The escalating costs of employer-sponsored health care insurance have become a ubiquitous concern. As per the annual Kaiser Family Foundation survey of over 2,000 U.S. employers, the typical American premium for employer-sponsored health insurance. has surged by 7%, a significant spike compared to last year's mere 1% increase.
Approximately 153 million individuals in the United States relying on employer-provided health insurance witness annual hikes in their premiums. Typically, the burden of health insurance costs is shared between employers and employees, with employers covering an average of 71% of the premium, according to Kaiser's survey. The 2023 surge in rates has particularly alarmed companies, especially with the concurrent rise in prices for various other products and services.
Despite the survey's national scope, the Greater Bay Area faces even higher rate increases. In 2023, the region witnesses an average increase ranging between 10 and 15%, with outliers in both upward and downward directions. In the fully insured market, prevalent among numerous local employers, options to control costs are scarce.
Health insurance benefits represent a substantial expense for organizations. While not all employers are presently anxious about escalating premiums, it's a looming concern they ought to address. The consistent pattern of annual premium hikes, often coupled with benefit reductions beyond their control, has left everyone fatigued.
In discussions with employers regarding this critical issue impacting their financial performance, potential solutions have been explored. Although many local employers lack the financial means to wholly self-fund their medical insurance, there exist opportunities to mitigate the impact of rate increases.
Health Reimbursement
One promising avenue is the Individual Coverage Health Reimbursement Arrangement (ICHRA). This type of health benefit plan empowers employers to reimburse employees for their individual health insurance premiums and qualified medical expenses. ICHRAs offer flexibility and cost control for employers while enabling employees to select insurance plans aligned with their healthcare needs. Key features include:
Employee choice: ICHRAs enable employees to choose individual health insurance plans tailored to their needs, unlike traditional group health insurance where the employer selects a plan(s) for all employees.
Reimbursement: Employers set a monthly allowance or reimbursement amount for employees to offset individual health insurance premiums and eligible medical expenses.
No minimum contribution: Employers aren't obligated to make a minimum contribution but must offer the ICHRA to all eligible employees. Contribution amounts can vary by employee class.
These plans comply with Affordable Care Act mandates and can be advantageous for companies seeking alternatives to managing traditional group health insurance, while also allowing employees the freedom to select suitable coverage.
Premium Funding Strategies
Employers traditionally cover a percentage of an employee’s health insurance premium. However, with annual increases ranging from 7% to 15%, funding premiums through an employer/employee cost-share strategy is becoming increasingly challenging. Employers should consider modeling different funding options:
Defined contribution: Employers contribute a fixed amount toward premiums, unaffected by rate adjustments. While this favors employers as costs increase, employees bear a higher expense, potentially causing dissatisfaction.
Level funding: This self-funded approach involves the employer paying a monthly premium to cover administration, claims, and stop-loss insurance. It offers advantages over fully insured plans, including potential premium refunds if claims paid are lower than anticipated.
Amidst soaring health care costs, exploring alternative approaches like level funding and innovative premium funding strategies is crucial. These approaches enable employers to deliver quality health care benefits to employees while effectively managing expenses.
While the future of substantial health insurance premium increases remains uncertain, adapting and innovating in health care benefits, including plan design and funding strategies, remains pivotal in addressing the incessant financial pressures on businesses and their workforce.