Regardless of the decision on health care reform (which may come this week), employers know the cost to provide medical benefits will only go up.
We’ve heard the death knell. Countless surveys have been released — plus one notable House committee report —that declare health reform will be the final trigger for the slow exodus out of employer-sponsored health care unless employers can manage to keep costs down.
But is it really that simple? Our friends at consulting and research firm Oliver Wyman — who also helped create our own health care survey — released a new survey on Monday that examines where exactly health care benefits are headed. It adds more perspective and realistic scenarios to the “drop or keep"controversy.
For example, conventional wisdom is that size will be a key factor in determining which direction employers will take. But, according to the survey, size alone doesn’t matter. Employee compensation also comes into play, with about 10 percent of companies where employees make less than $44,000 a year plan to drop coverage (the report didn't go into detail on exactly when that will happen).
And a third variable, employer attitude, was the “single most important factor in determining which strategies employers are likely to pursue.” Employers will need to weigh costs with employee health, and will even have to decide whether not offering health care is unethical, considering fewer Americans have employer-sponsored coverage, and an astonishing 17.1 percent are uninsured.
"All employers face serious financial issues today, but some are more willing than others to tolerate the high cost of care, given the relative value they place on employee health and satisfaction," the report says.
It's clear not every employer's circumstance will be the same. But with these underlying factors in mind, Oliver Wyman was able to segregate employers into four segments, based on their risk of leaving the insurance market and their interest in new solutions:
1. Exit the market. This is the smallest segment, accounting for 8 percent of employers and 5 percent of employees. They tend to be smaller companies in manufacturing and retail, and their employees tend to be low-paid. They are driven by economics—these are companies that simply can’t continue to offer health coverage.
They believe the status quo is unsustainable, and they see little reason to pursue alternative solutions. It makes sense for these employers to send employees to the public exchanges, but they might be persuaded to try other alternatives—as long as they save money.
2. Follow the money. This segment makes up 22 percent of employers and 16 percent of employees. They tend to be small and medium-sized companies, with a concentration in retail and manufacturing, and they face severe financial pressures. Their employees have low to moderate wages, but the companies have a great interest in their health.
Their economic constraints coupled with the value they place on supporting their employees, create a difficult dilemma—to stay in or exit. Because they are concerned for their employees’ health, they are willing to try new solutions. But their focus is primarily on lowering costs. This segment may eventually exit the market if financial pressures continue and they find no palatable solution.
3. Maintain the Status Quo. This is the largest segment—42 percent of employers and 43 percent of employees. They tend to be medium to large companies, with a high concentration in business services. They're in relatively good financial health compared to other groups, and their employees are relatively high-income. They have a high level of concern for both employee health and employee satisfaction.
Cost of coverage is secondary. It's important to note that if health care costs continue to rise, this segment will probably migrate to the last segment, Imperative to Innovate, rather than exiting the market, given their strong desire to support employees and their favorable economics.
4. Imperative to Innovate. This segment accounts for 28 percent of employers and 36 percent of employees. They tend to be large companies from a wide range of industries—though with a lower concentration in retail and manufacturing. They are under a fair amount of financial pressure.
Companies in this segment have the highest level of concern with employee health, and they're somewhat concerned with employee satisfaction. They tend to have a paternalistic attitude toward their employees—they believe they can make better decisions about health care than their employees can.
Their work force is relatively highly paid, and if PPACA is upheld, its penalties will make it financially unfeasible for this group to discontinue health benefits. At the same time, they see the status quo as unsustainable. They must reduce costs but believe the right kind of benefit program can lead to better health and significant savings. They're actively looking for new alternatives to traditional health insurance.
So now that you've seen the statistics, which route are you likely to take?