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REVIEW SUMMARY
What. Insurance options for employers.
Issue. Will employers opt out of sponsoring health plans?
Impact. Employers and employees could benefit at taxpayers' expense.
Between now and 2014, employers have much to ponder when it comes to new health care regulations and figuring out whether to shift from employer-sponsored health insurance or continue to offer the same employee benefits package. State laws are changing too, adding to what employers need to decipher.
With legal challenges to the $1 trillion Patient Protection and Affordable Care Act destined for the U.S. Supreme Court before then, much uncertainty exists for employers trying to figure out the best strategy for offering health care benefits to employees — or not.
The Congressional Budget Office estimates that only about 7% of employees (9 million to 10 million) covered by employer-sponsored insurance will have to switch to taxpayer-subsidized exchange policies in 2014.
But according to a recent comprehensive national survey of more than 1,300 employers, of those with a high awareness of the provisions of the Affordable Care Act, more than 50% of that subgroup answered that they will “definitely” or “probably” stop offering employer-sponsored coverage after 2014.
And overall, according to the McKinsey & Co. survey of employers' attitudes, 30% of employers answered that they will “definitely” or “probably” stop offering the coverage at that time. The global management company's June report also notes that: “Most employers, however, will find value-creating options between the extremes of completely dropping employee health coverage and making no changes to the current offering.”
Benefits consultant Jeff Sadler, president of Riverview-based Sadler Disability Services, says that employers he has talked to are planning to do one of two things, depending on their number of employees. If the company has more than 50 employees and decides not to offer a health insurance plan, then the employer elects to pay a penalty of $2,000 per employee. There's an exclusion on the first 30 full-time employees, so a company with 80 employees would owe $100,000.
“It's significant, but less than the health insurance,” says Sadler, who serves as health insurance chairman for the Tampa chapter of the National Association of Insurance and Financial Advisors and legislative chairman for the Gulf Coast Health Underwriters. “It's a cost factor for those [with] less than 50 and a savings if more than 50.”
The Patient Protection and Affordable Care Act, known as Obamacare, ties the cost for employers to what's termed “minimum essential coverage,” which includes coverage by government-sponsored programs, employer-sponsored plans, plans in the individual market offered through a state health exchange and “grandfathered” health plans.
Employees become eligible for a premium credit if the employer doesn't offer coverage that is either “affordable” or provides “minimum value.” Affordable means the employee doesn't pay more than 9.5% of household income, and that the employer's group health plan pays at least 60% of the plan's total cost.
Rich Pierro, an employee benefits and insurance consultant and partner with Bradenton-based Kitchner & Pierro Co. Inc., sees it this way: “If you're advising your client, it's better to let your employees go to the health exchange, particularly if you're under 50 employees.”
Such exchanges amount to a single, centralized market for the sale and purchase of health insurance plans, which function as a third-party administrator for participating employers. The Florida Health Choices Program operates as an exchange. But according to a state analysis of a new law amending the program, some of the products authorized for it would not meet the minimum benefit requirements of the Affordable Care Act.
Employers' value options
At this point it's unclear to what extent an employer may be allowed to direct employees into the exchanges. “There are guidelines for when you can pay the penalty and when you can't,” says Sadler. “A big concern is that everyone is going to dump everyone into the exchange.” He adds, “The law is not totally vague, but there's some clarification that [the U.S. Department of Health and Human Services] has to do.”
That clarification could come as early as this summer, according to Sadler. He says HHS is expected to issue a rule to explain under what circumstances a large employer can shift employees into an exchange with or without the $2,000 per employee penalty.
Getting “dumped” into an exchange could be a win-win for employers and employees, according to the McKinsey survey report.
That's because beginning in 2014, employees who are not offered an affordable health plan by an employer with an average of at least 50 full-time equivalent employees would get an income-indexed premium and out-of-pocket cost-sharing subsidies courtesy of taxpayers. (Employees with household incomes less than 400% of the federal poverty level — roughly $89,000 for a family of four — are eligible for subsidies.)
The report states that, “ ... even with low assumptions about eligibility for employee subsidies, at least 30 percent of employers would benefit economically by dropping health coverage even if they make employees 100 percent whole.”
And employers who drop coverage, according to the report, could increase employee compensation in other ways that are more valuable to employees — salary, vacation time, retirement, or health-management programs, for example — but don't add up to 100% of the value of the lost insurance.
The report notes that by doing so “ ... even more employers will benefit economically,” and points to other research showing that, for example, when employees are shifted from employer-selected coverage to a defined contributon plan (in which the employer provides a fixed dollar amount for the employee to spend among benefit choices), about 70% choose a less expensive health plan.
Gulf Coast leaders weigh in
Employers may be able to get a sense of what a Florida-style insurance exchange might look like starting this summer when a modified state program for uninsured and underinsured residents begins.
Legislators approved the Florida Health Choices Program in 2008. But in contrast to Obamacare, which Rep. Richard Corcoran, R-New Port Richey, says, “is mandatory, forced and controlled,” Florida took a more free-market approach when it amended it this year with the passage of House Bill 1125.
In fact, the bill renames the “Exchange Process” to “The Marketplace Process.” Corcoran sponsored the measure, and says legislators developed the plan with the assumption that Obamacare gets repealed. The updated program, which allows participants to purchase coverage with pre-tax dollars, launches this summer. It could handle as many as 2 million people, says Corcoran, though it's expected to serve up to about 15,000 individuals initially.
“They're completely different,” he says about the two approaches to exchanges. “On every single level ours is completely voluntary and free market,” he emphasizes. “Ours allows the private sector to determine what services they can offer. We don't tell them what they have to offer.”
A big change expands the eligibility requirements for employers to participate by removing the 50-employee limit. That opens the program to all the state's employers, which makes it a more attractive marketplace for insurers. According to the bill analysis, “Additional insurers will create more choice for enrollees in the program and may result in more affordable premium prices due to increased competition.”
The measure also streamlines the approval process for new health benefit plans, services and other contracts to be included in the marketplace, and simplifies the procedure for approving participation by vendors.
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