EBRI Notes

The Future of Employment-Based Health Benefits: Have Employers Reached a Tipping Point?

Feb 7, 2008 12  pages


Is employment-based health coverage really failing? This article summarizes discussion at the Employee Benefit Research Institute’s December 2007 policy forum, which sought to assess reports that the U.S. employment-based health benefits system has reached a “tipping point” because of ever-rising costs, with employers entering a period of fundamental change in providing health benefits to workers.

Despite claims of its demise, employment-based coverage is remarkably stable—EBRI analysis shows that, historically, there is general stability in terms of workers being eligible for benefits, the percentage of workers who have coverage, the share of premiums paid by workers, and the share of out-of-pocket costs paid by workers. One major exception: employer-provided retiree health benefits.

Major exceptions: Small businesses and retiree health benefits—EBRI data also show that the percentage of employers with fewer than 200 employees that offer benefits dropped from 68 per-cent in 2000 to 59 percent in 2007, a “remarkable downward decline.” And employers have clearly passed the “tipping point” on retiree health benefits, which are in a sharp decline.

Main points of discussion—Large employers say they are not ready to bail out of their role of acting as the backbone of health insurance coverage in the United States, although they are pushing for major changes that they hope will alleviate the rising costs of those benefits. Some of the changes large employers are talking about could be as much as a decade into the future. And large employers have not settled on one model for change and are not convinced that new consumer-directed health plans are the solution.

Employers remain ambivalent about consumer-driven health plans—Although growing, these high-deductible plans remain a small source of coverage in the health insurance market, and many employers do not view them as the solution to ever-rising costs. Some in the business sector argue neither consumer-driven health plans nor single-payer (government) universal coverage is the answer.

Who’ll be first? Although employers that offer health benefits say they remain committed to the current system for now, they also say they are watching closely if a big sponsor takes the first step and decides to control its costs by dropping out as a health insurance sponsor.