Could employer-based insurance be headed for the unemployment line?

Health insurance forms
Each employer is likely to have a unique "tipping point" when it comes to providing health insurance, a recent report finds. (Getty/vinnstock)

Employers, especially smaller ones, might eventually exit the insurance market as costs become too great to bear, according to a report by a policy think tank.

The American Health Policy Institute predicts that a "tipping point" might be on the horizon for some employers to stop providing health insurance benefits to employees due to high costs coupled with policy and industry shifts. Medical costs have outpaced inflation by at least 2 to 1, according to the report.

"It’s safe to assume that for many employers, annual cost growth in the 40 percent to 60 percent range would be so significant that they would be left with only very hard choices, including ending health care coverage as it currently exists," the think tank wrote.

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Federal and state healthcare policies with growing support, such as single-payer healthcare, would also lead to a decrease in employer-sponsored health plans. Earlier this month, a separate report showed that a growing number of smaller employers are offering self-insured plans to their staff.

A new rule proposed by the Trump administration would also expand the use of association health plans that could be appealing to small businesses, but experts worry that the consumer protections tied to those plans are weak. 

However, every employer faces unique financial challenges and will likely have a unique tipping point as well. As a result, employers are expected to trickle out of the market rather than leave en masse, the report said. But due to overhead costs, smaller employers are more likely to throw in the towel sooner than larger organizations.

"Many employers will continue to exit the system as the health care costs approach levels that for their organization are unsustainable," the think tank said.

The report did note, however, that health coverage generally remains “too important a benefit for employees and executives alike for employers to stop offering coverage” at the moment and the 'tipping point' has not yet arrived.

“How long it will take each employer to reach that point remains an open question, but it’s … closer today than it was yesterday.”