There’s been an ongoing debate since reform was first enacted about the possible merits of employers eventually exiting health care benefits altogether and moving employees en masse into the public marketplace. Stirring the pot most recently is financial industry research firm S&P Capital IQ, which estimates that by 2020 — just five years from now — 90% of American workers who currently receive health insurance through their employers will be shifted to government exchanges. S&P authors cite rosy bottom lines, trickle-down increases in employee pay and benefits, and the lure of federal subsidies for low-wage workers as the impetus for the grand exodus.
But these projections fly directly in the face of data systematically collected through Mercer’s National Survey of Employer-Sponsored Health Plans — and of the strategies employers are using successfully to manage spending and stay competitive. Most large US employers — 94% in 2013 — remain committed to offering employer-sponsored health plans for at least the next five years. Even among the smallest employers — those with just 10 to 49 employees and the least inclined to offer coverage to begin with — only 34% of current health plan sponsors say they are they are “likely” or “very likely” to terminate health coverage within the next five years.
Still, for those who remain skeptical, I offer three compelling reasons why so many employers have decided to stay the course.
1. Employees value health benefits as highly as pay.
An overwhelming 93% of employees say their health care benefits are as important as their pay. Every year, the Mercer Workplace Survey asks approximately 1,500 US employees who have medical and 401(k) plans to value their benefits. Even as deductibles have risen and benefits have become less rich, these results have strengthened over time, sending a clear message to employers: To attract and retain the best talent, you must stay in the game.
2. The public marketplace remains a huge unknown.
The exchanges may be here to stay, but the fate of plan rates and the true benefits of the public marketplace as an exit strategy are very much up for grabs. To walk away from health benefits now would introduce far too much financial risk to employers that are already in dire need of predictability and proven cost-effectiveness.
3. The math doesn’t work — for employers or employees.
The tax implications for employers constitute a triple whammy. First, they will pay the $2,000 per-person penalty (and that amount is indexed; it goes up each year). Then, they will lose the tax deduction on that money, in turn reducing the funding available to employees to purchase coverage through the public marketplace. Finally, whatever money they might add into paychecks to help employees purchase benefits on a public exchange will be subject to payroll taxes, thus reducing its value as a substitute for employer-provided benefits.
On average, health benefits cost $10,779 per employee in 2013, according to Mercer’s research, with the employee typically picking up about 20% of this cost — or about $2,200. However, most employees will pay far more than that for individual coverage in the public marketplace, and families will take an even harder hit — the lowest-level public exchange plan on average costs $20,000 a year for a family of four. Only the 25% or so with incomes below 400% of the federal poverty level are eligible for government subsidies.
As organizations continue to sort through the expanding options in today’s new order of health benefits provision, one thing is certain: A full-scale exit at the expense of talent, predictability, and affordability — for both employers and employees — remains a highly unlikely proposition.
First, let’s put public exchange enrollment in perspective. It’s a relatively small piece of the pie, although you wouldn’t know it from the amount of attention it gets. In a Wall Street Journal article, Drew Altman reminds us “about 11 million people are enrolled in the marketplaces. More than 13 times that many, around 150 million, have coverage through employers, and there are 66 million people in Medicaid and 55 million in Medicare. The marketplaces are an important part of Obamacare. However, more uninsured people have been covered by Medicaid expansions than in the marketplaces, even though 19 states have not expanded Medicaid. Millions of young adults have been covered on their parents’ employer plans.” Another important point: 24 million Americans still do not have coverage, a number that would be smaller if all states had expanded Medicaid.
Here’s my take on what’s going on in the public exchanges -- and how it may affect employers.
