Employers with three to 49 workers offering coverage dropped from a high of 66 percent in 2010 to 54 percent in 2015.
Health insurance experts have been predicting the eventual migration away from group employer-sponsored plans to individual plans for some time now — even before the passage of the Affordable Care Act (ACA).
Those who see this change as inevitable compare it with the supplanting of employer-paid pensions by 401(k) accounts as an example of how an industry can change in a relatively short period of time. Recent data shows that the shift away from group to individual health insurance coverage is underway, but is occurring at a slower rate than many experts predicted.
However, the erosion of employer-sponsored group coverage isn’t happening across the board. It is occurring mostly in the small group market — specifically, those small businesses with fewer than 50 employees. In some regions, small groups are breaking up swiftly, while in others the change is more gradual.
Regardless of the timing or geography, however, industry analysts and researchers concur that the shift to individual health coverage in the small group market is undeniable. Even though nearly 90 percent of businesses view health insurance as important to recruiting and retention, the number of companies offering health-related benefits actually dropped by 5 percent from 2014 to 2015, according to a 2015 report by the National Small Business Association.
This is reinforced by Kaiser Family Foundation data for 2015 indicating that the likelihood of offering health benefits differs significantly by size of firm, with only 54 percent of employers with 3-49 workers offering coverage, compared with 97 percent for firms with more than 100 workers.
The individual market has shown explosive growth in a relatively short period of time. At the end of the first quarter of 2015, more than 20.1 million people had enrolled in individual, non-group medical plans — nearly double the number who were enrolled at the end of 2013, according to reports by Mark Farrah Associates and the Kaiser Family Foundation. Contributing to this growth is the disaggregation of small groups.
A wide range of industry, employer and consumer forces are converging to drive this shift from small group to individual coverage.
For many years, the rising cost of group health insurance and the lack of access to affordable individual insurance have been a driving force behind reform efforts, most importantly the ACA. Many small employers have been exempt from ACA plan benefit requirements so far, and are continuing to offer their pre-ACA plans to employees. These protected plans are commonly referred to as grandfathered plans. However, once the ability to extend noncompliant coverage expires in 2017, it is expected that more small businesses will cease employer-sponsored coverage for their employees.
As group rates increase and more individual options become available, employers are opting to cease coverage for some workers (part-time, hourly, retirees) or all of their workers, who will then purchase individual coverage through public or private exchanges. This is evidenced by recent market data from the Kaiser Family Foundation indicating that employers with 3-49 workers offering coverage dropped from a high of 66 percent in 2010 to 54 percent in 2015.
Since the advent of government subsidies through the ACA, workers often have been caught in the middle. Without employer group insurance, workers would qualify for a subsidy while the group premiums available to them are too high for them to afford. As group disaggregation continues, workers are taking a more active role in understanding their coverage choices and associated costs.
We are seeing people move between small group and individual coverage with greater frequency than in years past. An aging population, combined with new consumer trends, make for greater movement between the group and individual coverage categories. Compounding that is the fact that consumers switch insurers at a rate of 34 percent per year, according to research from Gartner.
Dramatic changes in the employment landscape also contribute to the trend. The average worker today stays at each job for only 4.6 years, according to the most recent available data from the Bureau of Labor Statistics. More job changes mean a greater frequency of group-to-individual coverage events.
All these changes put more pressure on individuals — to provide their own health care, bridge gaps in income with savings, manage their own retirement planning, and invest in their own education to keep their job skills marketable and up to date.
This underscores the need for insurers to view their customers not as members of groups or individual policyholders, but as consumers who need to be matched to the right products to meet their needs at a particular point in their lives. Instead of the traditional episodic approach, insurers can set a higher, longer-term goal of gaining “members for life,” retaining consumers as they move between group and individual coverage and ultimately into retiree coverage over their lifetimes.
As the disaggregation of small employer groups continues, insurers need to create a smooth continuum of coverage for non-group individual consumers: under 65, not retired; under 65, retired but not Medicare-eligible; and over 65 and Medicare-eligible.
Here are three main reasons why it is important for insurers to retain their small group members if they lose coverage.
1. Small groups are usually fully insured and therefore represent significant loss of financial value per member.
2. The members who transition from group to individual coverage are likely to have a better risk profile than those in the broader individual member market.
3. With customer acquisition costs ranging from $100 to $1,000 for insurers, it is much less costly to retain an existing group member than to try to replace them.
How can insurers succeed in gaining members for life? The foundation of an insurer’s member-for-life vision is to make it compelling and convenient for consumers to stay with their insurer as their employment situation, health and other insurance needs evolve over a lifetime.
One way to do that is to leverage e-commerce through a private exchange platform to make the group-to-individual transition experience outstanding. When group coverage is no longer available or employees terminate employment or retire, the bridge to appropriate, affordable individual coverage should be seamless.
For workers who are already on a group private exchange, the insurer can guide the workers through the shopping and enrollment process for individual coverage. For workers who are not already on a private exchange, the employer can provide a roster, enabling the insurer to reach out to invite the worker to register, shop and enroll in coverage. Ideally, the private exchange should help subsidy-
eligible workers obtain and use their government allowance.
The group-to-individual migration creates new opportunities for insurers to leverage their private exchange for e-commerce across all group and individual lines of business. The benefits to workers, employers and brokers are significant. Workers benefit by transitioning to affordable subsidized or non-subsidized coverage that suits their personal needs and situation. Employers benefit with more options for managing costs and maintaining loyalty. Brokers benefit by retaining customers while taking advantage of a new channel for voluntary product sales.
As the U.S. insurance market continues to evolve, insurers and consumers alike will gain as insurers take a more holistic view of consumers. Distinctions between group and individual segments will become less important over time. When the high cost of acquiring new customers and the unique financial characteristics of small groups are taken into consideration, insurers will want to look for new ways to retain members. Ultimately, the goal for an insurer will be to match each consumer with the health and voluntary products that best meet their needs at the particular time of their lives, regardless of line of business.
Jonathan Rickert is CEO of Array Health. He may be contacted at [email protected].