Regardless of how you feel about the healthcare reform law commonly known as Obamacare, there is no doubt that employer-sponsored health insurance has become more expensive and complex over the past several years. The implications of the rising healthcare costs are far-reaching, driving business decisions in a variety of ways that impact everyone in the employment arena.
It is estimated that health insurance premiums for employer-sponsored plans have gone up 80-100% in the past decade. It’s no surprise, then, that 49% of employers surveyed by Aflac for their Aflac Workforce Report listed cost containment, including healthcare insurance costs, as their top business issue. This is an increase from 28% in 2011.
“The research shows how the need to control costs is driving workforce decisions,” said Teresa White, executive vice president and chief operating officer for Aflac Columbus. “For four consecutive years, we have witnessed this growing trend and can foresee the possible ramifications for the U.S. workforce.”
Possible Causes for Health Insurance Premium Increases
Before we get into that, let’s explore what is feeding into these ever-increasing premiums. The first and most obvious potential cause is Obamacare, or more formally, the Affordable Care Act (ACA). Forbes lists four reasons that the ACA is driving the rising healthcare costs:
- Commercial underwriting restrictions – For example, insurers must now offer coverage to participants’ children up to age 26, and they can no longer apply pre-existing condition exclusions or lifetime limits on coverage.
- Insurers are now limited in how much they can vary premiums based on age
- New taxes and fees on insurance companies that are typically passed to employers
- The “Essential Health Benefits” that must be offered, including ambulatory patient services, emergency services, substance abuse disorder services, etc.
However, there are a number of factors outside the ACA that are also influencing premiums:
- Aging population
- Unhealthy lifestyles
- Costly technological advances
- Inaccessibility of healthcare pricing to allow consumers to make cost-effective choices
The situation is even worse for small employers, whose participant pool is not large enough to absorb high medical bills. Where one sick employee with high claims may not even cause a ripple at a large company, it can easily result in a massive premium increase at a smaller organization.
How Employers Are Containing Healthcare Costs
The money for the increased premiums has to come from somewhere, so employers are being forced to make hard decisions that impact the entire business:
- Cost-Shifting – The days of going to the doctor and paying nothing out of pocket are nearly gone. To minimize the premium increases, employers have been forced to choose plan designs with higher deductibles, copays, coinsurance, etc. The Kaiser Family Foundation found that the number of workers covered by high deductible plans has quadrupled since 2007. In addition, some employers are contributing a lower percentage toward employees’ benefits premiums. All of these techniques result in shifting more of the costs to the workers.
- Raising the costs of products/services – As a company’s overhead costs increase, some of that cost is ultimately passed on to its customers. But how much can companies raise the costs of their products and services before they lose business?
- Employment decisions – You have certainly heard that some companies are avoiding hiring or reducing employee hours to part-time to avoid the upcoming employer mandate of Obamacare. Although it keeps getting delayed, the mandate will eventually require employers with 50 or more full-time employees to provide healthcare insurance to those employees. But because premium increases are impacting ALL companies, not just the so-called large employers subject to the employer mandate, organizations of all sizes are making these and other difficult employment decisions (e.g., freezing raises) to reduce the impact of healthcare costs.
- Dropping healthcare – For some employers, the costs and administrative headaches that come with offering benefits simply aren’t worth it, so they are dropping coverage. That means some of them who fall under the Obamacare employer mandate will eventually face fines once the mandate goes into effect, but they have determined that the fines are less costly than actually providing coverage.
Impact on Recruiters
Recruiters are being affected, too. For starters, you can expect candidates to be looking closer at their TOTAL compensation package, not just salary. So, just because you find a qualified candidate in your recruiting software, that doesn’t mean they’ll be interested in your client’s total offer. This is especially important now that the ACA is requiring most Americans to have health insurance under the individual mandate. You may find negotiations to be tougher if quality benefits are not available.
You may also notice a decrease in direct hire job orders as employers try to contain costs. However, companies will still need help to address business demands, so they may turn to you for contractors. This is likely one of the reasons that contract staffing continues to grow. If you are not already offering contracting, you may find the need to in this complicated business environment.
Of course, if you employ in-house staff and/or contractors, these issues have a more direct impact on you. Are you required to provide health insurance for contract employees? If not, should you? Benefits are a great way to attract quality contractors, but recruiters must weigh the cost and administrative burden. Some opt to outsource the employment of their contractors to a contract staffing back-office that provides contractor benefits. That can be a great way to brand yourself as a recruiting firm of choice without taking on the complexities of offering healthcare insurance.
The cost of healthcare is a problem with more questions than answers and one that affects everyone in one way or another. The important thing is to remain educated on the issue and put yourself in the best position to succeed in this increasingly challenging environment. The best way to do that is to become a sole-source provider who can solve all of your clients staffing by offering a variety of options, including contract staffing.