How Obamacare can fix employer health benefits

Employers continue to struggle to pay for their workers' health benefits due to rising healthcare and related benefit costs, which have been increasing at a rate 3 times that of wages since 1999. And that's only after substantial decreases in coverage levels year after year. These inevitable annual increases are a primary reason that only 9 percent of employers now pay the full cost of their workers' health benefits.

For employers, it can seem like there is no way out of the cycle of increasing health benefit costs and decreasing worker satisfaction. But there is some new thinking driven as much by the changing nature of our workforce, as by the frustrations about the health benefit dilemma. Access to the Affordable Care Act could provide a better alternative for workers and their employers than traditional employer based health benefits.

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Employers as a "pooling" mechanism may no longer work that well

Today's employer-sponsored health benefit plans have more history in politics and taxes than cost and risk, and they no longer make sense. The whole value of pooling Americans based upon where they work only functions when the worker base itself is homogeneous and stable.

But today, with the average millennial worker's tenure of three years, and declining, that necessary stability is disappearing. Employers' obligations (under COBRA) to continue former workers' benefits increase risk with increased turnover. Why? Because former employees who continue benefits on COBRA are generally sicker, and when costs are pooled traditionally, active workers' costs go up.

Finally, in the new post-ACA environment, workers' family members have vast new alternatives for their health financing. With declining family size, and decreasing financial support levels for family members from employers, decreasing family member participation is the result. But that decline in family member participation now contributes to further destabilizing the employer's traditional pooled program.

The new alternative - a much bigger and more stable commercial pool

The "new" individual market, with 22 million Americans, is an unexpected, but refreshing alternative for employers that provides access to the largest and most stable commercial pool in the country. Most large employers confuse this with the public exchange market from and similar states. Surprisingly, half of the 22 million individual enrollees are not part of these public exchanges, but instead are in private plans sold by private exchanges, brokers or directly from Aetna, Cigna, Anthem, Humana, Unitedhealth and dozens of other Blue Cross/Blue Shield Plans. (Most of these companies also sell individual health plans through public exchanges, although recently Unitedhealth indicated it may discontinue selling individual health plans on those exchanges because it is losing hundreds of millions of dollars.)

And Americans with heightened sensitivity to confidentiality and privacy, may find themselves uncomfortable with the increasingly overt interventions into the very unique decisions their workers make in selecting doctors, diagnostics and medical treatments. When employees are allowed to shop and purchase in a nationally pooled system that is not employer-by-employer specific, and interventions are instead managed elsewhere, it's no longer an employer/worker issue.

Employers and the individual market - can this really work?

Employers who are considering the broader alternative in the new individual market for their employees have plenty of questions of their own:

• What is the process?

• Can it be done in an ACA compliant way?

• How is the tax preference maintained?

• Is this really a way to differentiate from our competitors in the fight for great workers?

• What about the political threats to turn the market upside down again?

New companies that have emerged over the last couple years with models that leverage the new individual market have a variety of ways to answer these, and this industry is in its infancy. However, employers will continue to wonder if their workers are equipped to navigate such open markets.

Consider the introduction of the 401(k) as an example of a successful marketplace shift. Before the 401(k), employers created pension funds that workers benefited from but had no control over. Now, pensions are a rarity, and most employers give their workers the ability to pick from a wide range of retirement funds or to invest in an individual brokerage product. What did it take to get to that point? It took the workforce investing in education, and trusting that the smart people hired to run the business are just as smart when it comes to making decisions about their own future. A health benefit transition to a new individual model can learn a lot from this previous experience.

Companies have to determine their appetite for change and risk, and find the right time to make the transition if it makes sense for their employee base. But if they do decide to make this change, they will be a part of disrupting an industry that has been playing by the same (no-longer-relevant) rules for over 100 years. It will take vision and leadership to change the benefits industry to better serve both employers and workers. And allowing workers the power of personal ownership only available in the individual healthcare market is the first step in the right direction.

Commentary by Denny Weinberg, CEO of Hixme, a digital health care benefits consulting platform. Weinberg is a 20-year veteran and co-founder of WellPoint (later merged with Anthem) and is widely considered an architect of the modern day PPO and the grandfather of today's Individual market model.

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