There is no doubt that health care reform will result in plenty of changes over the next few years in terms of how we access and pay for health care. Clarifying Health has a thought-provoking article in last week’s Cavalcade of Risk, discussing how health care reform might result in more people being covered by individual health insurance policies, and fewer people covered by group plans. The article is well-researched, and presents a lot of good arguments for the idea that group plans could become less popular over the next few years. But there are some other possibilities that need to be considered too.
First is the reason employers offer group health insurance benefits in the first place. Benefits are a way to attract and retain talented employees. If company A and company B both pay the same salary to their employees, but company A also provides a generous 401k match and a comprehensive health/dental/disability/life insurance package, potential employees are likely to choose company A, and are more likely to continue to work there than they would be without the benefits. Retaining employees (and thus not having to continually train replacements) is a cost effective way for businesses to operate, and for many employers it justifies the money spent on group health insurance plans.
Another factor that might encourage small businesses to retain their group health insurance plans is the tax credits to help pay the premiums for small group coverage for employers with fewer than 25 employees. The credits start at up to 35% of the cost of the premiums this year, and rise to up to 50% of the premiums by 2014. Combined with the desire that employers have to provide health insurance as a tool to attract and retain quality employees, the tax credit could be a powerful motivator for small businesses to offer group health insurance coverage for their employees.
The final issue that comes to mind is the pricing of health insurance. Currently, individual health insurance is less expensive than group health insurance, primarily because of medical underwriting. Most of the individual health insurance carriers we work with in Colorado are not able to accept applicants with serious pre-existing conditions. For less serious conditions, the premium is often increased or a specific exclusion is written into the policy regarding the pre-existing condition. But group health insurance is different. All eligible employees who enroll have to be covered, regardless of medical history. Exclusions can only be added to the policies if the person has not had continuous coverage, and such exclusions are temporary. Basically, insurers are taking on more risk in the group market, and the premiums are higher as a result. In 2014, when individual health insurance is guaranteed issue, it makes sense that we should start to see prices for group and individual health insurance policies start to equalize a bit. The primary factor that explains the current pricing difference – underwriting – will cease to be an issue. So it makes sense to think that there won’t be as much motivation for healthy people to switch from group coverage to individual coverage.
It remains to be seen how health care reform will actually impact the breakdown of individual versus group health insurance. Currently, there are far more people with group coverage than individual policies. The balance might shift a bit as health care reform takes effect, but I doubt that there will be a mass exodus away from group plans in favor of individual coverage.
