Employer-Sponsored Health Benefits at Risk

Rising costs and the expectation of health care reform could be the perfect storm to change the rules of the game for employer-sponsored health insurance.

The amount of money workers and their employers contribute to family health insurance premiums in 2009 continues to significantly outpace inflation, forcing employers to make tough decisions about which employees are more likely to be offered the benefit.   Will the rising cost of health care coverage give more highly skilled workers a competitive advantage in the marketplace, and allow those workers that are in demand to have more control of their family’s health insurance options? 

A new survey of over 2,000 employers from the Kaiser Family Foundation and the Health Research and Education Trust finds that many U.S. workers will face a deterioration of employer-sponsored health benefits next year. 

The survey found that 40 percent of employers surveyed said they are likely to increase the amount their workers pay out of pocket for doctor visits. Almost as many said they are likely to raise annual deductibles and the amount workers pay for prescription drugs.

Nine percent of employers said they plan to tighten eligibility for health benefits; eight percent said they plan to drop coverage entirely. Forty-one percent of employers said they are "somewhat" or "very" likely to increase the amount employees pay in premiums -- though that would not necessarily mean employees would pay a higher percentage of the premiums. Employers could simply be passing along the same share of the overall increase that they are doing this year.

Report author and Senior Policy Analyst at the Kaiser Family Foundation Bianca DiJulio says it is significant that nine percent of respondents said they will tighten health insurance eligibility guidelines, which could mean restricting eligibility for coverage for certain levels of employees.  

According to Paul Fronstin, Director of the Health Research and Education Program at the Employee Benefits Research Institute, health insurance was historically offered by companies as a way to entice employees.   During World War two, labor was scarce, there were wage controls in effect and companies needed to attract workers using other means, so they turned to offering health coverage.  

“Today’s unemployment is almost 10 percent.   Being competitive in the labor market isn’t as compelling,” Fronstin says.  High unemployment, combined with highly skilled jobs being outsourced overseas and the skyrocketing cost of coverage could cause many U.S. employers to rethink the benefit all together, he says. 

“When health insurance benefits started, health care was cheap,” says Fronstin. “You didn’t have miracle drugs to lower cholesterol, bypass surgery, or MRIs. All the medical miracles that we benefit from today didn’t exist back then.   As a result it didn’t cost a lot.”  

One of the reasons employers never stopped offering health insurance is that there was no viable alternative.   Health reform could change that. 

“It’s the perfect setup to allow employers to get out of the health benefit business.   It will give them options as far as what they can offer,” says Fronstin.  “For the most part they [employers] don’t discriminate.  I think that health reform could push them in that direction.”

Fronstin believes health reform could allow employers to stop offering coverage, and give them more flexibility to attract the kind of workers that they want, either through offering more money or supplemental health care packages.   Much in the way pension plans have given way to 401(k) plans, which are more portable and not tied to a specific employer, health reform could create similar changes in health benefits.