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Change is an inevitable part of life; and for the insurance industry, the next 20 years may prove to be a time of intensive and systemic change. The central cause of this shift is the imminent collision between escalating employer-sponsored health insurance premiums and budgetary constraints. Employers may eventually decide that they can no longer afford to provide health insurance benefits to their employees.
The future of health insurance
Looking 20 years ahead, I genuinely can’t imagine that employer-sponsored health insurance will still exist, at least not in its current form. There’s just no way that the existing model of devoting the majority of the benefits budget to health insurance can remain sustainable for employers. It’s already verging on unsustainable; most employers I talk to admit to spending 80% of their benefits budget on health insurance alone.
Moreover, the cost curve continues to spiral upwards with each passing year. Between 2012 and 2022, premiums for family coverage rose by 43%, more than double the rate of inflation for the same period. Current projections suggest that health premiums will increase by more than 6% in 2023, with most carriers expecting even higher annual rate increases in the coming years.
Taking that figure of 6% as a yardstick for estimating future health costs, we can apply the rule of 72 to estimate how long it will take for current health costs to double. So if we take 72 and divide it by the numerical value of the percent increase – in this case, 6 – we get 12, meaning costs will double in 12 years. That means if an employer is currently paying $20,000 for an employee’s health plan, they could be paying $40,000 in 12 years and $80,000 in 24 years.
No employer on earth will ever contribute that much to a health plan. At the very least, employers will bail on sponsored health insurance and switch to the individual coverage health reimbursement arrangement. At the very most, employers will balk entirely, and the federal government will be forced to step in and extend Medicare to all. The latter option would represent the swiftest tactical – if not political – action. And, who knows, it may even end up being a swift political action once the government is faced with what could be a mass exit of employers from the health insurance market.
[EXTERNAL LINK] - Why employer-sponsored health insurance could disappear in the next 20 years
The future of health insurance
Looking 20 years ahead, I genuinely can’t imagine that employer-sponsored health insurance will still exist, at least not in its current form. There’s just no way that the existing model of devoting the majority of the benefits budget to health insurance can remain sustainable for employers. It’s already verging on unsustainable; most employers I talk to admit to spending 80% of their benefits budget on health insurance alone.
Moreover, the cost curve continues to spiral upwards with each passing year. Between 2012 and 2022, premiums for family coverage rose by 43%, more than double the rate of inflation for the same period. Current projections suggest that health premiums will increase by more than 6% in 2023, with most carriers expecting even higher annual rate increases in the coming years.
Taking that figure of 6% as a yardstick for estimating future health costs, we can apply the rule of 72 to estimate how long it will take for current health costs to double. So if we take 72 and divide it by the numerical value of the percent increase – in this case, 6 – we get 12, meaning costs will double in 12 years. That means if an employer is currently paying $20,000 for an employee’s health plan, they could be paying $40,000 in 12 years and $80,000 in 24 years.
No employer on earth will ever contribute that much to a health plan. At the very least, employers will bail on sponsored health insurance and switch to the individual coverage health reimbursement arrangement. At the very most, employers will balk entirely, and the federal government will be forced to step in and extend Medicare to all. The latter option would represent the swiftest tactical – if not political – action. And, who knows, it may even end up being a swift political action once the government is faced with what could be a mass exit of employers from the health insurance market.
[EXTERNAL LINK] - Why employer-sponsored health insurance could disappear in the next 20 years