What is Employer-Sponsored Health Insurance?
By Mike Roche, Director of Business Development
While most employers offer health insurance, do you ever wonder why?
Why do employers provide health insurance to their employees?
Employers have always been passionate about the health and welfare of their employees. In certain industries, like mining, employers have provided health benefits in the form of company-sponsored clinics for nearly a century. In 1942, to combat inflation, employers were prohibited from raising their wages to compete for workers, prompting employers to offer health insurance as an additional benefit.
With the cost of health care rising, employers want to innovate and negotiate to get or keep their health care costs under control. One way employers are saving money on health care is by choosing to self-fund insurance plans for their employees.
What is employer-sponsored health insurance?
Employer-sponsored health insurance is an insurance plan funded by an employer rather than paying a premium to a commercial insurer. If employers are willing to take on the additional risk of self-funding, they can reap big rewards by guiding employees to high-value healthcare and customizing their health benefit plans for serious savings. Employers who choose to self-fund will typically work with several partners, including a provider network, broker, and third-party administrator. Fully insured employers usually work with one company for all those services but cannot access their data to drive savings as it is a flat monthly rate.
How is employer-sponsored health insurance different than Medicare?
Medicare is a government-established national health insurance program. Instead of negotiating with providers, Medicare sets its own prices.
Employer-sponsored health insurance prices are negotiated between the network and providers. Most networks negotiate a percentage off of billed charges, making it harder to understand whether a health care system is cost-efficient or not. The Alliance negotiates based off a percentage of Medicare, what we call Referenced-Based Contracting® by The Alliance, so that we can more easily compare costs.
Is it possible to increase health care value while decreasing cost?
Both employers and their health care enrollees want better health care value for their money. When employees seek care where quality is high, and cost is low, they can drive down health care spending for their employer.
Unlike most purchases, in health care, quality and price are not directly correlated. Employees do not need to seek care at the highest price to receive the best quality. In fact, many providers that fall in the median of cost provide excellent service. If self-funded employers have access to their data, they can create their benefits plan to direct their employees to high-value providers.
What can employers do about rising health care costs?
As health care costs continue to rise, employers must rethink how they offer health insurance to their employees. It is essential to use a broad network that allows employees freedom of choice and to design benefit plans with incentives that reward employees for seeking care where quality is good, and cost is low.
Employers are leading the way in the private sector to provide greater health care cost and quality transparency. When employees have more information about the cost of procedures, they can make better-informed decisions about where and when to receive care.
Where does The Alliance fit into employer-sponsored health insurance?
The Alliance is a network employers can use to get the most out of their health care plans for their employees. Working with other partners, including brokers and third-party administrators, we help to create customized plans and streamlined services. And have the data to unlock savings where others can’t – or won’t. We can help you drive down your health care spending while increasing value for your employees.
Have questions? Please reach out to us.
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