Looking back on the first year of full ACA implementation, one of the most notable events is one that didn’t happen: widespread “dumping” by employers to the public exchanges. When the law was passed in 2010, many saw it as a mortal blow to employer-sponsored health benefits, with some analysts predicting that as many as 35 million employees would lose employer health benefits. Those projections turned out to be wildly off base: The group market is alive and well, and in some ways stronger because of health care reform. In fact, a case can be made that reform will ultimately improve the quality of group insurance offerings as insurance issuers learn to compete for consumer attention in the individual market and import those lessons to the group segment.
Certainly, the availability of federally subsidized coverage in the individual market did not lead to a rush for the exits by employer health plan sponsors, as many had predicted. It was a case of the dog that didn’t bark. Yes, the proportion of firms offering health benefits was down slightly in 2014 – but this is the continuation of a 15-year-long trend. The anecdotal accounts in the news media of small employers dropping health coverage painted a misleading picture. While the small employers prone to dumping represent a lot of companies (90% of US firms have fewer than 20 employees), they account for a comparatively small number of workers (less than 20%), and a smaller proportion of group insured. To be sure, the loss of even a small number of small group lives is concerning to health insurers, for whom the fully insured small group business is traditionally a profitable segment. But in the big picture, the impact of health care reform on small group enrollment has thus far been muted.
Will that trend continue? There are a couple of caution flags. Some groups were able to renew their pre-ACA policies through 2014, and may re-evaluate at the next renewal. Some employers may have waited to see whether the post-ACA individual market is viable before trusting it to take care of their employees. We may see some further slippage as the next chapter of reform plays out. In effect, the existence of a robust individual market represents a new option for small employers and a new source of competition for insurers, who will have to work that much harder to retain profitable small groups.
In any event, those employees who end up on the public exchanges will find that coverage there looks a lot like what they used to get at work. One of the effects of the ACA benefit mandates was to force a convergence between the quality and value of benefits in the individual market and the small group market. From a consumer perspective, the two have become largely interchangeable.
The flip side of this convergence is that the employer group market will increasingly come to resemble the individual market in important respects. The word “consumerism” is on everyone’s lips in the health insurance world. Insurers have invested heavily in retooling and refitting their value propositions to compete in the exchange market where consumer choice is king. Innovative value propositions developed for the direct-to-consumer market will inevitably filter back into the group segment, especially as employees increasingly exercise more choice over plans on private exchanges such as Mercer Marketplace. As individual consumers come into focus for health insurers, they are increasingly incorporating concepts like customer lifetime value into their marketing and management decision-making.
Mercer has assembled a panel of experts to reflect on key health care reform developments and share their expectations for the future. John Larew is a Principal at Oliver Wyman, a leading strategy consulting firm and a sister company to Mercer, where he heads the Office of Reform.