Employers pay much less for health care than government, but ACA increasing government share

A new study from Washington D.C.-based American Health Policy Institute (AHPI) has found employers spend an average of $3,430 per employee for employer-provided health care coverage while government programs pay $9,130 per covered life.

While the large difference stems from variations in the age and health status of the populations covered by employers and the government, it also comes in part from the significant amount of improper payments that are still made by Medicare and Medicaid, according to the study’s authors.

AHPI released the study, “Health Coverage Cost Per Covered Life: Government vs. Employment-Sponsored Programs,” earlier this week. It provides a snapshot comparison of the actual health care costs per covered life for more than 100 large employers (those with 1,000 or more employees), and similar per covered life costs for Medicare, Medicaid, and military/veteran related programs.

The study finds that in 2012, employers spent $578.6 billion providing health coverage for 168.6 million employees, retirees, and dependents. In that same year, the government spent $1.1 trillion on health care for 118.8 million beneficiaries. This translates into the $3,430 average per covered life for employer-provided coverage and $9,130 per covered life for government health care programs.

In a news release about the study, the authors point out that the $21.9 billion in improper payments in Medicaid accounts for 15.5% of the difference in the program’s cost per covered life compared to large employers. At the same time, large employers spend considerable time and resources studying trends within their health care plans and taking a variety of actions to address the underlying causes of what is driving their cost increases.

Tevi D. Troy, President of the American Health Policy Institute and co-author of the paper, said, “Although both employers and the government have taken steps to ‘bend’ their health care cost curves, they have taken significantly different approaches. Large employers have adopted a consumer-oriented approach that more actively engages their employees to seek out high-quality, low-cost health care. Medicaid, in contrast, has mandated reductions in provider reimbursements and shifted costs to both employers and Medicare, which has effectively enabled the program to reduce its cost per covered life by 2.8% from 2003 to 2012. However, these kinds of reductions in provider payments can have negative consequences on the availability of providers and the quality of care.”

The source material for the employer costs comes from a database of internal cost estimates provided by Chief Human Resource Officers (CHROs) who are members of the HR Policy Association, an organization of the most senior human resource executives of more than 360 large employers, employing more than 10 million people in the U.S. These CHROs are the top HR officers in America’s largest corporations, primarily responsible for making decisions and setting long-term strategies regarding employee health care.

“In all, it seems that the Affordable Care Act, by intent or just in effect, will be driving more people from employer-based health care into government-based programs. This movement will have implications on the costs to individuals – in premiums, out-of-pocket spending, and taxes – as well as to government. If government policies move people from programs that cost less per individual to ones that cost more per individual, that could mean that we will be spending even more on health care than currently anticipated over the next decade. This differential is something policymakers need to take into account when making future changes to our health care system,” said Troy.

The study’s “Conclusions” section mentions that some experts believe employer-sponsored health care could vanish almost entirely in the next decade.“Although some prognosticators are suggesting that employer-sponsored health plans are going away, I am not so sure that will be the case,” Troy told Insurance Forums this week. “What I do know is that employer-sponsored health is changing, and the 170 million people who get their health care through their employers will see significant adjustments in both the type and source of their coverage over the next decade. I anticipate that health insurance and benefit experts will have plenty of opportunities during this upcoming period of uncertainty.”

To view the study, click here.

American Health Policy Institute (AHPI) is a non-partisan 501(c)(3) think tank, established to examine the impact of health policy on large employers, and to explore and propose policies that will help bolster the ability of large employers to provide quality, affordable health care to employees and their dependents. The Affordable Care Act has catalyzed a national debate about the future of health care in the United States, and AHPI serves to provide thought leadership grounded in the practical experience of America’s largest employers. To learn more, visit americanhealthpolicy.org.