- The Risk Pool is still risky. It was expected that the first people to enroll in the public plans would be those previously uninsured and in need of care -- and hence, more costly. Analysis done by CMS documents very little change in the per member per month medical cost from 2014 to 2015. While it may appear the risk pool is stable, the bad news is that it is not getting better. The expectation was that the risk pool would improve over the years as healthier people sign up. So far, that hasn’t been the case. The “young invincibles” are still not signing up, likely because the individual mandate penalty is still considerably lower than the cost of coverage
- Big-name carriers are losing money and leaving the market. To be sure, some regional players are entering the market, but overall it appears that fewer insurers will participate in the marketplaces in 2017. That means less competition among those that remain and thus less downward pressure on costs. As the WSJ article points out, affordability is very important in the individual market. Those not relying on a government subsidy may find more choices on the “off exchange” individual market. There are also implications for employers: cost shifting to group plans. When carriers lose money in one market segment, they try to make it up where they can.
- Estimates for premium cost increases for 2017 now range from 11% to 23%. A person enrolled in the exchange this year who is looking to minimize their cost increase in 2017 would need to switch to a lower cost plan -- and then would still likely see an 11% premium increase, according to a McKinsey analysis of 18 state exchanges and the District of Columbia. The situation could be even worse in the other states that have not yet filed their premiums for next year. Blue Cross Blue Shield has requested a 62 percent increase for next year in Tennessee and an average 65 percent increase in Arizona. See #1 above for why insurers are raising rates so sharply.
- Plans with limited provider networks have been popular. The reward for agreeing to a limited network of providers is a lower price tag for the plan. The downside is that members may have to change doctors, which is also the case when employers implement a narrow network plan. But if most plans on the exchange are narrow network plans, it becomes a less attractive option for early retirees, because the longer you have had a physician relationship -- and/or the greater your health care needs -- the more important those relationships are.
- Satisfaction is high among those previously uninsured; not so for those coming to the exchange from employer plans. Over time, exchange plans have begun to look very much like Medicaid plans, but with higher cost sharing. The impact of higher cost-sharing is mitigated by federal subsidies for much of the population with exchange coverage, which may be why they are generally satisfied with their coverage despite limited plan options and limited provider choices. But in most states, a relatively small number of individuals are willing to pay the full cost of the coverage that’s available on the exchange.
This last item -- on satisfaction -- is important. The exchanges are new and have real problems that need to be addressed through some policy changes and greater enrollment. (Policymakers might want to study how employers, through a lot of hard work, have stabilized cost increases at about 4% over the past five years.) As the satisfaction data shows, the exchanges are clearly filling a critical unmet need for Americans who previously lacked access to decent coverage. But so far, they are not delivering an acceptable alternative to employer-sponsored coverage. Unless that changes, they will always play a limited role in the U.S. healthcare system.
Last week on Mercer/Signal: US Health Care Reform, Tracy Watts explained the King v. Burwell case that will be heard by the Supreme Court starting next month, including possible fixes. Today, she discusses the consequences — both intended and unintended — of a decision to disallow federal subsidies for federally facilitated exchange (FFE) coverage, including the potential impact on employers.
In what could be a long list of consequences if the Supreme Court disallows federal subsidies for FFE coverage as a result of the King v. Burwell case, the biggest is a huge increase in the number of uninsured from the number today. The estimated 8 million people currently getting subsidized coverage in a FFE only foot 24% of the cost, on average, with the federal government picking up the rest. Without the subsidy they will most likely not be able to afford coverage. Here are a few of the consequences of most concern to employers:
- More people will be exempt from the individual mandate. Lack of access to affordable coverage (coverage costing no more than 8% of household income) excuses an individual from the individual mandate. The Kaiser Family Foundation estimates that without subsidized premiums, 83% of those in FFE states formerly eligible for subsidies would qualify for an affordability exemption from the individual mandate. Currently, an estimated 3% qualify for an exemption. That means the government will be paying out less in subsidies, but will also be collecting less in individual mandate penalties.
- The FFE individual health insurance options are not likely to survive the impact of anti-selection within a much smaller risk pool that would occur if subsidies are eliminated. This will cause insurers to exit the individual market in the FFE states, and there could be a trickle effect on the state-run exchanges as well.
- Repeal of the subsidy for FFE states could have an impact on employer strategies that leverage public options for hourly employees working less than 30 hours and for pre-Medicare-eligible retirees.
