Why Employers Prefer Employer-Sponsored Health Plans Over Exchanges

Large employers find that employer-sponsored health plans allow them to maintain control over employee health plan choice and healthcare spending in order to streamline coverage for their workforces, according to an issue brief published by The Commonwealth Fund based on an Employee Benefit Research Institute (EBRI) survey.

Researchers from EBRI conducted interviews with 26 health benefits decision-makers. These executives worked at large firms in a variety of industries. Of the 26 interviewees, 25 employers were self-insured and most of them offered two or more types of health plans.

“The ACA presented an opportunity to challenge the status quo of employment-based benefits, with analysts predicting employers would eventually redirect workers to ACA exchanges. Yet the link between employment and health benefits has not wavered since passage of the ACA,” the researchers found.

The interviewees highlighted three reasons employers did not shift enrollment to the Affordable Care Act exchanges.

First, respondents believed employers could offer better benefits at better prices than the Affordable Care Act exchanges. Additionally, they argued that employers simplify health insurance for their employees, who would otherwise be lost amid all the choices on the public exchange. Lastly, no major employer wanted to be the first to give up their healthcare benefits and send employees to the exchange.

“Most interviewees expressed a strong skepticism that their firms would drop health benefits or direct their workers toward marketplace exchanges. Broadly, companies continue to view their health benefits as a recruitment and retention tool and cutting these benefits would hamper their efforts to cultivate a strong workforce,” Jake Spiegel, research associate of health and wealth benefits research at EBRI, stated in the EBRI press release.

Similar to their reasons for avoiding the Affordable Care Act marketplace, employers were hesitant to direct employees to get private exchange coverage. Private health exchanges are not new, but they have failed to gain much momentum among employers. Employers anticipated that workers would be confused about their plan options and would spend more.

Individual coverage health reimbursement accounts (ICHRAs) have been around since 2019 and were less familiar to employers. Given the structure of ICHRAs—employers fund an account with pretax dollars and employees can use the funds to purchase Affordable Care Act exchange plans—employers were concerned about the lack of control over low-value care spending and the inability to incentivize utilization of affordable preventive care services.

Unlike previous studies, the EBRI survey found that large employers retained a sense of optimism. Some noted that, despite years of saying that healthcare costs were unbearable, employers have always found the tools and strategies to manage healthcare spending.

Prescription drug prices were an area of healthcare spending that greatly concerned interviewees. Some welcomed government involvement to mitigate these costs.

Additionally, provider consolidation posed a major challenge to cost control. Interviewees expressed concerns about the power dynamic between employers and providers.

“The ACA, private exchanges, ICHRA plans and the rising costs of providing health benefits were all threats that analysts and pundits alike had predicted would erode the relationship between employment and health benefits,” Paul Fronstin, director of health benefits research at EBRI, said.

“Future policy and economic developments may pose yet another threat to the bond between employment and health benefits. This includes the permanent extension of ACA subsidies, implementation of a public option and continued health care cost increases that outpace inflation. Yet, the will for employers to provide health benefits to their workers remains strong.  It seems unlikely that these forces would cause companies to abandon employer-sponsored insurance.”