While everyone agrees that Obamacare was a disaster, there is high uncertainty as to what the replacement will look like. My biggest fear in its replacement is that in an effort to stabilize the individual market and ease the burden on insurance companies, it is at the expense of employer based coverage.
Here are the 5 things I would worry about the most while you are trying to offer competitive health insurance to your employees.
1. Potential taxing on health care premiums will make it more expensive to offer benefits to your employees – There is a general worry that Republicans, in order to raise money for the replacement plan, will be more than tempted to limit the exemption from income and payroll taxes that employer coverage has enjoyed for decades. The current exemption benefits individuals and employers, but critics argue that there should be an equal playing field to foster competition with government options. In addition, the current tax exclusion is $250B, which is the single largest tax break according to the CBO. It is also part of the reason employees don’t realize how expensive healthcare is for employers.
2. The “Cadillac Tax” isn’t being eliminated, just delayed – Under Obamacare, an employer excise tax of 40% is being introduced in 2020 for plans that cost more than $10,200 for individuals and $27,500 for families. The current proposal from the Ways and Means Committee would still impose the tax, but moving it back to 2025.
3. In order to make the economics work, Congress will have to find new or continued sources of revenue, most of which will be at the employer’s expense – Individual tax credits make care more expensive for companies – The insurance term is “adverse selection” and has been around for years and is the reason that it is so difficult to have association or cooperative plans. It is human nature that when you can get a better deal, you do it. In other words, when one of your employees can get a favorable tax credit for moving to the exchange combined with a discount for being healthy, they have a financial incentive to move away from the group plan. These are the same people that are offsetting your sickest members.
4. If 20MM people lose insurance, health providers must pass along the cost to someone that can pay – It is estimated that more than 20 million people would lose health insurance if the current replacement proposal passes. If you are a hospital and the percentage of patients with no ability to pay increases significantly, they must renegotiate their contracts with insurance companies. It would be great to think that a hospital or physicians could just be more efficient, but they have a lot of fixed costs. The easy answer for them in the short term is to ask for a 20% increase in their employer based contracts with the insurance companies. This means increased short term costs for employers that have the ability to pay.
5. Insurance companies must remain profitable- If insurers are losing money on their individual and exchange based business, trust me that they will find somewhere to make it up. Some companies such as Aetna and United are withdrawing from most of these markets, plans such as Blue Cross Blue Shield are doubling down on this business. Don’t confuse my message, insurance companies can’t and won’t lose money, but that doesn’t mean that they can avoid being competitive and taking better care of their members. In my experience, there is nothing more profitable than a healthy member, so as they begin to focus on the overall health of a member, profits will follow.
One of the primary reasons that fixing healthcare is so challenging is that it currently appears to be a zero sum game where one constituent must lose in order for others to win. So whether you are the patient, the employer, or the insurance company (which now includes the government), If you lower reimbursement too much, providers will stop participating, if you treat insurance companies like a utility, they will move to profitable markets, so the most stable group left standing is the employer, so watch out.
Next Level HealthCare believes that in order to make health insurance more affordable for everyone, the focus needs to be on improved outcomes for patients and leveraging competition and technology to make the system more efficient.
For employers, the focus should not be on additional regulatory paperwork and limited options, it should be the focus on growing their business with healthy, motivated, productive employees.
If you share any of these worry items, please contact me personally for a free analysis of your health reform readiness as well as your overall benefit package competitiveness or visit our website at www.nl-hc.com.
My goal is to help you focus on your business, by letting me focus on your employee benefits!
Derek S. Bridges
Next Level HealthCare