Come gather ’round people
Wherever you roam
And admit that the waters
Around you have grown
And accept it that soon
You’ll be drenched to the bone
If your time to you
Is worth savin’
Then you better start swimmin’
Or you’ll sink like a stone
For the times they are a-changin’
-Opening lines to Bob Dylan’s The Times They Are A’Changin’
An article in HIX/Health Insurance Exchange newsletter last week quoted an Aon study saying that more than 33% of companies will put their employees into private health insurance exchanges in the next few years; ; 66% would put their retirees into these exchanges in the next few years; and, 38% of the companies would offer no benefits to part-time workers within the next three to five years. On top of that, Aon found that 5% of the companies surveyed may drop employee health-care coverage in the next three to five years, an increase from 1% now.
A quote from the article: “Employers are telling us they are losing confidence in their traditional approaches, like vendor changes or employee cost-sharing,” which only deliver “incremental” improvement, Jim Winkler, Aon’s chief innovation officer for health benefits, said in a telephone interview. “Employers are saying, ‘I need to do something different.’”
Clearly the employee benefits times are a’changin’, to mutilate a Bob Dylan song of old.
I think that if we look back 10 years from now we will see that the vast majority of employers will have transitioned their employees to benefits purchasing through exchanges, private and public, and that employee benefits will not be a key factor in employee hiring differentiation and retention, as it is has been in the past. It is my contention that the only direct purchasing of employee benefits that employers will undertake in the future will be for the super high end of their ranks: executive management plans which come with high Cadillac taxes and high end services.
The stark reality of this situation was writ large in the class I teach at UC Berkeley’s Haas Business School, last week. We had two guest lecturers, David Douglas, CEO of Douglas Parking, and Nate Randall, Sr. Manager, Global Benefits & Employee Experience at Tesla Motors, as invited guests to speak about and debate what their respective companies are doing to provide employee benefits to their two very different organizations, as well as the thinking process that underlies those decisions. The discussion was an exercise in watching change happen before your eyes.
The two employers featured share only that they are both in the business of transportation, one creates cars, the other gives them a place to rest while you’re at the mall. Otherwise, they are quite different in many respects. The purpose of the bringing them to the class to speak was, in part, to give two very different types of employers the chance to answer the question, “Has ACA given employers an opportunity/excuse to rethink their commitment to providing health benefits and how they provide them?” Clearly the answer is yes.
Douglas Parking is an 85-year-old family-owned small employer (140 full time employees, 170 part time) that operations in nine states. Most employees are on the low end of the pay and education scale. Unlike 2/3 of its competitors, Douglas Parking provides health benefits to its employees. Until 10 years ago the company paid 100% of insurance costs for employees and then moved to 50% in response to rising costs, although some top managers must get 100% paid coverage in order to attract them to the employer.
When ACA was passed, Douglas Parking took it as an opportunity to “do the math” and discovered that, as their insurance broker said, they would be “idiots” to continue providing a fully-insured benefits plan to employees. They found that the penalty for providing no health insurance, at $2,000 per employee, was far less than it would cost to pay for even 50% of a fully insured plan and that this wasn’t even an issue until 2015. They further found that if employees bought plans through public insurance exchanges, it would cost virtually all their employees less than what they were paying out of pocket for 50% of the existing plan. Accordingly, they jettisoned their plan, facilitated everyone’s enrollment in public exchanges and agreed to pay an amount equal to what was paid before the move to the exchange (50%-100% of premium); this change brought their monthly health insurance costs down by 61%. In 2015, when the $2,000/employee penalty goes into effect, they will do the math again and decide what makes sense. When asked, “Why do you still provide health insurance when so many of your competitors do not?” Douglas answered, “It’s an issue of corporate culture, not an issue of attracting employees; for us it’s an ethical decision.”
Tesla, started 11 years ago, is well known to many as the highest of the high tech car manufacturers. Located in the Bay Area, Tesla now employs 6000 employees (up from 945 employees 3 years ago) in the North America, Europe and Asia and is growing at a rate of 400 new employees per month. For this company, which provides 100% of its employees with health benefits just like Douglas Parking, the provision of this benefit is essential to attracting highly-sought-after employees. They also provide free preventive care, onsite clinics and many other perks.
Tesla did the same math as Douglas, although their population is quite different. Their employees are young (average age 38), male and healthy—basically the “young invincibles” that often don’t use a lot of insurance. The company employs a high deductible health plan, much like what is available through private exchanges, which has saved the company and its employees millions of dollars over the last few years. They pay 100% of the direct plan costs (not the deductible). They treat the executives exactly the same as the rank and file and charge smokers more than non-smokers. The provide price transparency through Castlight and an in-house medical clinic to help avoid unnecessary plan use. Tesla is self-insured and believe that, like with their cars, they can build most things better than they can buy them. Thus, they are building their own maternity management program and have designed a home-grown consumer engagement program that encourages wellness and fitness. Employees “earn” a large part of their HSA contribution by participating in these programs and thus they get high engagement.
In the case of Douglas Parking, choice is facilitated through what is available in exchanges. In the case of Tesla, plan choices are limited to two vendors (Kaiser and Cigna); they may some day look to private exchanges as a means of increasing choice if that makes sense programatically and financially. Both of the companies expressed a view that health benefits are becoming a commodity and that they won’t long be one of the most important hiring issues. Instead both strongly believe that companies should move towards a “total rewards” view of compensation, which includes salary, health benefits, time off benefits, 401K, etc. In fact, both Tesla and Douglas Parking provide all employees with report cards that show exactly what the employer is paying on the employees’ behalf for all of the varied benefits offered to help employees understand the true cost of having them on board. Clearly both of these companies are far afield from the traditional model of an employer picking a few health HMO/PPO plans and letting employees have at it while premiums and employee out-of-pocket costs rise year after year and employers watch on in horror as their profits get eaten alive.
The most significant similarity expressed by the two employers is the importance of constantly “doing the math” to make sure the plan makes fiscal sense every year. If that means frequent changes to health plans, so be it. If they could figure out a way logistically and tax-wise to create a total rewards plan, where employees effectively got a “budget” to spread across salary, perks, benefits, etc” in a menu style, they would offer it, believing that this level of personalization is the wave of the future. If they had their way, that future would come much faster.
I found it interesting that both of these employers, one small and one large, found the exchanges to be a very real positive solution for employers. This reinforces my own belief, and what Aon found in their survey, that we are going to see a mass migration in that direction. As I noted above, I personally believe that we will see that most employers will head this direction in order to balance their budgets, enhance employee choice and reduce the administrative burden of direct purchasing health benefits.
The real question is: if you look out 10 years, which insurers will be the ones who have made the migration from effectively selling to groups to effectively selling to individuals through these exchanges. We may see wholesale market shifts as new entrants come to market; we have seen new insurers pop up the last few years, and, while a tough and expensive new business to create, it may be easier to start from scratch than move the cultural titanic of old-line insurers in a new-line direction.
The line it is drawn
The curse it is cast
The slow one now
Will later be fast
As the present now
Will later be past
The order is
And the first one now
Will later be last
For the times they are a-changin’.
-Closing lines to Dylan’s The Times They Are A’Changin’