Array Bulletin: Service & Market Updates for February 2010

In January's newsletter we wrote about the positive impact health care reform could have on Array. Based on recent developments it appears that comprehensive reform is unlikely. Without significant reform, the cost of health care will continue on its unsustainable path. This poses major problems for companies, employees, brokers, and insurance carriers.

Insurance Premiums Will Rise

There have been large investments made in CDHC, disease management, and wellness, and insurance premiums are still rising between 9-11% annually. Assuming the cost of health insurance continues to increase 10% each year, the average monthly premium for a single employee will be close to $600 within four years! Can your clients afford a monthly premium of $600 per employee? If not, what is the impact of companies terminating their group plans, and what are the alternatives to plan cancellation?

The Breaking Point and Flight of Employer Dollars

When a company terminates its health benefits plan, employees rarely receive wage increases commensurate with the premium the company would have otherwise paid for insurance coverage. Without increased compensation, few employees can afford to pay for their own insurance, and thus become uninsured.

One of the problems with traditional medical plans is that they offer little financial flexibility. Companies either contribute significant sums for employee coverage, or they make no financial contributions. When companies drop their health plans and choose not to increase employee wages, uninsured rates rise, as does uncompensated care. This creates massive stress on the health care system.

Brokers, insurance carriers, and providers need to find ways to keep employer money in the health care system, because traditional medical plans have no way of keeping this money in the system once a company has reached its breaking point with premium costs.

Defined Contribution: A Necessary Solution

Defined contribution health plans offer an effective way to ensure employer dollars stay in the health care system. These plans allow companies to give employees a monthly health benefits allowance, which employees can use for individual health coverage and other medical expenses. Because companies are shielded from premium fluctuations, they can make their contributions to employee health care regardless of price increases.

With traditional medical plans there is a dependency between the plan and a company's ability to pay for it. Once a company can no longer afford its portion of plan premium, the benefits plan ceases and all employer contributions are lost. Defined contribution health plans eliminate the dependency between company contributions and insurance, enabling employer dollars to remain in the health care system, regardless of premium increases.

Planning Ahead

Brokers and insurance carriers need to look toward the future. Time is running out. At this point, any solution that takes more than four years to have an impact has little relevance. Knowing we could be facing premium levels of $600, brokers and insurance carriers need to support and promote any and all compelling models, especially those such as defined contribution, that ensure companies continue to contribute to the health care of their employees.

Please contact me if you would like to discuss this issue further.

Sincerely,

Christopher Moneta

Director of Sales

1-800-640-7086