Fifteen years after landmark health reforms were introduced under the Affordable Care Act, the financial strain on employer-sponsored healthcare plans remains significant. Reforms primarily expanded coverage through taxpayer-subsidized programs like Medicaid and public exchanges. Those actions shifted costs both directly to taxpayers and indirectly to participants in employer-sponsored plans—leading to increased premiums, higher deductibles and growing employer burdens.
Looking ahead, sustainable solutions must address persistent inefficiencies and create a more accurate distribution of healthcare costs. By embracing innovative approaches such as reference-based pricing (RBP) with participant representation, rethinking risk allocation with safeguards against excessive out-of-network charges and balance billing, employers can reduce costs while maintaining quality coverage.
The Persistent Challenges of Health Reform
Health reform aimed to increase access and affordability. However, employer-sponsored plans—covering more than 160 million Americans—bear an ever-increasing share of healthcare costs incurred elsewhere under taxpayer-subsidized programs:
- Premium Increases: Employer-sponsored plan premiums surged over 50% in the last 12 years.
- Higher Deductibles: Plans with deductibles exceeding $2,000 tripled, from 10% to 32%.
- Cost Shifting: Covered charges for employer-sponsored plans average over 250% of Medicare rates for identical services, by the same provider, at the same facility.
Meanwhile, publicly subsidized coverage expanded rapidly. Medicaid enrollment increased from 54 million in 2010 to 91 million in 2022, a 68% rise. Public exchange enrollment now stands at 24 million, with over 90% receiving taxpayer subsidies.
While these programs helped reduce the uninsured rate from 48 million to 25 million, they introduced taxpayer burdens by employers and their workers in the private sector—contributing to annual deficits and our $36 trillion national debt. Almost all of the cost of providing access through the exchanges and Medicaid was shifted to employers, workers and taxpayers—today and tomorrow.
Rethinking Health Reform: Toward a Sustainable Model
True reform requires addressing inefficiencies and creating a balanced framework that allocates risk more equitably among individuals, employers and society. Below are key areas of opportunity:
1. Transparency and Reference-Based Pricing
One of the most pressing issues is the lack of pricing transparency, which enables medical overbilling and excessive charges. Employer-sponsored plans often pay inflated rates because of opaque pricing structures. RBP offers a promising solution:
- How It Works: RBP sets reimbursement rates for medical services based on a reasonable percentage (e.g., 120%-150%) of Medicare rates.
- Benefits: Employers can reduce costs by aligning pricing with those rates, while participants benefit from lower out-of-pocket expenses.
To succeed, RBP requires robust participant advocacy to help individuals navigate disputes with providers. Employers should partner with third-party administrators (TPAs) and auditors to ensure accurate pricing and billing, safeguarding participants from excessive out-of-network charges and balance billing. This empowers participants while reducing unnecessary costs.
2. Innovative HSA-Capable Coverage Options
High-deductible health plans (HDHPs) paired with Health Savings Accounts (HSAs) are another avenue for cost control. HSAs encourage consumerism in healthcare by giving participants financial responsibility for their choices:
- Consumer Engagement: Participants with HSAs are more likely to shop for cost-effective services, reducing overall spending.
- Tax Advantages: Contributions to HSAs are tax-free, and funds roll over year-to-year, helping participants save for future medical expenses.
"High deductible" is actually a misnomer, because the required minimum deductible to be eligible to contribute to HSAs is less than today's average deductible for employer-sponsored coverage.
Employers can enhance adoption and worker preparation for out-of-pocket expenses by offering HSA matching contributions, integrating HSAs with wellness programs and providing tools to help employees make informed decisions about healthcare utilization.
3. Allocating Risk Equitably
A sustainable healthcare system must balance individual responsibility with societal safety nets:
- Individual Risk: Individuals should bear financial responsibility for healthcare costs tied to preventable conditions or risky behaviors. This provides incentives for wellness and preventive care.
- Societal Risk: For catastrophic expenses (e.g., costs exceeding $25,000 a year), society should assume responsibility through broad-based stop-loss or reinsurance mechanisms.
This model would not only promote healthier behaviors but also improve financial resiliency when managing anticipated and unforeseen medical expenses.
Challenges From Cost Shifting and Policy Decisions
Despite well-intentioned reforms, policy decisions have unintentionally worsened cost disparities in healthcare. Legislation such as the Inflation Reduction Act will increasingly shift prescription drug costs from Medicare beneficiaries to employer-sponsored plans.
Additionally, significant gaps in reimbursement rates between Medicare and Medicaid exacerbate these challenges. Medicare rates are approximately 40% higher than Medicaid, while employer-sponsored plans often pay as much as 300% of Medicaid rates for identical services, disproportionately affecting employers and employees alike.
Reforms have successfully increased access by reducing the cost of coverage for those enrolled in taxpayer-subsidized programs. Comparatively, the new mandates, taxes, and other requirements have increased the cost of employer-sponsored plans. Rising premiums and deductibles have eroded wage gains, leaving many workers without meaningful financial relief.
Empowering Participants Through Behavioral Economics
Behavioral economics provides powerful tools to enhance decision-making and reduce inefficiencies in healthcare. One such approach is default enrollment, including both enrollment in coverage and enrollment in and contributions to a Health Savings Account.
Another effective measure is the use of advanced explanations of benefits (EOBs), which offer clear, upfront cost estimates to participants. These estimates empower individuals to make more informed choices, reducing the likelihood of surprise medical bills.
Comprehensive reporting tools that track claim status, disputed amounts and recovery rates can further enhance transparency, providing participants and employers with actionable insights.
Additionally, employers can play a vital role by investing in educational initiatives that improve healthcare literacy. By helping participants better understand their coverage options and the implications of their healthcare decisions, these programs foster greater engagement and more thoughtful healthcare utilization. Together, these behavioral economics strategies create a more efficient and participant-centered system.
Charting the Path Forward: Strategies for Meaningful Healthcare Reform
The past 15 years have made it clear that incremental reforms are insufficient to overcome the systemic challenges posed by rising healthcare costs. To create meaningful change, employers, policymakers and participants must adopt innovative solutions that target inefficiencies and promote equity within the system.
A key priority is the adoption of transparent pricing models (such as RBP with participant representation), safeguards against overbilling and support through customizable reporting tools.
Post-payment reviews and recovery processes help mitigate these billing challenges by identifying and recovering overpayments made to medical providers, correcting billing errors and recouping funds.
Expanding the use of Health Savings Accounts (HSAs) fosters consumer-driven healthcare, lowering costs while improving financial preparedness for participants.
Rethinking risk allocation is equally critical, as a balanced approach to sharing responsibilities between individuals and society builds a more resilient system.
Addressing these challenges demands swift and decisive action. Employers and policymakers can create a healthcare framework that reduces financial strain, enhances efficiency and ensures equitable access for all stakeholders. This can be achieved by embracing strategies that involve collaboration with TPAs, stop-loss carriers and cost-containment companies, while leveraging data-driven insights.
The time to act is now. Employers and policymakers must lead the charge toward meaningful reform.
