The employer-sponsored insurance marketplace is stagnant, with flat enrollment and declining margins. Insurers are being stymied by the Sisyphus Effect — new sales offset by churn and a less profitable business mix. Not surprisingly, health plans have been focusing more attention on the growing Medicare Advantage and Affordable Care Act segments to boost overall membership and the bottom line.
But as the largest source of non-government-funded coverage, the employer-sponsored market should not be allowed to limp along. Alternate funding sources from level funding, captives, Individual Coverage Health Reimbursement Accounts, and third-party administrators pose real threats, especially in small- and mid-size markets. And, despite their growth, the MA and ACA segments face margin pressures, underscoring the continued importance of the employer-sponsored market.
Health insurers need to focus on improving performance and gaining share to breathe new life into the employer-sponsored market. This is an especially pivotal time for insurers to evolve their offerings since 2024 is projected to be the year when Gen Z overtakes baby boomers in the workforce. Coupled with millennials, a more diverse workforce at different life stages necessitates a more segmented yet holistic approach to benefits, one that aligns healthcare with non-medical offerings.
We’ve identified 10 imperatives leaders can act on to ensure their group business line withstands current headwinds and, importantly, thrives in the future.
Understanding current insurance market dynamics
Roughly 60% of Americans under the age of 65 — more than 160 million people — get health coverage through an employer-sponsored health plan. Despite those numbers, as well as a strong labor market, the segment is not keeping pace with Medicare Advantage or the ACA. Medicare Advantage growth nearly doubled since 2010 and the ACA hit a record 21.3 million signups this year, a 30% rise from 2023. Meanwhile, enrollment in employer-sponsored plans has remained flat for several years.
One of the most pressing issues is the relentless rise in healthcare costs. Health spending now accounts for more than 17% of Gross Domestic Product and could hit 19% by 2032, up from 13% in the early 2000s. Unabated growth in health spending has contributed to surging premiums for employees and their families. Annual family premiums for employer-sponsored health insurance rose 47% between 2013 and 2023, according to data from KFF. They rose 22% over the last five years alone to reach nearly $24,000 annually. Workers' premium contributions averaged $6,600 in 2023 and are expected to continue increasing. Adding fuel to the fire, 54% of workers are in a high-deductible health plan and nearly one-third said they wouldn’t be able to pay their entire deductible in the event of a medical emergency.
Employers are feeling the financial pinch, too. Research from Mercer suggests that per-employee healthcare costs will rise 5.4% this year, even after employers implement measures to slow cost growth like leaning on HDHPs. It's not all doom and gloom though. Some self-insured employers are getting creative, including launching value-based, outcome-driven arrangements. But these are far between and have yet to drive meaningful change industrywide. What’s needed is a more comprehensive and strategic approach to bolstering the employer-sponsored market.
10 imperatives to reviving the employer-sponsored commercial market
Health plan leaders should focus on these areas to enhance their product line and position it for growth:
1. Have a holistic approach to employee benefits: Linking health coverage with other employee benefits is essential in today’s market. That includes ensuring medical plans fit with such supplemental offerings as critical illness, accident, and hospital indemnity, along with potential options for caregivers that are tied to paid family medical leave. Doing so necessitates developing new internal capabilities as well as forging partnerships with non-medical benefits carriers. We’ve seen some health plans match medical supplemental indemnity payments to specific HDHP offerings and then integrate claims so a medical claim will automatically trigger a policy payout. The DUO offering from USAble Life is an example. This approach reduces the burden on benefit administrators and enhances employee satisfaction. Medical-dental integration can lead to significant clinical benefits as well, like prevention and detection of cardiovascular disease.
2. To win the war for talent, offer relevant benefits: Health plans and their partners must have a portfolio that meets both employer and today’s employee needs. This includes enhancing dental benefits, which employees typically view as insufficient and expensive. Voluntary medical supplementals can provide financial protection for high deductibles. Discounts for enrollment in nutrition, weight loss, and other wellness programs align with the goals of lowering costs and improving overall health. Mental health solutions should go beyond the run-of-the-mill and underutilized EAP programs. This is especially important for Gen Zers and millennials who prioritize mental health. Beyond that, there’s a need for health plans to bolster partnership solution providers offering retirement planning so workers are on solid financial footing and can cover their medical bills as they age. Bundling services with non-medical partners allows health plans to become better integrated into a member’s day-to-day lives and reduces employers’ reliance on point solutions that can often overwhelm benefit administrators. Creating these types of holistic packaged offerings will become the new table stakes for employers and benefits administrators. Working with brokers to identify employer segments that will benefit most from these solutions is a win-win for both the broker and the health plan.
