Lifestyle behaviors such as smoking, unhealthy eating, and lack of exercise are major causes of chronic diseases such as heart disease, stroke, diabetes, obesity, metabolic syndrome, chronic obstructive pulmonary disease, and some types of cancer. This has been confirmed. In 2016, U.S. health spending attributable to modifiable risk factors was $730.4 billion, representing 27% of all health spending.
Responsibility for medical costs is shared between employer and employee
Health insurance benefits have been the biggest perk for American employees since inflation caps on wages were enacted during World War II, and they are nearly universal and generous. Employers have primarily focused on maintaining health insurance as a benefit of employment, but over time, some of the responsibility for health care costs has shifted from employers to employees.
Because 90% of single-insured workers have a common annual deductible that must be met before most services are paid for by the plan, a major transition will be a form of cost sharing. took. 2 Her average deductible in 2023 for a single insured worker is her $1,735 general annual deductible. This is an increase of 10% over the past five years and 53% over the past 10 years.
Regardless of the plan's deductible, most covered workers also pay a portion of the doctor's visit. Many covered workers are required to pay a co-pay (a fixed amount) for each doctor's visit, but some workers may instead impose a coinsurance requirement (a fixed percentage of the coverage amount).
Over the past 20 years, there has been a significant and continuous increase in the share of healthcare costs, with an increasing proportion of healthcare costs being borne by employees in the medical setting.
Most covered workers contribute the cost of their own premiums. On average, the insured pays her 17% of the premium for single coverage and her 29% of the premium for family coverage. The sharing of insurance premiums between employers and employees has remained roughly stable over the past decade.
Health insurance companies and employer health care funders are generally satisfied with shifting the burden of health care costs to employees over time. Expenses that fall within the scope of the deductible, or those associated with out-of-network visits or non-prescription drugs, are considered mostly controllable and somewhat predictable, allowing employers to shift costs to medical expenses. seen as a legitimate way to suppress In addition to employers benefiting from passing some of the costs on to employees, there is the added benefit that employees are encouraged to reduce their medical consumption, which positively impacts overall premium rates. .
However, the degree of cost shifting is likely to have reached a saturation point, as evidenced by the fact that personal costs have leveled off in recent years compared to the previous large increase. As the nature of health care costs becomes less controllable and predictable, it becomes increasingly difficult to justify cost shifting.
But new horizons are opening up for employers to address high healthcare costs by making employees stronger partners in contributing to health.
Inequities in how employees contribute to health insurance
Employees typically pay health insurance premiums as a percentage of the premium or a fixed amount. Contribution amounts vary by employee based only on a limited number of factors. These will typically be the type of coverage/plan benefit selected and the number of dependents the employee has selected for coverage. These are things that employees have direct control over, so if an employee elects a higher or lower benefit set, or if they elect more or fewer dependents, they may be eligible for a higher or lower contribution rate. Charging is completely justified.
Despite their significant impact on risk costs, employee contributions do not vary by age, gender, or health status. These are not considered controllable and are therefore not used in calculating the employee's contribution percentage. (Of course, they have a strong impact on the total contribution rate).
Over the past few years, evidence has emerged to support a new risk factor that is controllable yet a powerful contributor to risk: lifestyle behaviors. If two employees choose different levels of benefits, their contribution shares will be different. This is because employees are making choices that affect their overall health insurance costs. However, if two employees exhibit different lifestyle behaviors, they may be charged the same employee contribution even though they are making similar choices that affect their overall health insurance costs. Masu. This is clearly unfair.
Evidence now shows at a detailed level that small changes to some key behaviors, such as physical activity, have a causal effect on risk, and given that this is true across the board, lifestyle behaviors can The evidence for differentiating the contribution of is particularly strong. risk spectrum. Additionally, advances in data and technology (wearables) have enabled personalized pathways and measurements.