- The repeal of the subsidies doesn’t necessarily give employers an “out” in terms of the shared responsibility penalties in states where employees can’t obtain subsidized coverage. If an employer has employees in non-FFE states, the population considered in the offer of coverage to “substantially all employees” is the entire employee population, regardless of type of public exchange option.
- One of rationales for expanding coverage to more Americans was that a reduction in uncompensated care for the uninsured would help keep health insurance premiums lower for all. It is estimated that uncompensated care increases family premiums by as much as $1,000 a year.
What does the public think?
Surveys indicate that this case is not on most American’s radar screens. In a poll taken by the Kaiser Family Foundation, more than half surveyed (56%) say they have heard nothing about the case. Since the law was passed in 2010, more people view it unfavorably than favorably. Still, only 32% of those surveyed by Kaiser would like Congress to repeal the law entirely, although another 14% want the law scaled back. On the other hand, 23% say they want to see Congress expand the law and 19% want it to move forward as is. Not surprisingly, opinion is sharply divided by political party.
Additionally, when asked what will happen with the law in this Republican-led Congress, 31% believe the law will undergo a major change and 32% believe it will see only minor change. Just 12% believe it will be repealed entirely. Most see lawmakers' proposals to change the ACA as an attempt to gain political advantage (63%) rather than to improve the law itself (29%). Large majorities of Democrats and independents feel this way, while Republicans are divided.
What should employers do?
Employers have planned for ACA compliance since the law was passed in 2010. All along the way we have been challenged by the complexity of the law, zig-zagged to accommodate changes and delays, and digested regulatory guidance that has not always been timely or easy to understand. There have been political battles and attempts to derail the law. Some held out hope that a prior Supreme Court decision or the mid-term elections would bring about major changes, even repeal. So here we are — again. Even if the Supreme Court strikes down FFE subsidies, all other ACA provisions remain in place. Our best advice? Assume the law will remain essentially intact until we know otherwise, and keep doing what you’re doing.
Public exchange notices are coming soon to a mailbox near…well, we’re not really sure where they will land, but they are coming soon.
The 38 federally run public health insurance exchanges are preparing to send employer notifications when their employees have enrolled in individual exchange coverage and claimed advance premium tax credits (APTCs) under the Affordable Care Act. To receive APTCs an individual completes an application for health coverage that asks for employment status, employer contact information, and details about employer-provided coverage and how much the employee must pay for the lowest-cost self-only coverage option with minimum value. Where the exchange mails the employer notice depends on the address the applicant puts on the form. If the employee provides an incomplete address, the employer may not receive a notice at all.
The good news is that employers are not required to respond to this notice, but there may be reasons to do so. Appeals may:
- Help employees avoid an accumulating repayment obligation to the IRS for a wrongfully claimed subsidy
- Lead to less interaction with the IRS over 1095-C filings and a smoother reporting process overall
It will be important to consider whether the time, effort, and cost to appeal outweigh these benefits. Unless an employee is enrolled in minimum essential coverage (MEC), it may not be worth it to appeal the notice since you won’t know whether the employee would be eligible for a subsidy. (Remember, employees enrolled in MEC are not eligible for APTCs, regardless of the coverage’s minimum value or affordability.)
If you want to help employees without the time and expense of appealing the notices, consider contacting those who appear to have claimed APTCs mistakenly. But do so with caution. Do not discourage anyone from obtaining an APTC or express a negative view about an employee claiming an APTC. And remember employers cannot retaliate against an employee who obtains an APTC.
Whether you plan to appeal the notices or not, you should prepare for their receipt. Expect employees to make errors in filing out the employer address section of the application, and instruct mailroom staff and other possible recipients to be on the lookout for notices and to forward them to the appropriate location. Recipients should consider exchange notices confidential and handle them appropriately. Having recipients forward them to a central location allows you to anticipate the amount of interaction you may have with the IRS over your 1095-C fillings.
