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Obama Care, Trump Care, and The Next Great American Bubble


50 million Americans sitting on a health insurance bubble that is about to pop, who are they you may ask?  Short answer: The 50 million Americans that get their health insurance from a small business employer.  Many small business employers’ health insurance plan rates have doubled over just the past few years.  Simply put most employers are one last rate increase away from their maximum budget, and they will not have enough money to cover their required minimum contribution.

These rate increases affect more people than you might think. According to the U.S Bureau of Labor Statistics nearly 53% of Americans are employed by a small business.

Here are the facts:


The Cost of Offering Insurance Forces Non-Compliance

The cost for small employers to offer insurance is near the breaking point as pointed out in a Forbes article by William Dunkelberg.

“The most severe problem facing small business right now is the cost of health insurance, according to a new release of the NFIB Research Foundation’s quadrennial Small Business Problems and Priorities survey. The survey asked 20,000 members of the National Federation of Independent Business to evaluate each of the 75 potential problems presented to them on a scale of “1” to “7,” ranging from “critical problem” to “not a problem,” respectively. The cost of health insurance is the top problem across all but one of the 54 subgroups analyzed in the study (industry, number of employees, etc.). It is the only problem of the 75 listed in the survey to be evaluated as a “critical issue” by more than half of respondents (52.3%).”

Employer cost increases are not expected to stop. According to the Medical Expenditure Panel Survey (MEPS), the average premium for a health insurance plan cost $2,889 per employee in 2001 increased to $5,963 by 2015.  This is nearly $500 per month for the employee only, not counting the additional cost to add family members. The higher the rate causes employees that are less healthy to participate which creates a death spiral for the group in terms of cost and coverage.

Employer ROI on Healthcare Coverage Has Decreased

Employers are not getting the same return on investment by offering coverage that they did in the past.  Typically, the employer can only afford to cover around 50% of the cost, or none of the cost for additional family members.  Many employers have been forced to change to a higher deductible plan that employees may complain about (and those now at a Bronze level are out of options).  The result is offering employees a plan that they see as a worthless benefit.  There are many situations where employees can find better plans on their own from the free market at a lower cost than what their employer offers.

The Healthcare Bubble Is about to Burst

If you talk to one of the thousands of consultants or group health insurance brokers working with employers every day they will tell you that most employers now have their backs to a wall and need a solution to the never-ending increases.  Shortly after the Patient Protection Affordable Care Act (also referred to as PPACA, ACA, or the Obamacare law) was passed back in 2010, Paul H. Keckley of Deloitte laid out a possible scenario in which nearly 42 million Americans would lose their employer provided plan by 2020 because of employer group rate increases.  “As health care costs continue to rise,” said Keckley, “it is possible that employers will decide to drop health coverage as an employee benefit.”  This prediction has become a reality for some employers already, but most employers have been holding on as long as they possibly can.

What ripple effects will our economy face if the majority of small employers stop offering coverage around the same time creating one big wave of uninsured Americans? I cannot help but think of the movie The Big Short.  In this film, a few people involved in the housing market saw and predicted its collapse, but most ignored or missed the warning signs while there was still time to correct the problem.  The signs are here. I talk with small business consultants, and brokers across the country.  They are all hearing the same thing from small employers: “This is the last rate increase that we can take.” reports that the trend has already started with a 24% decline of employers who employ fewer than 99 employees offering coverage. EBRI goes on to explain that “between 68% and 80% of those small companies that have dropped their employer sponsored insurance also report that this decision has had no impact on employee recruitment, employee retention, employee attitude and performance, the health of their employees, and absenteeism.” As more small employers realize that their competition has dropped coverage with little disruption among their employees, the trend will accelerate.

The truth is that the next round of annual rate increases may well be the straw that breaks small employers’ backs forcing them to drop coverage in droves if lawmakers do not address the problem.  Proposed changes to the law that would lift the penalties from employers and employees will further intensify the employer exit from the health insurance business.  Freed from the threat of penalties, even more employers are likely to drop coverage they no longer can afford.  We could easily see tens of millions more employees losing coverage and unable to afford coverage on their own.  More people losing health insurance will result in higher charges for medical care for the rest of the Americans that have coverage through a large employer.

What does this mean for all of us?


Rising medical costs precipitate rising insurance costs.

The cost of medical treatment and certain prescription drugs have increased.  If the cost to have a car repaired at a body shop doubled we would understand and expect auto insurance would go up.


Cost shifting.

Hospitals treat a lot of people every day who do not have insurance, and don’t pay.  Like any other business hospitals must account for these losses forcing them to charge more for those that can pay.


Inflexible, regulation-driven products.

Well intended, but restrictive, regulations from the Affordable Care Act are directly linked to increased cost of health insurance plans in America.  Insurance companies are not allowed to design plans that are affordable to employers and employees because by law they are restricted from designing plans that may be more popular to consumers.  Some believe the consumer markets should dictate product design as the consumer markets do in most other industries.  For example, if a law was passed to mandate that every automobile purchased in the United States must have 4 wheel drive, have a minimum seating capacity of 6 people, included integrated rear facing child safety seats, operated on a hybrid energy saving platform, and had to include free preventative (tire rotation, oil changes) included in the price would you expect the cost for the car to go up?  Sure, these features are good things, but why not let consumers decide which features are important to them?


What Can Be Done to Stop Small Employers from Dropping Coverage?

Rising costs is the reason many small companies have stopped offering insurance and many more are on the verge of canceling theirs.  The only way to solve this problem and prevent the catastrophic ripple effects of an estimated 50 million Americans losing health insurance is to find ways to lower the cost.  To treat anything, you must get to the root of the problem. Treating the symptoms or putting a band aid on it won’t work here.

If we want to avoid 50 million Americans from losing coverage we need to attack as many of the core issues as possible starting with the culprits that can be turned around fastest.  Trying to get the cost of medical treatment down is going to take a lot, from many people working together. The fastest way to stop this looming wave from hitting our economic shores is to lift some of the current regulations that disallow more affordable plan designs from being offered by insurance companies.  More affordable options would attract more of the younger and healthy, and increase competition.

Bringing back the use of associations mentioned by Senator Rand Paul could give additional options, and more options in a market allow the consumers freedom of choice.  What is wrong with giving employee’s more options and letting people decide what works best for them?  There is really no need to remove the current ACA plans offered today for people who benefit from them.

If our elected officials in Washington cannot work together to apply the proven free market principles and concepts that make other types of insurance, like home, life, and automobile insurance work, then health insurance rates will only continue to skyrocket for employers.  However, if an employer can no longer afford the rate increases, they can still help their employees through innovative solutions like a defined contribution strategy.  Companies like Remodel Health, and Take Command Health for instance, provide solutions that keep employees covered, allow employers to help compliantly contribute towards the cost of a plan the employees select from the open market, much like a 401K, but for health insurance.

(Full disclosure, I am a co-founder of Remodel Health.)

The CEO at Remodel Health, Scott Lingle, knows the health insurance industry very well as he was an executive at United Healthcare for nearly 20 years before switching to the technology space.  In a recent article, Scott describes how his own family of six has used one of the plans Remodel Health offers on our software platform to reduce his monthly premium cost by over $1,000 per month.  Using a platform that utilizes a defined contribution strategy, among other approaches, gives employers an affordable option that will allow them to get out of the insurance business and still offer an affordable benefit to employees.

The shift from employer pension plans to 401K plans got employers out of the retirement business.  The shift to a defined contribution strategy using technology offered from innovative health insurance start-ups are helping small employers continue to help their employees access a plan without going over budget. Using this approach has helped our own company hire top talent as we experience rapid growth.


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