Now that PPACA has been upheld, now the challenge of implementing the changes and determining exposure and liability can begin. The first question among employers is likely, “Should I continue to offer benefits?”. While this article focuses on groups over 50 lives, the ideas still hold true for groups under 50 as well. In short, the dollars of dropping coverage simply don’t add up. J. Seltzer Associates is finalizing software that will allow our clients to determine their exposure in hard dollar costs. If you would like a copy of the report from Truven, please email us and we will send it to you.
4 reasons why dropping coverage isn’t a good idea
by Jenny Ivy
Even by members of Congress, employers have been given reasons why the health care reform law will provide a financial incentive to ultimately drop coverage and steer employees toward a state- or federally-managed health insurance exchange, where various carriers will be competing for business.
The most persuasive of these arguments has been that paying any kind of penalty has got to be far less costly than trying to mitigate rising benefits expenses.
But, according to a white paper released Friday by Truven Health Analytics, that’s just not the case. No matter how employers want to go about dropping health care benefits, it won’t have any short- or long-term advantages.
To prove this, Truven looked at a few scenarios. The firm examined 33 large employers with more than 900,000 employees in the university, pharmaceutical, retail, financial and manufacturing industries.
They determined that if large employers end up dropping health insurance, they may do it in one of four ways:
- They eliminate group coverage and subsidize the full cost to employees of obtaining coverage through an exchange
- They eliminate group health and subsidize exchange coverage, but without spending any more per employee per year than their current group plan.
- They drop coverage and provide sufficient additional compensation to reduce overall employer health care costs by 20 percent.
- They drop coverage without any additional subsidy to the employee to purchase coverage on their own.
Impact: Scenario 1
Employers who drop coverage and subsidize the full cost for employees to obtain a health exchange plan would face increased costs as high as $17,269 per employee per year in 2014.
The study factored in $14,470 in health care costs (including $1,403 in additional wages to offset payroll and income taxes); a $2,000 penalty per employee; and $799 for the anticipated impact on lost time benefits (i.e., short-term disability, long-term disability, workers’ comp and incidental absence) and productivity.
All this comes without a price break for the employee, and couldn’t be categorized as a cost-cutting agenda.
Impact: Scenario 2
Employers who drop coverage but provide additional compensation that is cost neutral for them will help drive up costs for the employee if he or she moves to exchange-based benefits.
Taking into account the benefit design, net premium, out-of-pocket and tax difference, employees are looking at net costs of more than $10,000.
It’s projected employers will have to kick in an additional $5,684, or 67 percent of current health plan costs, in salary to compensate for eliminating group health plans. But employees would get the biggest disadvantage – they’re still short of their annual $10,000-plus health care cost burden.
Impact: Scenario 3
Truven states they chose a 20 percent savings as the “straw man,” representing a potentially attractive financial target for an employer considering elimination of group health.
They looked at how much more compensation employers would need to bump up in order to drop coverage and hit that 20 percent per employee per year savings relative to net health costs.
Again, employees get the short end of the stick. They would have to pay $10,454 more in 2014 than their traditional plan copay.
“While the 20 percent savings would be substantial to employers, it would not come without sacrificing employee relationships,” the report notes.
Impact: Scenario 4
No surprise, without any subsidies for purchasing health care coverage in an exchange, employer costs will fall significantly, but employees bear the brunt of $16,551 in annual health care costs.
According to Truven, employers would shrink their health care costs to the penalty amount of $2,000 per employee per year, plus $799 for lost time and productivity benefits. But employees will pay the full cost of purchasing benefits through an exchange – that’s $12,881 more than they would pay in a continued group coverage scenario.