This New York Times article offers an interesting “compare and contrast” analysis of public exchange plans versus employer-sponsored plans. Whether you’re satisfied with benefits on the public exchange really comes down to your perspective. If you were among the millions who were previously uninsured, you’re likely to be happy with your exchange coverage. If you came to the exchange after having had employer-sponsored coverage, the story is very different. A more limited choice of providers in the health plan network and higher out-of-pocket requirements are among the chief differences noticed by those coming off employer plans. In the end, a typical plan on the public exchange “looks more like Medicaid, only with a high deductible.” So while the public exchange is helping to fill a gap in the U.S. health care system, it’s not proving to be a source of comparable coverage for early retirees or those who would like to quit a corporate job to freelance or start a business. And each year, as these plans get skinnier, we’re seeing fewer employers that would even consider dropping the company plan to send employees to the public exchange.
Following the recent Supreme Court decision in King v. Burwell that upheld premium subsidies for all public exchanges, Mercer polled employers on their reaction to the ruling and how the public exchanges may or may not factor into their health benefit strategies. Nearly 600 employers responded: 24% with fewer than 500 employees, 47% with 500-4,999 employees, and 29% with 5,000 or more employees.
Thinking about your organization’s best interests over the long-term, do you believe this decision will have a positive or negative effect? More employers believe the decision will have a positive effect than a negative effect — 29% compared to 17% — although a slight majority (54%) doesn’t believe this ruling affects them one way or the other. The larger the employer, the more likely they are to see the ruling as a positive for their organization (41% of those with 5,000 or more employees). Those favoring the ruling may see advantages to having part-time employees (those averaging less than 30 hours a week) or early retirees obtain their coverage from the public exchanges. Those that believe it will have a negative impact may have concerns about cost-shifting from health care providers in low-cost exchange plans that accept lower reimbursement, or about pressure on their employees’ access to health care providers as more Americans gain insurance.
Do you have now, or do you expect to have, a strategy to steer pre-Medicare-eligible retirees to the public exchange, with or without an employer subsidy? Just under half of all respondents that currently offer coverage to early retirees — 45% — say they are considering steering retirees to the public exchange or have already begun to do so. It’s easy to see why this would be an attractive option, given that coverage for early retirees costs more, on average, than coverage for active employees. In some cases, retirees could also benefit by obtaining coverage through the public exchange. Some might qualify for a subsidy (generally, if their household income is less than about $47,000 for a single person), and the subsidized coverage might cost less than what their employer charges for coverage in the retiree plan. But even some of these who don’t qualify for a subsidy might still do better on the exchange. About a third of all retiree plan sponsors currently don’t contribute to the cost of coverage. A retiree moving from an employer-sponsored plan to the exchange would almost certainly have more options on the exchange, and be able to consider cost and level of coverage in selecting a plan.
An employer considering terminating medical coverage for early retirees would need to evaluate whether their employees might have — or claim —a legal right to continued access to an employer-sponsored plan upon retirement. In addition, employers that currently provide money in a health reimbursement account (HRA) for retirees to use to purchase coverage would want to provide an option for the retiree to refuse or delay receipt of the HRA contribution in order to seek subsidized coverage on the exchange.
Do you have now, or do you expect to have, a strategy to steer part-time employees working fewer than 30 hours per week to the public exchange? Employers are much less likely to consider the public exchange as an alternative source of coverage for currently eligible part-time employees. Just under a fourth (24%) of respondents that provide coverage to employees working fewer than 30 hours per week say they are considering this strategy or already have it in place. The largest employers are even less likely to see the public exchange as a viable alternative source of coverage for their part-timers (16% of those with 5,000 or more employees). Unlike with retiree coverage, employers may use health care benefits for part-time employees as an attraction and retention strategy and a way to drive employee engagement. And because part-time employees are still working, it might be harder for them to qualify for a subsidy than an early retiree. Employers should also consider whether making part-time employees ineligible for employer coverage raises any legal concerns — for example, practitioners have wondered whether reducing a formerly eligible employee’s hours to below 30 to make them benefit-ineligible might violate either ERISA 510’s prohibition on taking adverse employment actions to avoid attainment of a benefit, or a provision in the ACA banning discrimination against an employee in retaliation for obtaining an exchange subsidy.
