This as-told-to essay is based on a conversation with Mike Smith, president emeritus of The Brokerage Inc., an insurance marketing organization. Smith has been in the insurance industry for nearly three decades. The essay has been edited for length and clarity.
I’ve worked in health insurance since 1993, selling health, life, Medicare, and long-term-care coverage. In that time, I’ve watched the market change dramatically.
Employers used to be able to choose among eight to 10 health insurance companies, with another 10 knocking on our door. Now, they’re largely choosing among four or five big carriers.
At the same time, healthcare costs have soared. Employers are being forced to choose between absorbing double-digit premium increases, giving employees raises, or changing the benefits they offer.
My company has about 100 employees, and we face the same affordability problem as every other employer. I’ve seen firsthand how healthcare inflation eats into raises, that’s why we started having honest conversations with workers about what health insurance costs and how we can find solutions together.
Health insurance costs are eating into wages
The pressure on premiums is driven partly by prescription drugs. When I started, drugs represented less than 5% of the premium dollar. Now, we estimate that they may account for 30% or more.
We have fantastic treatments, but some injectable drugs can cost $5,000 a month. Mental-health services are another growing expense. We want people to receive these treatments, but somebody has to pay for them.
Employers may want to provide a 3% or 4% cost-of-living raise, but health insurance premiums can increase 10%, 15%, or even 30%. At our company, the average monthly premium per employee rose from about $600 to $1,200 over seven years. We then have to make hard decisions about what we can and cannot afford, or find alternative solutions.
ICHRAs could transform employer-sponsored insurance
I don’t see many employees asking for individual coverage health reimbursement arrangements (ICHRAs) because most don’t know they exist. But the topic comes up at nearly every insurance conference I attend. It reminds me of when people were discussing 401(k)s before they became commonplace.
Instead of choosing one group health plan, an employer decides how much it can afford to contribute. Employees shop for individual coverage that includes their doctors and medications, then submit the premium as an eligible expense for reimbursement.
Employers may adjust contributions based on permitted criteria, such as age or location. For example, coverage may be more expensive for someone in the Bay Area than in a rural community. The employer might also cover a percentage of each employee’s premium rather than offering everyone the same amount.
The best comparison is what happened with retirement benefits. Pensions were once the primary way employers provided for workers’ retirements. Then 401(k)s put employees in the driver’s seat.
ICHRA could create a similar shift. I may say: I can afford to pay for some of your health insurance, but I cannot afford to pay for all of it. I’ll give you a dollar amount, and you can shop for the plan that best meets your needs.
That empowers employees as consumers instead of letting their employer make every decision. The networks will have to compete for individual buyers.
Employers and workers need to talk honestly
I think employers do a terrible job explaining the hidden cost of healthcare. Most of our employees may not have realized the company was spending $12,000 a year on their insurance. Without that context, they may think the employer is being cheap when a raise doesn’t materialize.
I would rather have an open dialogue about employees’ needs, our needs, and how we might meet them together as a team. Employees should tell us whether their doctors and medications are covered and whether another plan might work better.
For my company, after nearly 20 years with Blue Cross, we recently switched to Cigna. We offer employees a choice between a PPO copay plan and a high-deductible plan with a health savings account, which we contribute to. All those changes saved us about $100,000, and that’s money we can now turn around and give to our employees.
I do believe that in the long run, we’re heading toward an expansion of Medicare. It may be a better solution in some respects because, from a customer service perspective, doctors know what they’ll be paid, and people clearly know how much it’ll cost. The question becomes: how much does it cost the country to bring that to the marketplace? No one can absorb endless healthcare increases, so we’re moving in the Medicare direction even if we don’t want to admit it.
