Where employer-sponsored benefits plans are headed in 2023

As the costs of offering benefits to employees continues to outpace inflation, many employers often have these questions:

• Why are we offering these to employees?
• Why are we expected to pick up the tab, when employees can buy things like health insurance on their own?
• Why do we need to offer benefits when governments around the world take care of it and leave the employer out of it?

All valid questions. To answer them, it is first important to understand the story behind employer-offered benefits.

A history of employer sponsored health insurance

During World War II, Congress enacted the 1942 Stabilization Act. The act was designed to limit an employer’s ability to raise wages, which made it more difficult to compete for employees based on traditional pay. This led employers to get creative by offering health benefits to compete for workers — as benefits were considered additional compensation but did not count as income (bypassing the Stabilization Act).

Post-World War II saw the evolution of healthcare coverage options, as strong labor unions began to negotiate for better benefits. Following the lead of union-negotiated packages, more non-union organizations began offering their own employee benefits.

Thus, further cementing employer-sponsored health insurance — and now other group benefits — as the most common form of access to health insurance coverage in the U.S.

After the American employer-sponsored health insurance system was developed other industrialized countries began to nationalize their health coverage:

• England: 1948
• France: 1945 (employees and retirees), 1966 (self-employed) and 2000 (unemployed)
• Sweden: 1955
• Canada: 1984 (Canada Health Act)

North Bay health insurance

Since we started in the employee benefits business over 20 years ago, we have seen insurance companies come and go, and products that were supposed to bring costs down do the opposite a year or two later.

From the closure of Health Plan of the Redwoods to the introduction of HSA-qualified plans that lowered premiums by up to 40% and reduced out of pocket maximums to as low as $1,500 for the year.

Some things have gotten easier such as the elimination of the requirements for proof of domestic partnership, or proof that a dependent is enrolled in college.

However, some simply have not, rates have continued to climb, often percentages in the double digits. At the same time, copays, coinsurance, deductibles and out of pocket maximums have all increased.

Nobody wins. Costs increase for the employers (and for the employee as they’re sharing in the premium cost) which shrinks a company’s profit. Employees and dependents get squeezed because it costs more to go to the doctor or have a planned or non-planned medical service. On a high-deductible health plan, it is common for a regular visit to a doctor to cost upwards of $200.

Low-cost health-maintenance organizations, such as Kaiser, Western Health Advantage, and Sutter Health Plus, have been in the North Bay for some time. These HMOs have been a less expensive option to a traditional HMO or PPO with a carrier like Blue Shield of California or Anthem Blue Cross.

But even those options are becoming less attractive to employers either due to a reduced doctor network or increased costs.

New direction locally for health insurance

Employer-sponsored health insurance plans here in the North Bay are largely fully insured — where the employer pays a premium and the insurance company takes on the risk — 63% of U.S. workforce is covered by some form of self-funded health plan. As time goes on and the trend of plan adjustments and premium increases continue, we believe that the employer-sponsored health insurance market here in the North Bay will have no choice but to shift toward some form of self-insurance.

Smaller (under 100 employees) employers in the North Bay have already started this transition — moving away from a traditional fully insured plan with what one would call “good benefits,” to a very-high-deductible fully insured plan with an employer-funded account attached to it.

These allow the employer more control over the benefit an employee receives as well as potential savings based on how the employees utilize the plan. For example, we have a client who fully funds the deductible for an employee and their potential annual risk is $250,000. In a normal year, they may only use $45,000 of that $250,000. This has allowed them to consistently offer a stellar benefit without having to pay out the benefit (if utilization remains consistent).

The scenarios outlined above are just the tip of the iceberg when it comes to forms of self-insurance. We foresee this as the way of the future here in the North Bay. So, to stay competitive as an employer, we recommend further educating yourself and investigating options.