Part I:“Reports of My Death Have Been Greatly Exaggerated”: Why Employer-sponsored Insurance Is Likely to Be Around for a Long Time
Although many Washington, DC policy experts believe that the arrival of insurance exchanges in 2014 will lead to a mass exodus of employers away from sponsoring health benefits, I think the above quotation from Mark Twain, prompted by his reading his own (obviously premature) obituary, applies to employer-sponsored insurance as well. While a McKinsey survey that was released in June, 2011, showed that over 30% of employers said they would move to the exchanges, a recent survey by the National Business Group on Health indicated that the number was closer to 5%. The NBGH survey is close to what the Congressional Budget Office projected in its estimates for the health reform bill.
I think the following is closest to the truth: all employers will examine their health benefit strategies, most will change their approach in some way, but relatively few will make a total move to the insurance exchanges.
The timeline for major decisions is important to keep in mind. While there is a lot of fine print in the bill, in general, health insurance exchanges do not begin until 2014 and at that point it is only for employers with fewer than 50 employees. It is not until 2017 that the exchanges open up to larger employers. That is a long time from now. Most of us know that plans we put in place for events that are six years out are pretty tenuous. Just go back to 2005 and look at predictions for the present - it gives a sense of how little stock we should put in what experts think will happen in 2017.
Despite the long lead time, staying in front of events as they unfold is still important. How can we make sense of the widely different projections and opinions, and more importantly, how should employers prepare for the changes that reform will bring? I’ll tackle the first of these questions in this posting and address the second one in the December posting.
Since we’re likely to see the aforementioned surveys quoted extensively, and plenty more will follow these, here are five high level guidelines for how to evaluate what you read and hear:
#1: Beware of Any Projection About “Employers As A Whole” - if a prediction does not stratify employers between at the minimum, very small employers (likely to move to exchanges), employers with special circumstances, i.e., with collective bargaining agreements or whose core business is health care (very unlikely to move to exchanges) and everyone else (all of whom will look very specifically at their cultures, their competitors and their business circumstances), then any number quoted is an average that isn’t very helpful in telling you anything useful at a level of detail that would be helpful.
#2: We Don’t Know More Than We Know – take with a grain of salt any prediction that has estimates of what other than very small employers will do. All the smart businesses I know, including every EH company, understand that without seeing (a) what the Supreme Court rules about the individual mandate next year, (b) whether the Republicans take power in the White House and Congress in the 2012 elections, and (c) what the benefit offerings in the exchanges actually look like, that any prediction is mostly crystal ball reading.
#3: The Tax Advantages of Sponsoring Health Benefits are a Big Hurdle to Overcome – any study that does not make it clear that the contribution employers pay for health benefits has tax advantages (including FICA) and that the salary increases that will be offered to help employees buy insurance in the health exchanges should not be taken seriously.
#4: And We Think Government-Run Exchanges Will Manage Future Health Care Costs Better Than Private Sector Companies Because….? - a decision by employers to have employees use the insurance exchanges does not mean an exit from paying for health care; it simply means a change from paying directly to paying indirectly. As health costs increase, taxes to fund the subsidies will grow and the compensation necessary to help employees afford premiums in the exchange will grow as well. Health costs will need to be managed: it’s unclear to me why a government-sponsored program, with the wealth of regulations and interest groups that it will attract, will be better able to manage a supply chain cost like health care better than a flexible, engaged employer can. Close to 30% of EH employers had flat cost trends in 2010.
#5: If It Seems Too Good To Be True…. the reform bill assesses a $2000 penalty per employee that accesses coverage through the exchanges. Compared to the $7-10K that employers are spending per employee, moving to the exchanges seems like a no-brainer. But two inconvenient issues mess up this simple math: the loss of the tax break that employers get for health coverage and the fact that the government will ultimately have to fund the new expense it’s taking on. Given the state of our economy for the foreseeable future, finding new government funding is simply a non-starter. In other words, the penalty won’t be $2000 for long.
Next posting, I’ll address what I think employers should be doing at this point.
If you are interested in reading more about this topic, take a look at the two articles posted under More Bytes at the top left of this page.