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Never fear, employer-based insurance will still be here


Jim O'NeilThis is a forecast insurers will be happy to see--traditional employer-based insurance will remain a significant market that will erode more slowly and less steeply than commonly thought. That's what Booz & Company has decided based on its research and analysis into the health reform law's impact on the sustainability of employer-based insurance. In fact, the title of its recent report, The Future of Health Insurance: Demise of Employer-Sponsored Coverage Greatly Exaggerated, says it all.

Many analysts have acted like doomsday is coming for health insurers as employers abandon the traditional employer-sponsored market, leaving insurers to naively and hopelessly navigate the new business-to-consumer market created by the health insurance exchanges. Sounds like a plot for a new summer blockbuster film. Of course, reality is never as black and white as Hollywood would like to script it as.

Booz & Company admits that a time of "more ambiguous change" is approaching, but it believes that change comes with plenty of new opportunities as well as challenges for insurers. It says employers are unlikely to abandon employer-based health plans and force workers to find coverage on exchanges. In fact, Booz predicts employer-sponsored plans "will serve as the foundation for insur­ers' future growth no matter how healthcare reform shakes out."

How can they make such a confident statement? In late 2010 and early 2011, the folks at Booz interviewed more than 150 executives and managers at employ­ers, association members, and policy experts as well as conducted employer focus groups and surveys with another 300 employers. Then they integrated the information into a model incorporating health plan premium data and estimates of likely consumer and employer decision-making behavior to evaluate the eco­nomic impact of various scenarios.

Booz found employer-sponsored insurance currently makes up 62 percent of the insured market, with 158 million employees and dependents enrolled through company health benefit programs. By 2016, when most of the major reform provisions are scheduled to be implemented, Booz predicts employer-sponsored insurance will still constitute more than 50 percent of the market, with 152 million members enrolled in group plans. Not bad.

Specifically, Booz projects that up to 7 million individuals will exit the employer-sponsored insurance market by 2016, another 4 million might be dumped because firms decide to stop offering coverage, and 3 mil­lion small-group employees will be switched. That's a maximum total of 14 million people--out of 152 million projected to still be enrolled in employer-based insurance. Not bad at all.

But insurers shouldn't get all cocksure just yet. Although the employer-sponsored group business is unlikely to erode as rapidly as predicted, Booz says health reform will "unequivocally diminish the financial viability of the health insur­ance industry." Every segment will experience declining profitability between now and 2016, though the magnitude of the impact will depend on insurers' busi­ness segments, so for example, insurers with more jumbo and government employers will see more stability.

Looking forward, Booz suggests insurers renew efforts to capture as much value as possible from their current core business. They should focus on managing employer costs and healthcare affordability and differentiating on medical value. Meanwhile, they should look for diversification and opportunities to expand market share.

The bottom line is still a good one. "Unlike many prognostications fore­casting rapid decline in the employer-sponsored insurance market, our research suggests that employer groups will remain a significant cus­tomer segment for health insurance plans," Booz says. - Dina