Benefits of adjusting the contribution of employee health lifestyle behaviors
Because lifestyle behavior is both an employee's choice and a clear determinant of total health insurance premiums, it follows that an employee's contribution percentage should be adjusted up or down based on lifestyle behavior. Masu. By aligning employee contributions with lifestyle choices, you can:
- Employees who engage in healthy behaviors will be encouraged to continue doing so, which will continue to reduce pressure on overall health care costs from this group.
- Employees who don't engage in healthy behaviors can receive reduced premiums (or avoid increased premiums), creating an incentive to change their behavior. By adopting a healthier lifestyle, you help build a healthier risk pool for your employer.
- Employees who do not engage in healthy behaviors and still choose not to do so will end up paying a larger portion of their health insurance premiums, thereby reducing the amount that employers provide to these employees. The amount of the subsidy will be reduced.
The difference in employee premiums between employees with better and worse lifestyle behaviors must not exceed the difference in health care-related costs associated with controllable lifestyle behaviors. yeah.
Conditions needed to implement behavior-aligned contributions
To implement differential employee contributions based on lifestyle behavior, you must:
- Lifestyle habits should be as follows. measurable and verifiable. Employees need a clear understanding of what is being measured and how these measurements are used in calculations.
- Self-reported actions may allow employers to introduce lifestyle-based premiums, but this is far from ideal and is expected to benefit employers if they have a validated framework in place. There is a risk that many of the benefits of
- Employers must provide employees with: tools and education About how to improve your lifestyle habits. Employee wellness programs and related initiatives provide a mechanism for doing so. These need to be given support and visibility from within the company. Ideally, these programs should include incentives to encourage maximum participation. The activities and outcomes promoted by an employer's wellness program must be consistent with the criteria the employer uses to distinguish employee contributions.
- In order to comply with the regulations of Affordable Medical Care Act, the difference between the premiums charged to the most lifestyle compliant employee and the least lifestyle compliant employee may not exceed 30% of the total premium amount. This is a perfectly acceptable constraint, as it is consistent with the above principle that the difference in insurance premiums should not exceed the difference in lifestyle-related risk costs, which is less than his 30% of the premium. is.
- All activity and biometric results include: reasonable alternative criteria This system is in place for people for whom it is unrealistic to achieve these goals (for medical reasons, disabilities, etc.). A reasonable alternatives standard must provide another way for such employees to achieve the same difference in premiums.
- To maximize fairness, each employee personalized route Achieve improvements in lifestyle behaviors and biometric markers. Activity goals and how to achieve them consider demographics and risk factors, and coach each employee on how to improve lifestyle choices and maintain healthy behaviors in a way that most resonates with them. is needed.
- It goes without saying that all health-related data must be at least HIPAA compliant. data privacy standard. Additional care must be taken to ensure that health-related information cannot be inferred from an employee's contribution level. 3
economic effect
The economic impact of differentiating employee premiums by lifestyle behavior depends on how employers choose to differentiate premiums (the maximum difference noted above is 30%) and how employers It depends on how you choose the balance between upside and downside for your employees. For illustrative purposes, we present a scenario in which an employer selects the following differential amounts:
The average industry contribution is used for calculation purposes as follows:
The model begins with an assumed distribution of employees across four lifestyle behavior classification levels. Each classification level includes a lifestyle relative risk ratio calculated based on millions of years of lifestyle and health insurance claims data. Various patterns of involvement are possible. The employer's net contribution percentage varies depending on the combination of involvement. Additionally, overall health care costs vary based on the level of commitment, and the employer's share of these improvements is calculated.
The economic benefits to employers are fairly stable regardless of the level of engagement. If no one changes their behavior, the benefits come solely from the higher percentage of employees who behaved “badly.” In more desirable cases where lifestyle behavioral changes are likely to occur, employers will benefit from improved health insurance claims.
Aligned actions enable fairer sharing
When employees' health insurance contributions are aligned with their lifestyle behaviors, it creates a more equitable sharing of contributions. Employees are incentivized to take actions that reduce health care costs. Employers can enjoy economic benefits in almost all employment scenarios.
alan pollard He is President of Products and Innovation at Vitality Group. Tanya Little He is the company's chief commercial officer.