Reports Of The Death Of Employer Sponsored Health Insurance Are Greatly Exaggerated
Mark Twain famously remarked “The reports of my death are greatly exaggerated” when The New York Journal published his obituary prematurely. The same can be said of the death of employer sponsored health insurance (“ESHI”).
About half of U.S. residents receive health insurance via an employer, and employers spend over one-half trillion dollars on health benefits. A 2011 McKinsey Global Institute study stated that “Overall, 30 percent of employers will definitely or probably stop offering ES[H]I in the years after 2014.” The study received a great deal of notoriety, and others including myself have argued for similar long term results. However, McKinsey subsequently walked its statement back, saying: “The survey was not intended as a predictive economic analysis of the impact of the Affordable Care Act. Rather, it captured the attitudes of employers …”
2013 data via the Kaiser
Family Foundation: kff.org.
At a portfolio company retreat last week, I heard several health plan experts talk about the future of the ESHI market. The consistent message was: many employers and their employees continue to place high value on health benefits; there’s no sign that they will be discontinued; and in fact employers and employees are actively looking for ways to create more value in this arena.
This message is supported by research showing that, as of late 2014, very few companies had moved to drop or narrow health coverage (1). The shifts from ESHI to public exchanges that have occurred have been concentrated among smaller businesses and early retirees. The economic incentive for dropping ESHI is much stronger for companies whose average wage is low.
The discussion I attended was oriented to larger employers with higher-wage employees: “living wage” and higher. Here is what we heard:
• These employers are not in any hurry to send employees to the public exchange. They are concerned about their ability to attract and retain talented employees, and they believe their employees care a great deal about a healthcare benefit. As the labor market has come back near full employment and shown signs of rising wages, these concerns have probably become stronger.
• Some major employers evidence a mission to improve the health of employees that goes well beyond standard health benefits. ComCast and Bank of America were mentioned. Google, IBM, and Microsoft are other examples of companies that have impressive employee health and wellness programs.
• Private exchanges are developing, often sponsored by the major benefit consulting firms. They offer employers a way to provide their employees many of the benefits of a public exchange — a broad range of choice, a sophisticated portal to buy and manage benefits — while enabling the employer to customize the plan and offer it as a proprietary employee benefit.
• The tax benefit of ESHI remains important for employees in the top half of the income distribution who pay significant income taxes.
The corporate wellness market also remains strong, providing further evidence that employers are not backing away from health benefits. The U. S. corporate wellness market is about $10 billion and shows healthy growth despite persistent questions about success of many wellness programs. The consumer wellness market also shows robust growth and is touted as the “Next Trillon-Dollar Industry”. Employers and employees share a strong desire to make progress on wellness, despite the mixed results that have been achieved so far.
Could McKinsey be wrong? As a former long-time McKinsey competitor, I must of course recuse from answering the question. And I personally believe that the economic and social arguments for separating healthcare funding from employment are very strong in the long run.
It’s clear, however, that employer sponsored health insurance has a strong reason-to-be. It still delivers strong value to many employers and their employees, it continues to develop new, sophisticated approaches, and of course there is a legion of companies and corporate employees who focus on delivering, managing, and improving it. For example, Comcast, one of the thought leaders in ESHI, has been a strong advocate of new health services that are often developed by entrepreneurs and venture-backed start-ups, for example retainer-based primary care (e.g., IoraHealth), telemedicine (e.g., TelaDoc), and health navigator services (Accolade) (2). EHSI and related corporate wellness services will be important markets for a long time.
Notes:
(1) It is far too soon to measure how many employers will drop ESHI and move employees to public exchanges. In 2014 the public exchanges had a rough start, and the King v. Burwell case challenging ACA subsidies, which has now been defeated, was pending before the U.S. Surpeme Court. This shift could gain momentum in the future as the post-ACA environment becomes more mature.
(2) NAV.VC, in which I am a partner, is a venture capital investor. Neither I nor the firm have a financial interest in any of the companies mentioned in this post. We do invest in similar companies.
Originally published at www.forbes.com on August 16, 2015.