Employers Are Lousy Purchasers of Affordable Health Insurance
Employees should take more responsibility for their health care and its costs. Every time I read statements like this I cannot help but add, “now that employers have gotten us in this mess of out-of-control health insurance increases.”
For decades, employers made all the decisions about what health plans employees would have access to and how much they would pay for it. Employers were the ones sitting down with health insurer representatives and reviewing current year’s claim data and health plan options for the upcoming year, and “negotiating” plan renewal costs. I digress, but if you ever participated in a health plan renewal meeting, you know that there isn’t much negotiating going on.
Typical Health Plan Renewal Meeting
Insurer reps come armed with a script about why their underwriters are asking for a certain percentage increase. The usual suspects are actual claims, earned but not yet incurred claims, demographics (too many females at child bearing age or too many mature employees), and our good friend, medical trend. Hospitals and doctors are simply charging more for their services. And let’s not even talk about the trend for prescription drug costs.
The VP of HR or Benefits Director comes armed with their script, “I can’t take a (high %) increase back to the CFO or CEO, what can we do to reduce this percentage increase.” They may ask to have a few percentage points shaved off because the insurance company underwriters may be too conservative in their estimates. Fair enough. They may ask for a downward percentage change because the large claims they are experiencing are not likely to continue because the person passed away or will no longer be on the plan for some other reason. Or they may insists on providing the latest demographics to show that the employee make-up has changed since they first provided census data.
In the end, the insurer was already prepared to shave off a few percentage points, but the increase is still significantly higher than the CPI or any raise in wages the average employee can expect.
So now the “negotiation” turns to plan design. What benefits can we legally eliminate that are big cost drivers or what cost-sharing changes can we make so that the employee bears the brunt of any increases. And to make this costs shifting more palatable, is there some useless benefit or feature we can add to make employees feel like they are getting more for their money this year.
The really good employer “negotiators” may take time to review the claims and eligibility data in detail to make sure the insurer’s proposed increase is truly representative of their group. They may request data on medical trend for the past few years, or engage in some other number crunching so that they can impress the CFO. But what they will not do is simply say “NO” to health insurance plan increases. They will not come together as one and use their considerable clout to push back on year-on-year health plan increases.
You know why I know this, because they never have. If employers had started saying a collective “no” to 8%, 10%, 12%, 15% and 20% health plan increases decades ago, health insurance costs would not be so high today. They (We) allowed it to happen. Employers were in a great position to negotiate affordable health care for all of their employees and they did not. They failed.
Why Don’t Employers Negotiate Better Health Insurance Rates
- They refuse to work together with other employers to increase their size and bargaining power
- They accept the insurers’ rationale for costs increases and assume change is out of their control
- They know they can always pass on costs increases to their employees
Employers had decades to work to control the rate of health insurance costs and did very little or nothing to achieve it. They say there is a price for failure. Currently employees are paying that price; will the employee benefit profession be next?
What do you think: Are employers largely responsible for the nation’s ever-increasing health insurance costs?