Evolving Health Insurance Markets

In the ’80s and ’90s, when I began my consulting practice, conventional wisdom said that every working employee would be attracted by and benefit from traditional major medical insurance, of this there was no question. In the late 90’s we saw managed care in the form of HMO’s and PPO’s take on a larger role with employees willing to accept a certain amount of restriction in choice and control, in exchange for better and more affordable access to healthcare. In 2019, these traditional models no longer fulfill this promise for all but a select few of the highly compensated.

Why are traditional health plans losing favor among most employees? Answer: These plans are now governed by and dependent on disincentives, they do still serve an important function and enjoy a certain perception of value, but only for those who need to protect assets (homes, investments, and pensions) this demographic represents about 50% of salaried employees and only around 5% of moderate to low wage hourly workers. This is where the promise of traditional plans begins to fall apart. Providing a low wage worker with a plan that requires substantial shared expense up front and most tangible benefits pushed to the back end, is of little perceived value to that employee, therefore a rather dubious “benefit of employment”, yet we (brokers and employers) still believe we are providing the gold standard in employee benefits and everything else is settling for second best.

The recent emergence and popularity of “Access Based” plans (MEC and MEC Plus Hospital Indemnity Plans) aka (Value Based or Incentive based) among service sector employees (food, nursing home, hotel, agriculture, and retail) have been explosive, particularly after the Affordable Care Act became law. Employers who previously did not provide health insurance to working-class employees found that not only were these indemnity style plans affordable, they were more popular than traditional plans, largely due to the elimination of disincentive barriers such as deductibles and coinsurance. Unanticipated was the potential to retain employees with a relatively small budgetary impact, particularly when compared to the high cost of turnover.

What is the practical value to employers? Foremost among the benefits of offering first dollar (Access-based) coverage to hourly employees, is the positive effect that this has on recruitment and retention. In an economy that enjoys almost full employment, this approach offers a compelling reason for service (hourly) employees to stay with that employer, particularly if these benefits increase in direct proportion to the length of employment (escalator clause)

Salaried Employees are noticing as well: Interestingly, we are also beginning to see these “Access” plans moving towards greater acceptance among salaried class employee groups, A theory for this is that because indemnity plans have the flexibility of expanding to upwards of $150,000 to $200,000 in annual benefits (hospital/surgical, maternity and accident) more than enough coverage to provide acceptable treatment options for most dread diseases. Add to this the ability that we now can shop for catastrophic coverage without the concern that a previous condition would disqualify us, and you have the potential for a more affordable and flexible approach to traditional employee benefits planning.

Are first dollar access plans the answer for all employees? As we point out, there are individuals who prefer, and probably need to have coverage that focuses on the major expenses and protection of assets, while others, primarily those who prefer affordable access and may not have a concern about portfolio or property protection, who will gladly assume the risk of big medical expense (as minimal as it is) in exchange for affordable access to medical services. More importantly, the flexibility and value of Access plans represent a useful and effective tool for employers to creatively retain important workers and avoid the expense and disruption of high turnover.

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