There’s plenty of talk surrounding health care reform and whether employers should “pay or play.” The phrase refers to a business’ choice to either offer health care benefits that meet the law’s standards or yield to fines for dropping coverage. Though savvy employers know their benefits package can help boost workplace retention, satisfaction and productivity, many are faced with a difficult decision as health care costs continue to rise. What if there was a way for employers to “play differently”? By understanding rising costs, employers can take advantage of key solutions and take control of their employee benefits options.
Key accomplishments of health care reform:
Before diving into the complex issue of rising health care costs, it’s important to note that health care reform has succeeded in reducing the number of uninsured individuals and has helped provide consumer protection regulations for the health insurance industry (see side bar).
Still, reform hasn’t fully addressed many health care challenges facing businesses and their employees – most notably, rising costs. Health care costs continue to rise in the workplace. Since the law’s enactment in 2010, the average individual premium has increased by $1,202, or 27.4 percent, and the average family premium has increased by $3,775, or 23.8 percent. In many cases, this is higher than inflation and average raises.2
Rising costs have led to many cost-shifting strategies for businesses, which include employees paying for their copayments, premiums and other out-of-pocket costs. For instance, nearly 3 in 10 employers increased their employees’ share of premiums in 2014, and a similar percentage plan to do so in 2015 (see chart 2).3
Formulating a reason for rising health care costs is not easy. In reality, there are numerous and systemic explanations. To help pinpoint rising costs in 2016, research from PricewaterhouseCoopers’ Health Research Institute identified two factors inflating health care spending today:4
Unfortunately, while businesses are passing more of the cost of health care onto their employees, many workers signal they aren’t ready or able to take on the additional costs. According to the 2015 Aflac WorkForces Report,3 52 percent of today’s workers would be able to pay less than $1,000 for out-of-pocket expenses associated with an unexpected serious illness or accident that occurred today, and 67 percent at least somewhat agree they wouldn’t be able to adjust to the large financial costs associated with a serious injury or illness.
Even with a comprehensive major medical plan, the out-of-pocket costs (both medical and nonmedical related) can be substantial. In fact, 20 percent of American adults are struggling to pay their medical bills, and 3 in 5 bankruptcies are due to medical bills. And despite having year-round insurance coverage, 10 million insured Americans ages 19-64 will face medical bills they’re unable to pay.5
In the current health care system with rising health care costs, employers facing the “pay or play” decision can:
Employers who want to have greater control of their benefits options have several alternatives. Companies may choose one strategy or a combination to fit their workforce and their budgets.
Consider discussing the following four strategies with your benefits consultant:
1. Employer-sponsored account-based health plans: An account-based health plan is a consumer directed strategy that can pair a choice of group health insurance plans with a tax-advantaged medical spending account. Options include:
2. Private and public exchanges
Health insurance exchanges (also called marketplaces) are Web portals where individuals and businesses can shop for and buy health insurance. They’re gaining popularity and can make benefits administration easier for businesses. Plus, they give employees the option to purchase health care coverage that fits their needs and their budget. Regardless of your company’s size, private exchanges can help your company offer a variety of benefits options, including major medical and voluntary products. And if your company has fewer than 25 full-time equivalent (FTE) employees, you may be able to take advantage of tax credits through a government exchange option called the Small Business Health Options Program (SHOP).
3. Voluntary insurance
Another way employers can help provide an extra layer of financial benefits protection and a broader benefits package to their employees is by adding voluntary benefits to their employees. Unlike major medical insurance, voluntary policies pay cash benefits directly to the policyholder (unless assigned otherwise) if they get sick or injured. Research shows that, when compared to employees who aren’t offered voluntary benefits through their employer, those who are and enroll are more likely to say their current benefits package meets their family’s needs extremely well or very well.3
4. Outcomes-based initiatives
Companies are beginning to establish ways to keep providers and employees accountable for health outcomes. For providers, employers can look to bundled pricing arrangements with their insurer so employees get the best rates with doctors and hospitals with proven track records for success. For employees, companies are increasingly looking to health screenings and incentives. In 2015, 16 percent of businesses expected to introduce health care incentives, and more than 3 in 5 businesses (64 percent) with wellness programs include a wellness screening component.3
Although every business and workforce is different, the importance of having employees who are adequately protected by their health care coverage is increasingly a constant. Savvy leaders find a way for their businesses to succeed and build a health benefits package that meets their employees’ needs while actively controlling rising health care costs. New innovations in the health care market and trusted consumer-directed strategies can help employers to play differently.
1The New York Times (2014). Is the Affordable Care Act Working?, accessed on Oct. 29, 2015, from http://www.nytimes.com/interactive/2014/10/27/us/is-the-affordable-care-act-working.html.
2Kaiser Family Foundation (2015). 2015 employer health benefits survey, accessed on Oct. 29, 2015, from http://kff.org/private-insurance/report/2014-employer-health-benefits-survey/.
3The 2015 Aflac WorkForces Report, conducted on behalf of Aflac in Jan. 2015 by Research Now, accessed Oct. 29, 2015, from workforces.aflac.com.
4PricewaterhouseCoopers (2015). Behind the numbers: 2016 health care and medical cost trends report, accessed on Oct. 14, 2015, from http://www.pwc.com/us/en/health-industries/behind-the-numbers/index.jhtml.
5NerdWallet (2014). NerdWallet Health finds medical bankruptcy accounts for majority of personal bankruptcies, accessed on Oct. 14, 2015, from http://www.nerdwallet.com/blog/health/2014/03/26/medical-bankruptcy/.
This material is intended to provide general information about an evolving topic and does not constitute legal, tax or accounting advice regarding any specific situation. Aflac cannot anticipate all the facts that a particular employer or individual will have to consider in their benefits decision-making process. We strongly encourage readers to discuss their HCR situations with their advisors to determine the actions they need to take or to visit healthcare.gov (which may also be contacted at 1-800-318-2596) for additional information.