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Once the dust settles on the forthcoming state insurance exchanges, small companies may not be the only ones seeking to shed employee health plans.
David McCann, CFO.com | US
July 12, 2012
Large employers plan to continue offering health benefits after the health-insurance exchanges provided for under the Affordable Care Act (ACA) begin operating —whether that's in 2014, as the law currently requires, or later, as seems more likely.
At least, that's what those employers are saying now. "My corporate clients, most of which are large, are asking a lot of questions about [the ACA], but none are about the exchanges," says Priscilla Ryan, a partner at law firm Sidley Austin, which has a large health-care practice. "None of them are considering dropping their health-care coverage."
Many such companies considered the idea when the law was enacted in 2010, or even earlier, and rejected it, according to Ryan. "They've moved on and are well on to new plan designs and expanding coverage as required by the law," she says.
But companies have no reason to show their hands now. That's especially so because timetables for the state-run exchanges, as well as federally operated exchanges that are to be created for residents of states that decline to tap federal subsidies and create their own, are so iffy. Thirty-six states have achieved less than 10% of the 109 milestones toward the establishment of an exchange identified by the National Academy for State Health Policy.
That may mean it's a long shot that a majority of states will meet a November 16 deadline to indicate whether they plan to set up an exchange and, if so, provide a blueprint demonstrating their readiness in 13 areas so that the exchange will be operational by January 1, 2014, as stipulated in the ACA. That will in turn delay the federal government's work on creating the state exchanges it will run (which could turn out to be as many as half of them, by some estimates), since the health insurers that will participate in the exchanges will vary from state to state.
"Maybe a few states will be ready, but it seems quite unlikely that most of these things will be running by 2014," says Susan Nash, a partner at McDermott Will & Emery, another law firm with a strong health-care focus.
So companies have plenty of time to make the "pay or play" decision. It's called that because employers with more than 50 full-time-equivalent workers that decide to forgo offering health insurance will have to pay a tax, in most cases $2,000 per employee per year, minus 30 employees.
Companies that now say they have no intention of abandoning employee health-care benefits — even though it likely would be a financial plus for them, because average per-employee costs are almost always greater than $2,000 per year — might change their mind if a competitor makes the move.
"I think it's going to be like the lemmings: who's going to jump off the cliff first?" says Nash. "I haven't heard any large employers say they'll do it yet, but it's highly possible. If Wal-Mart or Costco did it and were successful, it might become an easier and easier decision for other retailers to make and it could become a standard in that sector."
Indeed, retailers, restaurants, and other companies that employ many low-wage workers are the most likely to bid adieu to employee health benefits at some point. That's partly because it's a fiscal strain to provide a large number of employees with benefits whose worth is equal to a relatively high percentage of their wages.
But it's also partly because of the sliding-scale subsidies the federal government will provide under the ACA to workers who lose their health-care coverage. That's important for employers who elect to nix their health plans, because it could lessen a potential blow to employee engagement stemming from the move. "The value of the subsidy to employees would dwarf the employer's tax for not offering coverage," says benefits consultant Ed Kaplan, senior vice president and national health practice leader at The Segal Co. "But at an engineering firm or an IBM, for example, employees' incomes are much higher so their subsidies would be much smaller."
Some companies could opt for what Nash calls a "soft landing": dropping their health plans but giving employees a certain amount of money with which to buy insurance on their own through an exchange.
It remains to be seen, though, how well the exchanges will work. A key reason they may not be operational until after 2014, and why the federal government is subsidizing their creation, is that they are big undertakings.
Aside from the tricky task of creating a web portal that offers effective comparisons of disparate health plans, states (as well as the feds) would have to certify plans as qualified to be in the exchange, decide what tier (bronze, silver, gold, platinum) each plan should be in, assign price and quality ratings to each plan, provide standardized consumer information, determine who's eligible to participate and who's eligible for tax credits, and create call-center and mail-in mechanisms for those who don't want to use the web portal, among other time-consuming tasks. Some states may accomplish these tasks more effectively than others, making the use of an exchange a better option there.
Indeed, says Ryan, companies with fewer than 100 employees should strongly consider dropping their health-benefit plans and steer employees to the exchanges (because with such few workers, having even one who is chronically sick can dramatically affect health-plan pricing). But she doesn't advise that they do so anytime soon after the exchanges are operational, whenever that may be.
That's because there will be so much potential for things to go wrong. Even when a company does something as comparatively simple as changing its pharmacy benefits manager, for example, far more than the normal rate of logistical mishaps typically occur for months or longer. "So, then, should you completely abandon your entire health plan and go to an exchange, when that's a brand-new concept and states can't even keep their parks clean?" Ryan asks — rhetorically, it would seem.