The Rising Cost of Health Insurance
It is becoming more and more difficult for Americans to afford employer-sponsored health coverage. Some individuals are taking drastic measures to afford health care, even to the point of turning down employer-sponsored care.
For 2019, premiums increased by an average of 4% for individuals and 5% for family plans. Workers’ wages, on the other hand, only increased by 3.4%. There’s a multitude of plans to choose from, but many employees opt for a high-deductible plan because the premiums tend to be lower. But with 2019’s maximum out-of-pocket expenses set at $6,570 for individual coverage or $13,500 for family coverage (these will increase to $6,900 and $13,800 in 2020), many employees will end up carrying their own health care expenses in addition to paying their premiums.
Why is this happening, and what can employers do to support the health needs of their employee populations?
“Health care and the private insurance business model in the United States are enormously complex,” says Etienne Deffarges, co-founder and operating partner at Chicago Pacific Founders and author of “Untangling the USA: The Cost of Complexity and What Can Be Done About It.” “This causes an increase in administrative costs, which feed back into increased health care and insurance costs.”
Here are the reasons why costs are rising — and what you can do about it.
The Cost of Administration
Each individual insurance company negotiates contracts and discounts with different health care providers. In practice this can become unwieldy as patients come in with a variety of insurers at different costs, Deffarges says. CPT codes are used to identify the specific discount each individual receives on certain procedures. Because of this, the cost and complexity of health care billing are immense, often requiring the employment of trained coders to untangle.
There is no single tech solution that can cover the expansiveness of the current private insurance system — which only adds further expenses, Deffarges says. There are multiple systems to learn, and none of them are designed to communicate with each other. And paper filing — which is costly and can easily become disorganized, causing further rises in expenses — is still in use in U.S. health care and insurance administration.
“Americans spend more on health care administration than the entire United Kingdom spends on the whole of health care,” Deffarges says. “Navigating the insurance system is so complex it’s no surprise costs are rising.”
While there’s little that employers can do to lower costs, they do have some options. For example, companies within individual state borders can get together to represent a larger employee population. Doing so gives employers more leverage to negotiate contracts with private insurance companies.
“If you represent a population of 5,000 employees, the insurance companies will respect that,” Deffarges says. This is a way to offer good coverage at a more efficient cost.
Providing the Right Plan
When it comes to providing coverage for your employees, it’s important to select good options. High-deductible plans are becoming increasingly popular because they’re less expensive for the employer to maintain, and the monthly premiums for employees tend to be significantly lower than the premiums for low-deductible plans. However, the deductibles can be so high that, in the long run, the employee won’t really save money at all.
“With a high-deductible plan, employees will have to pay a certain amount — up to $13,500 for families — before insurance will cover expenses,” says Erin Jackson, a health care lawyer and founding partner of Jackson LLP. “Ultimately you have insured employees who still can’t afford their health care.”
Offering plans that aren’t affordable reflects back on the organization, so it behooves your company to look at better insurance options, even if it raises employer costs. The ROI on better health care is increased retention and employee engagement.
One way to provide better services at a lower cost is by choosing a plan that includes telemedicine benefits. “Telemedicine costs less than traditional medicine,” Jackson says. “And employees appreciate the ease of access and time it saves.”
Ease Costs (and Confusion) Through Education
The health insurance system is so complex that even employers and health care providers struggle to understand it. “Providers expect patients to know the limits of their care, while patients expect providers to provide care that is consistent with their benefits,” Jackson says. “Nobody fully understands anyone else’s benefits, and relying simply on the cost to choose a plan only complicates an already confusing situation.”