Health insurers' most profitable book of business may be on the way out. If the projections of Fortune 500 companies are to be believed, the next half-decade will be sink-or-swim to the other end of evolving exchange markets.
The Affordable Care Act "presents an opportunity for U.S. companies to radically redefine the role they play in the healthcare system" and many are poised to shift more responsibility onto employees, argue Michael Thompson, managing director of global markets intelligence at S&P Capital IQ, and colleagues in a recent report. This could potentially create many new individual insurance markets through public and private exchanges, and radically redefine how Americans pay for their coverage.
Modeling S&P 500 companies' current insurance costs and benefits trends, Thompson and colleagues estimate that as many as 90 percent could end their current insurance benefits and move to public or private exchanges by 2020.
"The transition away from employer-sponsored healthcare toward the ACA exchanges is likely to occur in stages," Thompson and colleagues write, estimating that perhaps 30 percent of S&P companies will transfer their workers to exchanges by 2017.
"We expect the first wave of the transition to focus on entry-level college graduates, lower-wage workers, or part-time employees as these individuals are well positioned to benefit the most from government subsidies," they wrote.
The projections may convince insurers so far dipping their toes into private and public exchange waters to dive right in, lest they lose market share as exchanges evolve faster than expected -- if the projections are correct.
Whether or not the transition of most small and large group health benefits to exchanges would constitute the "end of group insurance," it most certainly would save money for employers and probably erode insurers' current revenue.
American companies with 50 or more workers could save a collective $3.25 trillion through 2025 by transitioning to exchanges and reducing their share of premium contributions, Thompson and colleagues estimate.
By 2025, according to the report, employee costs for their healthcare could double -- although many could receive insurance tax credits -- while employers' share of premium payments could fall from 70 percent to about one-third.
This expected migration to exchanges may come despite the ACA's employer mandate, a policy that critics say preserves a peculiar and inefficient model of insuring the bulk of Americans and one of the few provisions of the law that could be repealed.
Less likely to be repealed is the employer-sponsored insurance tax exclusion, probably the largest contributor to the development of America's employer-based health insurance system. But if Congress ever gets around to tax reform, limiting or tweaking it is a real possibility.
As the Congressional Budget Office has suggested, the employer-sponsored insurance tax exclusion could be turned into a tax credit for individuals to buy their own coverage -- something that would accelerate the evolution of group insurance to exchanges.