ACA subsidies may shift old health benefit mindset
Employees, small biz could make out better on new exchange
To offer health insurance or not to offer health insurance?
That is the question many companies will consider this fall as they navigate the new health insurance exchange that will sell thousands of New Jerseyans health plans under the Affordable Care Act, which takes effect Jan. 1, 2014.
This marketplace will present plans and opportunities for businesses and individuals buying coverage for themselves and their families, as well as small employers who can purchase group coverage on the exchange's Small Business Health Options Program. Federal rules restrict the SHOP exchange to employers with fewer than 100 workers, but states that opt to set up their own state-governed exchange can limit SHOP to under-50 employers. So far, Gov. Chris Christie has declined to set up a New Jersey-governed exchange. He has until Feb. 15 to decide whether to partner with the federal government on a hybrid exchange or defer to the federal guidelines.
Traditionally, employers believed they had to offer health coverage to be an "employer of choice" in the competition for talent, said Rick Wald, national practice leader for Deloitte Consulting's employer health reform strategy and health care consulting practices. But that mindset may change with arrival of subsidized coverage on the exchange, of which 70 percent of Americans will be eligible under individual plans. If an employer now offers a benefit plan that costs $12,000 a year, and the employee has to contribute $3,000 or $4,000 of that premium, Wald said, "that might be more money than they would have to pay if I didn't offer benefits at all, and they went to the exchange and got their subsidy."
Some employers "will argue that they are going to be an employer of choice by not offering benefits, and enabling the vast majority of their employees to take advantage of the subsidies on the exchange," said Wald, while offering group coverage to workers who earn too much to qualify for subsidies, which phase out at four times the federal poverty level, or about $92,000 a year for a family of four.
The subsidies will be especially valuable for lower-paid workers, who will get the largest upfront premium subsidies, as well as additional subsidies on the back end to defray their out-of-pocket medical expenses.
"So my higher-paid employees are neutral, and my lower-paid employees are better off" with the exchange, Wald said.
One way to subsidize coverage is to fund the employee's tax-free flexible spending account, which has a maximum of $2,500, and which the employee uses for out-of-pocket medical expenses after buying coverage on the individual exchange. The flexible spending account can't be used to pay the health plan premiums, however.
Employers with fewer than 50 workers that don't offer health insurance won't have to pay the ACA's penalties of $2,000 or $3,000 per employee; for those with more than 50 workers, there are no penalties for the first 30 workers.
Still, employers want to get workers covered in the most efficient way possible, said Wald. "Our survey results show that at least in 2014 employers will continue to offer benefits while they wait and see how the exchanges go: are they set up, ready, and a good place for my employees?"
But since employers with fewer than 50 workers aren't compelled by penalties to offer coverage, those that do will say "I need to make sure I am getting a return on investment: is this helping my employees to remain loyal, to work harder, to be more productive—is this good for my business?" Wald said. "In the short run, most employers will continue to do what they have been doing, but in the long run, I think more and more will end up on the exchange."
The exchange could turn out to be the best place for employers to buy group coverage for their workers – as Samia Bahsoun is hoping.
Bahsoun, a former Bell Labs electrical engineer, has growth plans for her fiber optics consulting company, S2 Associates International in Holmdel. And she's optimistic she'll be able to find good, affordable health care for her growing workforce on the new health insurance exchange.
"In a high-tech business, when I hire someone they become the face of my business to my clients," said Bahsoun, who is now working on a fiber optic project in Africa. "Retaining employees is very important—and to retain them, you need to provide benefits."
Most large employers are unlikely to drop coverage because of the substantial penalties they face, said Mike Thompson, the New York metro health care practice leader for PricewaterhouseCoopers Human Resource Services. The exception will be large employers with many low-paid workers who can only get subsidies on the individual exchange. With that subsidy, the exchange "will offer excellent coverage, probably better than what their employer was providing before, and the cost of that coverage is a lot less," Thompson said.
But after years of double-digit health insurance premium spikes that have forced small employers to cut benefits and shift more of the premiums to their workers, dropping coverage "may be the path of least resistance—so you'll see more movement from small employers than large employers," Thompson said.
Experts said there still are plenty of unknowns, with the answers not expected until the nation gets closer to the Oct. 1 open enrollment date, when actual plans and prices are posted and businesses and individuals have hard information to make decisions.
Whether small businesses continue to offer coverage — or decide to offer plans for the first time — will depend on what's on tap at the exchange, Thompson said.
"We don't know how the rates on the SHOP exchange will compare to the individual exchange," he said. "The small group rates might be somewhat more favorable, and if so that might be an incentive for employers to continue to provide coverage to their employees—particularly for very small employers, where many of their employees are family."
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