should businesses default to the government exchanges created under ACA to avoid the financial burden of health benefits, or should they stay in the health care game?
This book focuses on ways companies across the country have innovated to reduce health care costs so they can maintain the benefit. It profiles innovators—company by company at the ground level—to describe a rapidly emerging business model for health care. It is a disruptive new model that will force radical change in the way providers and health insurers operate.
Even deeper, at the very root of the national problem, is necessary behavior change by individual employees, as they become engaged consumers. The new model is based on individual responsibility.
Yet while costs and improved health are at the center of the reform in the private sector, no company can ignore the impact of the Patient Protection and Affordable Care Act, also known as ObamaCare or ACA. The decision on whether or not to offer health care for employees is made difficult by the complex, unclear, and still developing rules to flesh out the law. Businesses got a one-year reprieve when the Obama administration moved the effective date of the mandate on employers to provide care or face a penalty from January 1, 2014 to January 1, 2015. But that doesn’t change the need to make a fundamental decision on whether to offer health care as a benefit.
THE CHANGING LANDSCAPE OF HEALTH CARE
The percentage of employers that provide a health plan has been dropping steadily over the last several decades. Hyperinflation (a justifiable term) of medical costs has driven 40 percent of U.S. companies, mostly smaller firms, out of coverage. That’s down nine points since 2000. No one really knows how many more employers will drop coverage because of soaring medical expenses or because of the new law. But some will, because they haven’t figured out how to manage or afford ever-higher premiums.
If a company with 50 or more employees decides to offer health care coverage, it will use either a self-insured plan or a plan sold by an insurance company that meets two ACA tests: 1) it can’t cost more than 9.5 percent of an employee’s pay, and 2) the employer coverage must pay at least 60 percent of the employee’s health care bill.
There are many insurance plans with medium to high deductibles, offset by personal health accounts, that can meet those hurdles. However, for those crunching the numbers, it’s a little like shooting in the dark, because no one really knows how much premiums will jump in the years following enactment of the new law. If you can’t fix a premium cost, you can’t do the percentages.
Most analysts agree, though, that the addition of people with highly expensive pre-existing conditions and other mandates can only drive premium costs upward.
The Obama administration had already pushed back the website startup for small businesses to purchase insurance on the new public exchanges from 2014 policies to 2015. That was a broken promise to those employers that have seen the biggest premium hikes in recent years and were hoping the exchanges might give them some relief. Many extended the small group policies as 2013 came to a close. That bought them a 12-month reprieve to see how prices will shake out for 2015.
SMALL COMPANIES WILL GAME THE RULES
Congress gave small companies a break in the new law. Businesses with fewer than 50 full-time equivalent employees escape the ACA penalties for not providing coverage. That means many small companies will game the rules to stay below 50. They will:
■ Choose not to grow
■ Adopt labor-saving methods like automation
■ Outsource work
■ Buy rather than make components
■ Split a company into separate corporations to get below the maximum
■ Keep part-time employee hours under 30 hours per week so they can’t be counted in the full-time equivalent totals
They are already taking those steps in anticipation of the activation of the new law.
The penalty is a slap on the wrist compared to health benefit costs.
Some financially strapped companies with more than 50 employees will be relieved to pay the ACA penalty of only $2,000 per employee as they retreat from a benefit plan that includes health care. The penalty is a slap on the wrist compared to health benefit costs.
THOSE SAYING “GO” TO HEALTH CARE: MOSTLY MEDIUM AND LARGE COMPANIES
My guesstimate is that at least half of the employers in America will make a decision to stay in the health care business, down from 60 percent that offered a health benefit in 2013. Polls confirm that most large and medium employers will continue coverage, and brokers that each represent hundreds of companies, medium and large, also report that almost all of their clients intend to stay the course in offering a health care benefit.
UNINTENDED CONSEQUENCES LOOMING UNDER OBAMACARE
Premium Hikes—Most states will see premium increases, ranging from low to high, with different impacts on different subsets of people. Political spin on the level of the increases will confuse Americans.
Some Employers Will Drop Plans—At penalties of only $2,000 per full-time worker, firms with high employee turnover will pay the penalty and send their workers to Medicaid or the exchanges.
50-Employee Max—Small firms will do somersaults to stay under the 50-employee limit and avoid ACA penalties.
30-Hour Employees—Companies are managing part-time hours aggressively to avoid the health care mandate that kicks in at 30 hours per week.
Young Healthies Will Fly Naked—Young adults will pay the small penalty and sign up for guaranteed health insurance only when they get sick.
Insurers Won’t Play—Major health insurers have decided not to offer individual policies on some state exchanges. That spells limited choices of carriers, often duopolies or oligopolies. Many available health plans on the exchanges will offer narrow networks, which means some hospitals, clinics, and doctors won’t be accessible.
Reduced Benefits—Many plans will cut back to avoid the 40 percent Cadillac tax.
Doctor Shortages—Workforce experts predict huge shortages of physicians by 2020 because of the increased demand.
Some have decided, though, to retreat to a defined contribution, say $5,000 to $7,000, where employees will get a check and will be asked to go to the exchanges to buy individual health policies. How big that trend will be remains to be seen.
TYPICAL ARE THE QUOTED COMMENTS of Randy Baker, president of Joy Global’s surface mining division: “It is certainly a large line item in our budget, but we are going to continue to offer health care at our company regardless of what the federal government wants to do, because our employees deserve that.”
My company reached a similar conclusion. After a rigorous analysis, Serigraph Inc., which self-insures about 1,100 lives, made its decision in 2013 to keep its full health plan, mainly because we cannot afford to lose talented employees if we drop coverage. Some would surely look elsewhere for work at companies with full benefits. There are several such soft costs involved in dropping coverage, and they offset the hard costs of continuing coverage. The competitive reality, at least for now, is that providing coverage for employees is still considered the norm for mid-size and large corporations.
THE COSTS OF HEALTH CARE
Companies that have done the best job of managing the health of their workforces and, therefore, of controlling medical costs, will be the ones most likely to keep their health care benefits. Best-practice employers in the private sector deliver health care for a total cost between $8,000 and $10,000 per employee. That has been and will continue