Do you believe the public exchanges have made it harder for your employees to obtain needed health services in a timely manner? Relatively few respondents — 16% — believe that the increase in the number of Americans with health insurance has affected their employees’ ability to access health care — so far. Still, it is enough of a concern that some employers have begun to address access with solutions like telemedicine or on-site medical clinics.
We also asked employers whether they had been waiting on this decision before taking further action to comply with the ACA’s reporting requirements or to prepare for the excise tax coming up in 2018. Fortunately, the great majority said no. That’s a good thing, because employers need to be collecting data now to provide the detailed reporting information required in early 2016. And, the last time we checked, about a third of employers were on track to hit the excise tax cost threshold in 2018 unless they take steps to avoid it.
The latest analyses predicts that 2015 public insurance exchange plan premiums may widely vary from their 2014 rates. Changes for the second-lowest cost silver plan – the one which the IRS uses to determine the amount of premium subsidy for eligible enrollees – range from a 15.6% decrease in Denver to an 8.7% increase in Nashville. Across the 15 cities Kaiser Family Foundation examined, the premium for that silver plan level is expected to decrease by an average of -0.8%.
There were several articles last week about the significant decline in the uninsured rate in some states — with Arkansas, Kentucky, and Delaware at the top of the list. Arkansas reported a 45% decrease in its uninsured (from 22.5% to 12.4%). The state sent a letter to those enrolled in the food-stamp program that made it easy to enroll in "health insurance with no monthly premium cost" by sending back a form. Two things for employers to consider in thinking about their state's uninsured rate. First, as the uninsured rate drops, hospitals experience less uncompensated care — which should mean less cost shifting to private payors, including employer-sponsored plans. Second, keep in mind that some of your lower-paid, variable-hour employees may stand to benefit from access to the exchanges or Medicaid. Check back on Wednesday for Mercer's perspective on Medicaid expansion and employer-sponsored health benefits.
There have been more than a few stories in the media lately about the possibility of employers giving their sickest workers incentives to leave the employer health plan and enroll in a plan through the public exchange. Patients with chronic illnesses, major procedures, and expensive drug therapies drive up the cost of health care for everyone, and certainly so for employers — particularly large, self-insured ones, for which shifting even one high-cost employee could translate into a savings of hundreds of thousands of dollars.
Not surprisingly, there are serious business and legal implications that employers should investigate carefully before considering such a strategy. Here are a few of the options being talked about — and the biggest red flags getting waved in response.
1. Offer less-appealing health plan coverage so that high-utilizers of health care will consider other public or private health plan options.
Employers looking to give high-utilizers reasons to seek coverage elsewhere will need to be sure their actions aren’t deemed discriminatory against a specific individual — by eliminating coverage for a particular high-cost drug on which only one or two employees currently rely, for example.
And less-appealing health plan coverage, whether through a more restrictive drug formulary or narrowing of network providers, potentially impacts an employer’s ability to attract and retain employees.
2. Identify employees with high medical-claim expenses and offer them additional compensation to enroll in a different private or public health plan option.
Foremost, HIPAA prohibits an employer from using medical claims data to identify employees based on health conditions disclosed therein. In addition, actions could run afoul of discrimination laws and/or trigger a separate lawsuit if other employment issues can be linked to the employee’s medical condition and related offer.
The offered compensation may result in “constructive receipt” (even if not taken), creating additional taxable income for the employee. And keep in mind the timing of public exchange open enrollment (barring some other special enrollment event triggering eligibility to elect coverage outside of open enrollment) creating additional administrative considerations.
3. Use opt-out credits as a strategy to draw employees to the public exchanges.
Regulators are still considering how opt-out credits will impact calculations for “affordability” of the medical plan option as defined by ACA standards. Specifically, the jury is out on the extent to which money paid to employees via salary reductions and/or opt-out credits will affect the requirement that they pay no more than 9.5% of household income toward individual coverage. Until we have further guidance, this strategy may be risky.
