What is Employer-Sponsored Health Insurance?
While most employers offer health insurance, do you ever wonder why? So what is employer-sponsored health insurance?
What is employer-sponsored health insurance?
Employer-sponsored health insurance is an insurance plan funded by an employer. Employers care about the health and welfare of their employees and want to offer good health care coverage for their employees and their families. 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. And if an employer has access to their data in a self-funded model, they can strategically create their benefits plan to educate employees on where to seek out high-quality, low-cost care.
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, so employers began offering 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. When employers become members of The Alliance, they increase their negotiating power by pooling with over 300 employers to contract with providers. This allows them to secure the best rates for their employees and their families while reducing their health care spending.
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 can direct their employees to high-value providers, both the employee and their employer save money.
What can employers do about rising health care costs?
As health care costs continue to rise, employers must band together and work toward change.
Over half of Americans with health care coverage obtain their coverage through an employer, making employers the largest health care customers in the country. When employers pool their resources, providers are more willing to negotiate.
In order to move health care forward, The Alliance and our members use the Four Core Drivers of high-value health care:
- Transparency – “You can’t manage what you can’t measure.” The Alliance uses data to compare our rates with our competitors and shares it with you so you can make informed decisions.
- Provider Network Design – Our Smarter NetworksSM
- Payment Reform – We align financial incentives that reward providers for high-quality, low-cost care and leverage our significant purchasing power to create unique contract provisions that protect employers where other insurers can’t.
- Benefit Plan Design – Strategic benefit plan design brings together all four core drivers by incentivizing employees to choose high-value care, saving them and their employer money.
What tools can employers provide their employees related to cost?
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.
To make smart decisions, employees need the right information and decision-making tools. The Alliance offers resources like Find a Doctor and Smarter Care AdvisorSM that allow employees to see if a doctor is in-network and compare treatment costs at multiple locations.
The Alliance also offers Smarter Health Analysis, a tool for employers that provides data-driven insights into their employees’ health care utilization at the aggregate level. Using these health care analytics allows employers to see where their health care dollars are being spent — and where they can save — by directing employees to the best value providers.
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.