‘Competition’ from ‘Exchange’ Plans Won’t Incite Employers to ‘Desert’ Health Benefits, Optimists Say

source: acuzio

As the government fulfills its promise to create an essential benefit package, employers can be forgiven for thinking the government’s putting a competitor plan out there to lure plan members away from employer-sponsored plans. And it is tempting for them to just say: “Fine! You asked for it; no more funding health benefits!”

But paradoxically analysts are not predicting that reform’s subsidized package of benefits covering a wide array of mandated essential benefits will prompt companies to quit providing benefits to employees.

Temptation 1: Health Benefits No More

The first temptation for many companies is clear: The employer penalty for not providing health benefits — $3,000 for every employee (and nothing for the first 30) — is more than recouped by no longer paying health premiums. Some low-wage employees will get their premiums subsidized. A clear win-win: the employer saves on premiums, and the employee comes out ahead with a small raise from the employer, says this article by conservative economist Douglas Holtz-Eakin.

This was bolstered by researchers at McKinsey Quarterly, who said that the existence of coverage on exchanges would remove the recruitment and retention advantages of health coverage for employers. See our previous blog post on this.

And self-insured plans have even more incentives to offering less! They are not required to offer an “essential benefit plan” (see Section 2707 of the PPACA) the way insurance companies and plans on the exchanges will have to.

Temptation 2: Self-insured plans cut benefits and coast through 60-percent employer contribution.

Employees can purchase insurance through a state-run exchange if the employer plan fails to cover 60 percent of plan health cost. But since self-insured plans are not subject to an essential-benefit requirement, such employers can slim the package down, so it becomes cheaper and easier for employees to beat the 60-percent threshold. That’s how fines are avoided.

As Attorney Ron Peck of the Phia Group puts it, “this begs the question of whether this 60-percent requirement was meant to increase employer contributions, or to decrease the amount of benefits offered, thereby driving previously insured lives into the exchange.”

Temptation 3: Self-insured plans do not cover ‘essential benefits’ and avoid prohibition on lifetime caps.

Self funded plans ARE subject to the prohibition on lifetime limits for essential health benefits. But if a self-funded plan chooses not to cover an essential health benefit, the plan sponsor doesn’t have to worry about that lifetime limit.

Temptation rears its head again: Will self-insured employers cut “essential health benefits” to avoid the unlimited lifetime caps, and thus avoid the risk of unlimited payments? Why shouldn’t self-insured plans take advantage of this loophole and opportunity?

The Retention and Value Element

But the Urban Institute (UI) has an Oct. 2011 study predicting reform will not drive companies away from providing benefits. The UI hinges its conclusion on theories about the balance between salary and benefits. Its predictions are similar to those made by The Rand Corp., the Congressional Budget Office and others.

The UI report says employers will keep insuring workers because (1) Many workers will receive better benefits (because of employer contributions and tax breaks) through employer-provided coverage than through newly created insurance exchanges. And while (2) some employers may seek immediate financial gain in benefit reduction as markets adjust to new circumstances, (3) due to disincentives in shortchanging employees on coverage (the recruitment advantage, among others) large numbers won’t change their decisions to offer it.

In other words, employers still think their employees will value employer-provided health insurance more than what will be offered on exchanges, so they will keep insuring workers.

Ron Peck, agreeing with UI and the others, predicts:

Employers hire employees because they expect to make a profit from that arrangement.  No employer hires an employee expecting to lose money on that employee.  An employee is a valuable asset, and like any valuable asset, the wise investor preserves the value of their investment.  A healthy employee is a productive employee.  By offering robust benefits, an employer ensures that sick days are reduced, productivity is maintained, and employees are physically able to remain active with the company for a longer period of time (rather than leaving employment prematurely due to health complications, resulting in the loss of an experienced employee and inducing the costs of recruitment and training of a replacement).

In addition to the benefits of physically healthy employees, an employer is wise to offer robust benefits to preserve mental benefits as well.  Employees that feel that their employer cares about their health and well-being feel a sense of loyalty to their employer in return.  Unlike previous generations, which featured employees that sought to remain with their employer for years upon years (and perhaps their entire career), today’s youth are notorious job-hoppers.  Young professionals are sampling different jobs in ways never seen before.  Employers that hope to hold onto their employees, in whom they have invested time and money, would be wise to offer robust benefits and foster a sense of loyalty whenever and however possible. …

The bottom line is that there are benefits to an employer in offering a robust health plan.  Employers that rely upon an external entity to provide said benefits to their employees will soon find themselves regretting that decision, while employers that retain control over the well-being of their employees will no doubt find themselves with more skilled employees to choose from in the years to come.

Today employer-sponsors will not stray from the straight and narrow path. But let’s see what they do in 2014 when the temptation of sending employees to exchange plans becomes a reality.

Ron Peck, Esq., is a frequent contributor to the Employer’s Guide to Self-Insuring Health Benefits, from Thompson Publishing Group.