Health Plan Choices Limited, Post-ACA

The anticipated product expansion following passage of the Patient Protection and Affordable Care Act (ACA) has not come to fruition, says Jim O’Connor, CEO of CBIZ Employee Services Organization in Manasquan, New Jersey.

First, carriers in the health insurance marketplace have continued to consolidate, leaving fewer choices in carriers. O’Connor observes that being bigger matters. When an insurance carrier is larger, with greater market share, it has greater leverage over health care providers in negotiating reimbursements. Likewise, hospital and physician groups are merging because they need scale to negotiate with insurance carriers.

Further, insurance carriers are selling fewer plan design options. “Plan design flexibility has reduced significantly,” O’Connor tells PLANSPONSOR. He says this is especially true in the small employer marketplace, although the greater-than-100-employee marketplace shows more flexibility.

Plan designs from insurance carriers are getting more restrictive within networks of providers; there are networks within networks. O’Connor explains this is an effort to steer employees to ultra-preferred doctors and facilities with the best contracts and that offer the best quality of care. “Right now, it appears to be very heavily financially-driven, and it can put a burden on employees that live in rural areas,” he says.

But another factor driving the reduction in plan design offerings is the efficiency of managing products. Carriers have bold legacy systems in place, and it can be burdensome and expensive to provide hundreds, if not thousands, of product configurations. “With any manufacturer, if it reduces the number of offerings, it gets better efficiency, and with better streamlined distribution, profitability is enhanced,” O’Connor says. He adds that insurance carriers want to influence purchasing of the type of plans they think will result in lower loss ratios; for example, high-deductible health plans (HDHPs) will result in lower loss ratios than co-pay plans.

O’Connor notes that the HDHP trend started before passage of the ACA, but greater adoption has followed that. This is an ongoing effort to reduce premium costs, but, as far as improving health care consumerism among employees, there still are no solutions in place to help consumers compare costs of providers or procedures, he says, although he believes this will come.

Still, in the smaller and midsize employer space, more employers are adopting HDHPs, not a plan design where they can use health savings accounts (HSAs) but health reimbursement accounts (HRAs), by which the employer will subsidize employee out-of-pocket expenses. O’Connor says these employers are interested in some form of self-insurance. Employers are looking to bear more risk with partial self-insurance, and, in the 100-or-more-employee space, employers are considering true self-insured plans.   

O’Connor believes the market will see insurance companies accommodating employer demand for hybrid self-insured programs, as companies are tired of turning over full premium dollars that are escalating 8% to 10% per year.

According to O’Connor, the explosion in the use of private exchanges never occurred, as anticipated, but employers are offering employees two or three health plan options to provide more choice.

In addition, well-being programs are taking hold in the mid-market space, and it is being proven that well-designed, well-managed such programs do have positive impact on health costs. O’Connor believes all of the trends he mentioned will accelerate at a compounding rate over the next 10 years.

Meanwhile, employers are increasingly interested in voluntary benefits to fill the benefit gaps. Employers cannot fund them, but they can give employees access to quality products. In addition, in the smaller employer market, there is a demand for efficiency. These employers want an easier administrative environment—to get out of paper enrollment and integrate benefits technology.