Medicare secondary payer rules may be a concern if opt-out dollars are targeted to specific populations (i.e., disabled individuals), as employers are prohibited from incenting employees to decline enrollment in an employer plan in favor of Medicare, unless such option is made broadly available to the entire employee population.
4. Offer to buy the targeted worker a high-benefit “platinum” plan in the public marketplace.
An IRS ruling effective for 2014 prohibits arrangements whereby an employer directly pays for individual major medical coverage (in addition to prohibiting pre-tax reimbursement arrangements through a cafeteria plan or HRA). Disregarding these rules may subject employers to a tax penalty of $100 per participant, per day (or $36,500 per year) in addition to other possible penalties under health care reform.
Before making any changes, employers should become very familiar with the most effective and legal ways to leverage the public exchanges to best control costs and provide needed coverage for their employees. Missteps may result in unintended penalties and unwelcome legal battles.
Given that national health reform was more or less modeled on Massachusetts' program, it's always tempting to look at how reform has unfolded in the Commonwealth to try and predict what will happen nationally. The latest news from Massachusetts is that the new federal reforms, layered on top of the existing state reforms, has resulted in the number of the uninsured falling to near zero. Problems with the state website have complicated the issue, however -- most of the new enrollees are in a temporary coverage plan because it hasn't been determined yet if they qualify for subsidized coverage (and if they don't, they may not be willing to pay a premium). Part of the new wave of enrollees in 2014 were low-income workers. Under the previous Massachusetts health care law, individuals weren't allowed to sign up for state-subsidized insurance if they had access to insurance through work, and the affordability rule in the federal law lifts that restriction in part. While no one expects universal coverage in the US as a whole any time soon, if ever, it is interesting that enrollment has continued to grow over time in Massachusetts.
The stalled House ACA repeal and replace effort means the next crucial decision about the ACA’s future will probably be made by the White House. Following the canceled vote on the American Health Care Act (AHCA), the immediate concern on the health reform front is whether President Trump is serious about his threat to let the ACA “explode” – to use his term.
The first – and clearest – signal by the president and congressional Republicans will be whether they continue to fund crucial subsidy payments to insurers – called cost-sharing reductions – that reduce premiums by about $9 billion for millions of the poorest exchange customers. Stopping the payments would virtually guarantee a collapse of exchange markets, causing insurers to flee some markets immediately and nearly all to stay away entirely in 2018, with millions of Americans losing coverage. Employer-sponsored health plans would also feel the repercussions of an individual market collapse as providers would likely look to shift more costs to those plans and employer strategies that rely on the market to provide coverage to part-time workers and pre-Medicare-eligible retirees would need to be reevaluated.
But it appears that GOP sentiment is running toward preserving the subsidies to keep the market stable — an irony given that the House Republicans went to court to stop the Obama White House from spending the money without a congressional appropriation. Last year a federal judge agreed but let the subsidies continue pending an appeal. The parties are scheduled to meet on May 22nd, and the judge could then order Republicans to decide what they want to do. They could withdraw the suit, or the Trump administration could continue providing the subsidies without an appropriation, though that wouldn’t go over well with some conservative Republicans.
The AHCA would have repealed the subsidies in 2020, but Republicans were expected to appropriate funding in the meantime. Now, without the political cover of a repeal and replace effort, it’s not entirely clear that Congress would appropriate the money. Still, some leading House GOP lawmakers believe that the subsidies will be kept in place despite the legal effort to stop them, given the potential political backlash.
If Republicans cut off the payments, Democrats could go to mat over the issue when Congress needs to pass a new government spending bill at the end of the month. That bill will need 60 votes in the Senate, so this has the potential to become a government shutdown issue.
The uncertainty is weighing heavily on health insurers. They have until June 21 to decide whether to participate in the 2018 federally-facilitated marketplaces, and the deadline for participation in some state-run exchanges is even earlier. The clock is ticking.