by Scott MacStravic
April 18, 2007 at 12:07 pm
· Filed under Insurance, Health Plan/Payer CEOs
US employers have a long, though strange history of investment in health benefits for their employees. It started mainly when there were wage freezes during WWII and fringe benefits such as health insurance were one of the few ways employers had to help them recruit and retain employees. But after sixty-odd years, employers are considering different approaches.
Most are already disinvesting in health benefits, reducing their obligations via defined-contribution limits, consumer-directed health plans, reductions in coverage, and cost-shifting to their employees. Much of this has been justified as necessary to give employees enough “skin in the game” to motivate them toward healthier living and more prudent use of health services, since such services seem to have no brakes on how much they cost.
A growing number, though still a minority of employers have divested employees of their health coverage entirely, often after years of limited and grudging investment in the first place. It seems possible that the proportion of employers offering health insurance, already only about 60%, will drop below a majority, as many claim the costs of this benefit makes them unprofitable, uncompetitive, or both. It seems widely accepted that employers’ direct contributions to employee health insurance will eventually become a thing of the past.
But there is a large and still growing number of employers who are diverting their health investments in employees. While shifting more sickness care costs to employees is still practiced by many of these, the general pattern is one of new and increasing investment in proactively managing their employees’ health. The evidence is growing that such investments pay off in terms of not merely lower health insurance premiums, but reduced absences, increased productivity while at work, and a wide range of performance improvements attributable to employees’ being both healthier and happier.
Even if employers are eventually divested of their obligations to pay directly for employee health benefits, it seems likely that many will still invest in employee health maintenance and improvement. Employers in Europe and other developed nations, though often excused from any direct responsibility for employees’ health insurance, have begun investing in their health, instead. Many employers, including governments, have achieved dramatic reductions in worker absences and turnover, while gaining new business and higher customer loyalty, thanks to better-performing employees.
The Health & Performance Magazine, published by VieLife, includes many examples of such achievements, mainly in the UK. But other countries have also reported similar productivity, performance, morale and retention improvements. These have typically proven greater than reductions of health insurance, even in the US, where large, self-insured employers tend to be leading the way. And if the burden of paying health insurance premiums is removed, these “indirect” gains are likely to remain significant enough to justify continuing and even increasing investment in future.
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In 1974, the State of Hawaii passed a law that required employers to pay for their employees’ health insurance coverage. The employee had to work more than 20 hours a week and was obligated to pay no more than 1.5 percent of their wages as a contribution. The law requires a fairly comprehensive set of benefits to be in the plans sold to those employers. After court challenges re ERISA and a subsequent act of Congress to exempt the law (it was enacted just before ERISA) it now remains on the books and is the backbone of Hawaii’s private health care delivery system. When economic times are good, the numbers of uninsured go way down. When times are bad, it acts as a hedge against employers dumping coverage. Also, employees have to accept the employer’s health coverage or show proof of coverage from somewhere else. So in Hawaii, employers can’t run, neither can their employees. They can move or use under-the-table tactics, but you got to play.
One more point, given the particular language of the Congressional exemption, if the state legislature were to do anything more than very minor changes, then the whole exemption would be threatened. So it has stayed in place now for over 30 years. Mandated benefits, for example, are enacted through the ‘insurance law’ and not the Hawaii prepaid health care law.
Hawaii is unique, although given what’s happening in Massachusetts, getting less so all the time. True, employers do complain that insurance rates hurt business. Doctors and hospitals complain they aren’t paid enough. But the law forces everyone to play and pay. And Hawaii has some of the lowest insurance premiums in the country as a result. Other factors may contribute, of course — two large non-profit insurers dominate the market for example.
Now why do I bring this to our collective attention? First, employers do seem to be able to live with providing first rate coverage, but only if mandated. Without it we would experience the deterioration that we now see in other states, no doubt about it.
But second, and this is a point my Hawaii experience reinforces, it seems to me, employers act as a significant player in the economic checks and balances when it comes to the financing of health care. They ask the tough questions, push the cost justification envelope and are often there to contend with special interests trying to ransack the fiscal house. Employers are an organized and effective stakeholder. So this is why I think that decoupling them from health care will eliminate that critical, private sector voice that really helps to keep the whole system honest.
I guess that leads me to a more pessimistic appraisal of what employers would offer to keep employees healthy, if their skin in the game was eliminated.
I agree with you that when employers have more skin in the game by being liable for health insurance benefits, they are more likely to invest in their employees’ health, though often they only look at the problems that cause the most healthcare expenses, where when they look at productivity and performance impacts, they will find a totally different set of problems should be addressed. In any case, health insurance costs represent a large portion of the total costs of employee “unhealth”, roughly one-quarter overall, though that depends on the wage levels and productivity “multiplier” effect of employee absence and presenteeism, both of which tend to be higher for knowledge workers and professionals than for low-skill jobs. If this one-quarter were not a consideration, there might be fewer employers investing in employee health. But at the moment, employers are just waking up to the other three-quarters, and very large numbers of employers have been investing for years, even decades, based solely on the healthcare cost reductions they gain thereby. As they recognize they can gain four times as much by adding in productivity and performance effects, there should be a lot more investment.
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