3. Get innovative on pricing: This has become a critical focus for health plans, particularly when it comes to Administrative Services Only (ASO) customers. With non-medical insurance margins, such as prescription drugs and stop-loss coverage, becoming increasingly important, health plans are facing downward pressure on base ASO fees due to heightened attention from employers and brokers. Plans should embrace a range of innovative strategies, including buy-ups, shared savings programs, more aggressive rate guarantees, and bundling services to protect profitability. While pursuing these innovations, health plans must remain brilliant at the basics — network administration, plug-and-play technology, and more — to satisfy the needs of ASO customers.
4. Bring value to TPA offerings: The lines between insurer ASO offerings and TPA services are blurring. Health plans should develop strategies that cater to a diverse range of employer needs, including more sophisticated and nuanced TPA solutions. Today, roughly 25%-30% of the self-funded market is served by TPAs. Health plans need to first ensure they have a competitive TPA offering at the traditional end of the spectrum to avoid getting cherry-picked. Then understand how the value proposition will differ by employer need and readiness and develop solutions along the ASO/TPA spectrum.
5. Recognize alternative funding threats ... and opportunities: Small- and mid-sized employers may benefit from alternative funding approaches like level funding, ICHRAs, professional employer organizations, or a group captive. Health plans need to understand these options and position their offerings accordingly, or risk losing those employers forever. For instance, ICHRAs allow employers to reimburse employees a set amount of monthly tax-free money for health insurance premiums and other qualified medical expenses, without the need to administer a traditional group health insurance plan. They have grown roughly 350% since 2020. Some health plan leaders, like Centene CEO Sarah London, predict ICHRAs could disrupt as much as 45% of the group market. Plans must step in quickly to address these funding shifts.
6. Enhance the value proposition for brokers: Our research suggests that a sizeable number of brokers and consultants operate under a “protect the status quo” mindset. Understanding what motivates brokers/consultants is key to providing solutions that add value to their clients — and them. For progressive brokers, that means helping them bring more innovative approaches like the packaged offerings mentioned above to customers, as well as working with them to ensure they can explain the value a health plan’s portfolio provides to the company and its workers. For more traditional brokers, getting them to recognize how a plan can boost their share of their wallet may be the motivating factor. The key here is for health plans to enhance their collaboration with the highest value brokers to ensure the plan is positioned optimally and the broker’s influence maximized.
7. Be more strategic on market segmentation: Standard segmentation methods like the type of industry, company size, or demographics are not sufficient to capture the nuanced needs of employers and employees. Health plans need sophisticated approaches to tailor and package their offerings effectively. For instance, employers with a high percentage of people nearing retirement age will have a different set of needs than those with a workforce predominately made up of Millennials and Gen Z. Research from the Oliver Wyman Forum shows that Gen Z, for example, takes a more holistic view of their health than older generations, including making more use of digital health. They also place a high priority on mental health.
8. Increase access to care through multiple modalities: It can take on average 26 days or more for someone to schedule a new patient visit with a doctor. Even the most generous benefit designs won’t eliminate that problem given clinician staffing shortages nationwide. But health plans that deliver coordinated omnichannel access — virtual, retail, on-site, care at home — will win. Those who can enter and commit to value-based arrangements modeling the successful full capitation models under Medicare Advantage will be better positioned to deliver on the promises of higher satisfaction, better outcomes, and lower costs.
9. Erase tech debt and leverage technology: Technology can drive efficiencies and lower costs for health plans. Plans can improve medical management performance and streamline operations by leveraging artificial intelligence and other innovations. Some insurers, however, first must erase a tech debt that’s holding them back from competing with larger national players. There are a host of strategies they can follow, including embracing a modular design to the technology systems and revisiting processes and workflows.
10. Address the Rx challenge: Rising drug costs, especially for specialty medications, pose a significant challenge. Health plans must provide advisory services and innovative solutions to help employers manage these costs effectively, including drug utilization reviews and furthering price transparency with pharmacy benefit managers. For some, this may mean cannibalizing their PBMs, or it can help drive innovation to cure a massive pain point for employers and workers. Increased scrutiny of PBMs from lawmakers; regulators, including the Federal Trade Commission; and the media underscores heightened scrutiny in this area.
Re-energizing the employer-sponsored market will not be easy, especially as employers contend with rising costs and generational shifts in their workforce. Just as they’ve done with MA and the ACA, insurers need to get creative. Those who view this as an opportunity to bring more comprehensive and customized solutions to employers will thrive in the coming years.
We will dig deeper into a few of these areas in upcoming Oliver Wyman Health articles.
Oliver Wyman Partners Chris Bernene and Ashley Smith contributed to this article.