As all stakeholders are looking towards “what’s next,” many are encountering volatile economic conditions, labor issues, and government health policies to sustain health coverage as a cost-effective employee benefit.

Challenges

1. A national recession that is forcing employers to pare back on benefits (perk-cession) before restoring to layoffs and terminations.
2. Surging healthcare inflation challenges payers and participants in terms of spend. The average costs for U.S. employers that pay for their employees’ healthcare will increase 6.5% to more than $13,800 per employee in 2023, largely due to economic inflation pressures, according to professional services firm Aon.
3. The Consolidated Omnibus Budget Reconciliation Act (COBRA) continues to extend coverage for laid off workers affected by COVID who now maintain health insurance through their former employers.
4. The expiration of the American Rescue Plan (ARPA) enhanced premium subsidies will likely cause a decline in enrollment and a higher risk pool, leading to higher premiums.
5. The resumption of Medicaid redeterminations, per the Consolidated Appropriations Act of 2023, could shift individuals from Medicaid back to commercial, employer sponsored, or subsidized individual market coverage. It’s unclear how this shift will affect the risk pool and premiums, and how that could vary by state. Employer group health plans may begin to see an impact of this redetermination process in 2023. Either way, it is expected to have a lesser effect relative to the expiration of ARPA subsidies.

Migration to Employer-Sponsored, Self-Insured Health Plans

During the COVID-19 pandemic, a significant number of companies chose to self-fund their benefits in response to significant increases in insurance premiums. The average increase in the cost of health insurance has been about 4.5% per year for the past five years. Employers who chose self-funded coverage are attracted to unique cost management opportunities when compared to the premiums, taxes, state mandated benefits, profit margins and other requirements typically part of traditional, fully insured plans.

Self-insured coverage offers a greater level of flexibility that comes with being able to tailor the plan to meet their employee’s needs. Under this model, organizations assume responsibility for all financial risk, which is mitigated through stop-loss insurance, in exchange for more control over the plan’s administration and funding. These plans are most prevalent among organizations with 500 or more employees, although self-funding can work for smaller companies as well.

Self-Insured Plans “Done Right”

Considering the surge in inflation, many Americans workers have become “financially fragile” – unprepared for regular expenses, let alone out-of-pocket medical costs. Plan sponsors need to take strategic actions to ensure that the design of their self-insured plans incorporates the most effective strategies for the “health and wealth” of their participants and that every effort is made to calculate anticipated post-pandemic costs. Of course, it is essential to allocate sufficient resources to meet these expenditures.

A quality health plan provides easy, direct access and understanding of pricing, benefits and out-of-pocket expense information so plan participants can make informed and cost-effective decisions. Employers should evaluate the data they receive from the health plan, including claims data and utilization reports, to better understand which services are being used, which providers are most cost-effective, and where savings can be identified and realized.

Self-insured plans can benefit from the most effective strategies available today. Based on all metrics and experience, this includes participant protections against balance billing, price transparency support through reference-based pricing, and effectively designed HSA-capable coverage.

Opportunities

1. To manage health plan costs, employers should consider direct contracting and other providers to negotiate discounted prices and other discounts – a move from broad networks with minimal discounts to more limited networks.
2. Adoption of a “pure” reference-based pricing (RBP) plan enhances price transparency to reveal the true cost of provider health services before receiving care and submitting a claim. A “pure” RBP structure, coupled with tech-driven data support, may avoid unreasonable or excessive provider charges – potentially lowering both the cost of coverage and employee point of purchase cost sharing and achieve savings.
3. Addition, or “full replacement” with Health Savings Account (HSA) capable coverage options. HSAs offer a strategic option for employer-sponsored health plans by covering out-of-pocket medical costs in current and future years, as well as Medicare premiums, and provide for retirement income and survivor benefits.
4. Health coverage re-design to incorporate anti-selection “sentinel” provisions.
5. Properly setting the stop-loss attachment point and parameters

Post-pandemic costs will present a considerable burden on self-funded employer health plans. However, with the right planning, preparation and plan design, employers can ensure their health plans are adequately covered and their employees can receive the healthcare they need.