Participation: Is It a Good Thing or a Bad Thing?

One of the central tenets of underwriting medical plans is to avoid adverse selection at all cost. Adverse selection results when a plan is designed or priced in such a way that it only adequately incentivizes sicker employees to enroll; failing to attract good risk to offset the bad.

For this reason, most insurers historically would not provide health insurance quotes to any employees with less than 75% participation. That has changed somewhat since the ACA (where insurers are effectively required to publish quotes regardless) but the pricing still suffers badly. The average employer’s health plan attracts the enrollment of about 80–85% of its employees. More generous plans with low contributions can achieve numbers as high as 95%.

So what happens when an employer only attracts 50% (or less) of the population to enroll? This can happen in an environment where employees are paying a large share of the premium or the plans’ benefits are badly beaten down.

Well, from a rate perspective, it’s certainly not good news. Carriers will rightfully bludgeon the rates with the expectation the plan will perform much worse than the demographics suggest.

But contrary to what insurers and brokers espouse, low participation is not necessarily a bad thing. From a total cost perspective, employers with low participation are actually saving a massive amount on their healthcare spend. The per-enrollee costs may be 20%+ higher but that is more than neutralized in the aggregate by the reduced headcount. Of course, an employer needs to weigh what that’s doing to their labor force from an attraction and retention standpoint. But assuming an employer can “get away” with offering a beaten down plan, there’s no shame in low participation.

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