Employer-Driven Medical Insurance and Its Impacts

The provision of healthcare is a real concern for many countries. The traditional approaches to health care financing no longer make sense because of the increased cost of offering medical services, against a backdrop of difficult economic times (Perkins, 2006). Austerity measures proposed by governments do not exempt health care. One of the sustainable models of health care financing is the use of healthcare insurance. This model pools the resources of many people and uses it to provide care for the few that will actually need it. In theory, this is all very simple. However, the realities of modern economies make it a very complicated affair. There is a disparity between income levels in modern economies. This affects the ability of individuals to contribute to a healthcare insurance scheme. This is an example of the issues that complicate healthcare insurance. The reality is that healthcare needs are the same for everyone. Social justice requires that all people should have access to adequate health care. There is a need to examine these relationships to determine the best alternatives in medical health insurance.

Problem Statement

This paper seeks to evaluate the demands of the proposal that employers should provide all their employees with a minimum set of health insurance benefits. The question the paper will answer is, “what are the issues that surround the provision of minimum health insurance by employers?”

Background

Making employers the principle providers of insurance for employees seems to the best approach towards ensuring that a majority of the population enjoys medical services (Jacobs, Rapoport, & Jonsson, 2009). Employers traditionally provide health insurance as part of the medical benefits for their employees. However, the nature of these plans depended on the objectives of the employer. The result of this situation is that there is a huge disparity between the insurance services available to different employees in the different organization (Perkins, 2006). If the government steps in to define the minimum medical care insurance employers can provide, then the national health care goals will be easier to achieve.

If employers pay for insurance, then there will be an impact on the demand for labour. An employer will look at hiring decision based on the economics of providing health insurance (Kimes & Wirtz, 2003). An employer will look for demographic attributes that will lead to the least cost of insurance for the organization. For instance, employers will shy from employing people with certain medical conditions, or with a predisposition towards certain medical conditions in order to escape the associated financial burden. Employers may also fail to employ as many people as they could if this will increase their exposure to insurance premiums (Kimes & Wirtz, 2003).

Employers paying for insurance may also have a negative impact on federal revenues. An employer may choose to pay the insurance premium from an employee’s salary before paying them. In effect, the employee’s taxable income will reduce, meaning that the federal government will have a smaller portion of their salary for tax (Guerra, 2011). In this case, the benefit will move to the employees, without any additional cost to the employers. As such, the federal government will succeed in ensuring that all employees have a minimum cover, with the hope that this reduces the overall federal spending on health care because of increased efficiencies in healthcare provision. However, there will be a reduction in the overall revenues collected from employees (Guerra, 2011).

A Move towards ensuring that employers provide a minimum set of health insurance benefits will also lead to the several knock-off effects on goods and services provided by different industries (Smelcer, Miller-Jacobs, & Kantrovich, 2009). Within the health sector, demand will rise for medicine, health products and services covered by the universal health insurance benefits. This means that substitutes products not covered within the plans will experience dwindling demand. In the same vein, the rising demand for covered medical goods and services will lead to a price increase until the supply catches up with it. On the other hand, minimum insurance on some aspects of health care will lead to an increase in the demand for complementary products. This will happen because of the increase in disposable income in the hands of the employees.

Supporters of this plan will include employers who can optimize their HR models to increase their overall efficiency with these plans (Phillips, 2011). In addition, federal and state authorities will support it because it makes health care more predictable, knowing that all employees within the state and within the country have access to certain types of care. Insurers who specialize in mass marketing will support the plan because it will reduce the advertising and promotional efforts they will need to implement the plan (Phillips, 2011).

Those expected to oppose such a plan include employers who will incur the considerable additional cost of insuring their employees (Phillips, 2011). Any business that relies on low skilled labour, or has many low paid workers will find this proposal difficult to implement. In addition, some states may choose their own priorities such as strengthening their medical insurance systems rather than choosing an omnibus system (Jacobs, Rapoport, & Jonsson, 2009). Insurance companies that will lose their competitive advantage because of the apparent standardization of labour insurance will oppose the plan.

Analysis

This plan will have cross-cutting effects on various sectors of the economy. First, there will be specific impacts on healthcare institutions. Medicare providers will need to reconfigure their service provision models to take into account the minimum requirements laid down by the government (Hersh, 1995). In this sense, these institutions may need to hire new staff to cater for aspects of health delivery previously ignored. Apart from staffing, there may be an influx of new patients admitted by the scheme. The new patients will include low paid workers who may not have been accessing medical services from Medicare providers. The new access to insurance paid for by their employers will, therefore, make them an active group receiving health care services. Therefore, hospitals will require the greater capacity to cater to this demographic. In the same vein, charity institutions and low-cost private facilities that do not provide Medicare will suffer from a loss of patients, as their traditional beneficiaries move to institutions sanctioned by their employers or insurers.

