Marketplace Pulse: What's Going on With Employer Insurance?

The Marketplace Pulse series provides expert insights on timely policy topics related to the health insurance marketplaces. The series, authored by RWJF Senior Policy Adviser Katherine Hempstead, analyzes changes in the individual market; shifting carrier trends; nationwide insurance data; and more to help states, researchers, and policymakers better understand the pulse of the marketplace.

Much of the recent coverage of Medicaid redetermination has focused on the accuracy of state administrative processes in light of higher than expected numbers of procedural terminations. This has been attributed in part to a recently discovered error in the way states may be using ex parte data to assess eligibility. These erroneous procedural terminations are consequential because they cause unnecessary coverage loss by people who are eligible for Medicaid, many of whom are children.

Yet another storyline associated with redetermination concerns the fate of the estimated 15 million who are expected to legitimately lose their eligibility for Medicaid. Initial estimates suggested that approximately half of this population will transition to Employer Sponsored Insurance (ESI), and that many may already be dually enrolled. Another roughly one million are expected to transition to the individual market. Enrollment data from insurer financial reports provides some insight into what may or may not be happening, but the picture remains a bit murky.      

Nothing to see here

In theory, we would expect to see enrollment in employer and individual coverage increase as people lose their eligibility for Medicaid and seek insurance elsewhere, yet signs of the redetermination process in the most recent enrollment data are hard to find. It may still be too early to see changes from redetermination reflected in enrollment data, and quarterly changes in self-insured enrollments are not available for all insurers, so data from the most recent quarter likely undermeasure change in ESI. There are also seasonal patterns driving enrollment that can't be easily separated from changes that may arise from redetermination. The first two quarters of 2023 show practically no change in either employer insurance or Medicaid enrollment, and a moderate reduction in individual enrollment. Data from several large commercial insurers with quarterly updates show expected increases in individual market enrollment and reductions in Medicaid, but overall little change in employer insurance. 

A longer look suggests that the continuous eligibility policy has not had much impact on overall ESI enrollment. Data from 2019 to the most recent quarter show little trend, somewhat surprising in light of the massive increase in Medicaid enrollment that occurred during the public health emergency. Overall enrollment in ESI declined from 172 million in 2019 to a low of 170 million in 2021. In 2023, there were 173 million enrollees, slightly surpassing the pre-pandemic figure. But overall, these changes are very small. While some decried the pandemic Medicaid eligibility policy for crowding out private coverage, the ESI enrollment trend during this period is quite flat. This suggests that perhaps much of the increase in Medicaid enrollment came from the uninsured and may reflect the impact of the temporary hiatus in redetermination on the cycles of churn that normally separate many Medicaid enrollees from coverage. Of course, there are many other potentially countervailing forces that may affect trends in employer coverage, including economic growth and population aging.

The question of self-insurance

The change in the composition of the ESI enrollee population during this period merits a separate mention in light of a recent study by the Employment Benefit Research Institute (EBRI) that used the Medical Expenditure Panel Survey (MEPS) to examine trends in self-insurance by firm size. The study found an increase in self-insurance among smaller employers but a decline among larger employers. The finding about larger employers was somewhat surprising, since it is conventional wisdom that employers who are able to take the risk can provide health insurance to their employees at a lower cost if they self-insure. This incentive has in fact led to an increase in self-insurance arrangements among smaller employers in recent years and an accompanying decline in the size of the fully insured small group market.

Enrollment data from insurers' financial reports suggest a somewhat different pattern. Data from 2019 through 2023 show that overall ESI enrollment changed little, yet the share of enrollees in fully insured coverage declined each year, dropping from 29% to 26% during the period. These seemingly contradictory patterns may be explained by differences in the source data. The MEPS data used in the EBRI report come from a survey of employers while the enrollment data are reported by health insurers in a variety of formats, including financial reports filed to the NAIC, quarterly earnings reports, and SEC reports. It may be that within firm size categories, larger employers are more likely to remain in self-insured plans. The salience of this issue is underscored by a recent study from the Health Care Cost Institute which found that self-insured employers paid higher prices for medical care, a finding which suggests that employers' historical motivation for self-insurance may be based on faulty assumptions. In the context of what is predicted to be one of the steepest increases in employer healthcare costs in years, the share of employees in costlier self-insured plans is a trend that bears watching.