Here’s an interesting article that relates quite well to the research our Insight Team has been working on:
Forbes article by Rob Lynch, Contributor
That true harbinger of winter is here: open enrollment. As the seasons change, employees will be spending a little extra time in the HR department picking out a health plan for next year.
But for some businesses, as more of the Patient Protection and Affordable Care Act requirements come into sight, open enrollment’s days may be numbered. Employees of the future might never experience the joy of poring over a pile of brochures that explain the nitty-gritty of out-of-pocket expenses and new flexible-spending limitations.
While few will admit it out loud for fear of alienating their workers, some employers are considering dumping their health care plans by 2014, when the health care reforms are fully established. “What I’ve heard is, ‘This is a no-brainer—we’ll just drop coverage in 2014,’” says Gary Kushner, a national expert in HR strategy and employee benefits and past chair of the National Small Business Association. “I think in the small business community, there is a lot of confusion about what pieces of health care reform actually applies to them right now.”
Starting in 2014, companies with 50 full-time employees or more will be forced, in an indirect way, to offer health insurance. If an employer does not offer health care, it must pay a $2,000 fine for each worker—excluding the first 30—if even a single one buys government-subsidized insurance from a state-run exchange. However, the penalty plus the still-unknown cost of buying insurance on the exchange may be far less expensive than the cost of employer-based insurance. To cover a family using a company plan costs $15,000 a year, according to the Kaiser Family Foundation.
Eugene Steuerle of the Urban Institute has calculated that for many middle-class families, their companies would save about $3,000 to $5,000 by simply paying the penalty and the cost of the insurance net of subsidies on the exchange. (For a more detailed look at the math, check out this presentation.) Thanks to these kinds of calculations, many small business owners are left with an essential decision: Should I offer health insurance in the future? There’s a real concern that many employers will simply direct their workers to the exchange.
That concern is palpable. In June, McKinsey & Company reported that approximately 30% of companies are considering ceasing health insurance coverage in 2014. Quick on McKinsey’s heels, the National Federation of Independent Business reported in July that 57% of small businesses surveyed said they were “very likely” or “somewhat likely” to consider dumping their health care plans. Supporters of health care reform dispute these numbers, but the reality is, small business owners are financially sensitive. They’re sick of the annual drill of getting hit with double-digit premium increases.
But wait. The uncertainty here could cut both ways. Employees are reading the same headlines, and trying to figure out where they will have the best benefits in the future. They have heard the financial arguments for cutting and running, but they may be missing the big picture. An employer that stands behind its health plan may benefit in ways that are less quantifiable. Here are five reasons why I think a move to dump the company health plan is premature, shortsighted and possibly even disastrous.
State exchanges are mostly not built. That means costs are not yet established. Without knowing what these costs and benefit levels are, employers can’t and shouldn’t make a decision yet. The Urban Institute’s Steuerle says that until the true costs are revealed, employers would be prudent to take a “wait and see” approach. “I think there are a huge number of issues that have to be ironed out on how these exchanges will work,” he says.
Savings are a mirage. It may indeed seem like a no-brainer: Save money by giving your employees a raise to buy their own health care plans from the state exchange. But are you really saving?
Say you’re the owner of a small ad agency with 65 employees, and you calculate that it’s costing an average of $12,500 per employee in health care—with you picking up four-fifths of that tab—or a total $650,000 per year in health care costs to your company. So you figure you’ll provide each employee $10,000 in raises and let them figure it out from there.
But hold on. First, you’ll have to pay $70,000 in government fines, so that’s an extra $1,076 per employee. And you’ll have to send the government some additional payroll taxes on the raises, to cover things like your contribution to Social Security and Medicare on their behalf. Finally, who’s to say that those $10,000 raises will be enough to buy equivalent health insurance from your state’s pool, anyway? Unless you’re willing to leave your employees worse off, you may end up paying more than you used to when you provided the benefit.
Risk of losing talent. If the economy turns around, small business owners will be back in growth mode and the war for talent will begin again. It’s unlikely that exchange-purchased insurance will hold the same cachet as the Blue Cross Blue Shield PPO plan that a good employee is used to getting as part of her compensation.
Employee time waste. You thought Facebook was a time suck? By shifting the burden of health care research onto your already time-strapped employees, you’re going to lose even more precious hours on the job. Forcing workers to buy their own insurance means you are also imposing a cost on them of the time, effort and stress it takes to select the right product, not to mention the fallout if they make a bad choice.
Morale crush. Having healthy, well-cared-for employees who appreciate their benefits is a great boost to your company’s well-being. Consider how much morale will drop when the plan changes in a way that requires employees to pay higher co-pays or have a higher deductible. Dropping a plan entirely and forcing workers to fend for themselves on the exchange is an extreme version of this effect. “I’m not sure if by having health benefits you keep up morale, but if you took them away and reduced total compensation, you would tremendously negatively affect the workforce,” says Kushner. “It’s one of those things that you don’t get a lot of credit for when you do them, but you pay a significant price when you take them away.” This may include losing your best employees.
Rather than fretting about the unknown future and blowing off important dates along the way, keep yourself informed. Here is a timeline that will assist you in readying your small business for the reform:
Fourth quarter 2011 — Essential Health Benefits Package: The United States Department of Health and Human Services is scheduled to release a proposed draft of the Essential Health Benefits Package.
2012 — Minimum Medical Loss Ratio for Insurers: Rebates will begin to be issued to enrollees by health plans who have a share of premium spent on clinical services and quality that is less than 85% for large groups and less than 80% for individual and small groups.
Jan. 1, 2013 — Exchanges: States need to demonstrate that they’re ready for exchanges.
Jan. 1, 2013 — Employer Retiree Coverage Subsidy: Eliminates the tax deduction for employers who receive Medicare Part D retiree drug subsidy payments.
July 1, 2013 — CO-OP Health Insurance Plans: Creates the Consumer Operated and Oriented Plan (CO-OP) to foster the creation of non-profit, member-run health insurance companies.
Jan. 1, 2014 — Penalties are Established: Employers with more than 50 full-time employees (those with 50 and under employees are exempt) must offer coverage or they will be assessed a fee of $2,000 per full-time employee, excluding the first 30 employees, if at least one full-time employee receives a premium subsidy in the exchange.
Jan. 1, 2014 — Tax Credits Implemented: Temporary tax credits are available to small businesses with 10 or less full-time-equivalent employees who make less than $25,000 annually.
Jan. 1, 2014 — End of Long Waiting Periods: Employers of over 50 full-time employees may no longer require more than 90-day waiting periods to supply insurance coverage.
March 1, 2014 — Provide Notice: Employers are now legally required to notify their employees of an exchange.