Medical insurers, on the other hand, will need to re-engineer their businesses. Traditionally, insurance companies competed for competitive advantage in the basis of product packaging (Goldman & Nieuwenhuizen, 2006). Once the government fixes the minimum standards, then insurance companies will have a hard time differentiating themselves in a homogenous environment. Each company will need to find new and innovative ways of creating competitive advantage such as offering additional cover for extra payments, or other kinds of “members only” benefits. Some insurance companies find creative ways of selling several packages at once instead of selling small packages. The main direction for insurance companies is to explore the options they have in packaging health insurance in an environment where all the services appear the same.

The federal government will have a specific task of ensuring that the policy does not affect federal revenues adversely. In order to achieve this, the federal government needs to identify the full scope of reduction in the collection of tax that adoption of an employer driven medical scheme will cause. These losses must match up to the benefits national healthcare will enjoy from this policy. The policy should lead to cost savings such as more opportunities for pooled-procurement for the Medicare facilities leading to reduced cost of inputs (Phillips, 2011). Other benefits are easier diagnostic processes because of greater certainty of health services demanded by patients, and a lower disease burden from low paid workers that did not have medical insurance prior to the implementation of this policy. If the overall benefits of this policy outweigh the costs, then there is a strong economic case for it. In the current environment of slow economic growth, the imperative for economically sound policies is very high.

Other issues that come to the fore in relation to the implementation of an employer driven medical scheme is the role of pharmaceutical companies, referral centers, special disease centers, regulatory services, and research. The theories relating to the provision of managed care are very clear, though there is variance in the practicalities of implementation. This policy will have an impact on each of these stakeholders.

Recommendations

Clear cost benefit analysis by the government

The government needs to conduct an economy-wide cost benefit analysis guided by the demand patterns for medical services that this policy would bring about. It must identify the benefits the policy will bring to the national health care system in real terms. In addition, it needs to explore the drawbacks the policy will entail such as loss of jobs, closure of institutions, and the need to monitor changes in the market place to deter the risk of insurance monopolies arising from this policy.

Stakeholder analysis guided by change drivers by industry regulators

The industry regulators will need to conduct a stakeholder analysis to determine the impacts of this policy on all healthcare services stakeholders. The objective of this analysis will be to determine the role the stakeholders will play in the new systems, and modalities for preparing for these new roles. It will be important to monitor all the demand and supply drivers in the industry as a component of the stakeholder analysis.

Early planning by insurance companies to ensure they remain competitive

Insurance companies need to plan early for this policy. The policy will be easier to implement for some companies as compared to others. Early planning by each insurance company will enable it to repackage its products to fit in the new operating environment. Companies that fail to plan will be in a difficult position that may lead to partial or total collapse.

Facility expansion and staff redeployment to serve newly-insured policy holders

Healthcare providers will also need expanded facilities to handle the influx of new patients, especially from low paying jobs that did not have insurance. At the same time, the new patients will demand for more services than those covered in the policies because of greater disposable income, with some of it available to purchase complementary health products and services.

References

Goldman, G., & Nieuwenhuizen, C. (2006). Strategy: Sustaining Competitive Advantage in a Globalised Context. Cape Town: Juta and Co Ltd.

Guerra, A. (2011). EMR Problems Hurt Doctor Efficiency, AMA Says. Web.

Hersh, W. R. (1995). The Electronic Medical Record: Promises and Problems. Journal of the American Society on Information Science , 772-776.

Jacobs, P., Rapoport, J., & Jonsson, E. (2009). Cost Containment and Efficiency in National Health Systems: A Global Comparison. Weinheim: Wiley Verlag.

Kimes, S. E., & Wirtz, J. (2003). Has Revenue Management become Acceptable? Findings from an International Study on the Perceived Fairness of Rate Fences. Journal of Service Research , 6 (2), 125-135.

Perkins, B. B. (2006). Medical Delivery Business, Health Reform, Childbirth, and the Economic Order. Piscataway, NJ: Rutgers University Press.

Phillips, R. (2011). Efficient Frontiers in Revenue Management. Journal of Revenue and Pricing Management (26), 1-25.

Smelcer, J. B., Miller-Jacobs, H., & Kantrovich, L. (2009). Usability of Electronic Medical Records. Journal of Usability Studies , 70-84.