ACA: Come Out And Play

Insurance News Net reports:

“One percent.”

“I would be surprised if we see many, if any.”

According to most experts, the number is small. Not only is it small, it keeps getting smaller. We speak, of course, of the number of companies with 50 or more employees that will drop employer-sponsored insurance in 2014 – opting to send employees to state-run insurance exchanges and pay per-employee fines levied by the Patient Protection and Affordable Care Act. After a McKinsey & Company study in 2011 famously concluded that 30% of employers would “pay” rather than “play,” survey after survey has revealed that fewer than 5% of employers plan to eliminate employee health benefits. Even the Government Accountability Office, which originally reported as much as 20% of employers would drop coverage, now has backed off to around 2%.

“I think this may be a tale of two markets, if you will,” says Tom Billet, senior consultant and practice leader of health and group benefits at Towers Watson. “I think in the large market, I would be surprised if we see many, if any, employers dropping coverage in 2014. It could be a different story in the small employer market.”

‘Exit fantasy’

Borrowing a phrase from Mark Twain, Robert Galvin, an M.D. and CEO of Equity Healthcare, says reports of the death of employer-sponsored insurance have been greatly exaggerated.

“I don’t think employer-sponsored insurance will die. I don’t see it,” Galvin says, noting that while the Patient Protection and Affordable Care Act offered employers an “exit option” from providing health coverage, for many employers it’s more of an “exit fantasy.” Most wouldn’t be able to even if they wanted.

“Turns out,” Galvin says, “the government wrote a pretty smart bill,” because “the government doesn’t want employer-sponsored insurance to go away … Someone’s got to pay for this.”

He adds that even for employers who are tempted to pay per-employee penalties rather than provide health insurance, “the math really doesn’t work out. They [employers] found out that you can’t split the workforce. That’s a discrimination issue.”

He remembers talking to one company’s executives who were very excited to shed their health care costs by dropping employee coverage and sending workers to purchase care in state exchanges. “You know,” Galvin recalled telling them, “you can do this, but you’d have to go to the exchange, too. You can’t split the workforce.”

The CFO blanched and said to Galvin, “Me? On a public exchange?”

In addition to not wanting to wade through the discrimination issues, Billet says: “I think clearly there are some employers who would likely retain coverage indefinitely … and those would be [ones that see health benefits as] critical to attract the right type of person and [ones that] have a high-performing health plan – their costs are low, their trend lines are reasonable, they can stay under the 40% Cadillac tax that starts in 2018. If you put those two factors together, there will be some employers that fit that profile.”

Galvin largely agrees, adding that employers most likely to keep offering health care benefits are in the health care industry.

There has been a glut of surveys on the topic, of course. In one of the most recent, conducted after the November election by the International Foundation of Employee Benefit Plans, 84% of U.S. employers report they are very likely to or definitely will continue to provide health insurance for full-time employees, and only 1% say they definitely will not.

The survey got responses from 593 plan administrators, trustees and organizational representatives from a wide range of companies in terms of size, sector and region.

A similar survey, conducted by IFEBP after the Supreme Court’s PPACA-upholding ruling in June, also revealed a majority committed to continuing employer-sponsored health plans, but nearly three-fourths at that time said they were in a “wait and see” mode in terms of health care planning until after the elections. By December, 59% said they are confident in being more definitive about maintaining coverage.

“With President Obama’s re-election confirming that PPACA will survive, we saw a 7% increase in organizations planning on providing health care benefits from when we asked our members following the Supreme Court’s ruling in June,” says Michael Wilson, IFEBP’s CEO.

Seventy-seven percent of respondents state they are well along in terms of keeping up with PPACA provisions, and 60% say they are either very or extremely far along in preparing for future ones.

The biggest reasons IFEBP members cite for maintaining coverage in 2014 are:

* To maintain/increase employee satisfaction and loyalty (40%).

* To retain current employees (24%).

* To keep in line with a collective bargaining agreement (21%).

Among employers’ other PPACA-related plans, IFEBP finds most companies aren’t dramatically adjusting hiring plans for the next two years, as 48% report they have no plans to add or reduce workforce. A much smaller percentage will reduce staff due to PPACA costs (11%), reduce hiring to stay under the 50-employee PPACA threshold (5%), or add staff to help keep their health care plan compliant with PPACA (4%).

As employers make their pay-or-play considerations, Galvin advises against a shift to full defined-contribution health care. “The argument, of course, is [that’s] what we did with retirement,” he said. “I think those are very different. You don’t feel the consequences of [retirement benefits] until the person [isn’t] working for you anymore. What’s going to happen with health care is going to impact your employees today. It’s not only going to be labor competitiveness; it’s going to be awful stories about people in your workforce not being able to afford health care, kids being sick, etc. So, I think that the saying that ‘We did it in retirement, we’re going to do it for health care’ is a shaky argument.”

7 reasons why ‘pay’ is not the easy answer

By Thom Mangan

The decision to pay or play isn’t an easy one, and it’s fraught with financial, legal and competitive implications. Here are seven issues employers should consider:

1. There are lost tax advantages. Employers that eliminate health care coverage or opt not to offer it to full-time employees will be missing out on tax breaks. Employer contributions for health care coverage are not considered taxable income to the employee (and are deductible by the employer).

2. Reporting burdens remain. Employers that don’t offer health care coverage will still face federal reporting requirements, in part so the penalty amount can be determined. In addition, exchanges will require a variety of employee data from employers, particularly for employees who may be eligible for the premium tax credit.

3. Recruitment and retention challenges may be exacerbated. Employers opting not to offer health care coverage could do long-term damage to their brands, making it difficult to attract top talent in the future. Even worse, they could lose current employees to organizations that do provide coverage.

4. Counting employees can be complex. What constitutes a full-time employee? Answering this question can be tricky; in late August 2012 the IRS issued 18 pages of rules that only partly answer the question. Employers that believe they won’t face penalties for dropping or not offering coverage because they have fewer than 50 employees may have calculated incorrectly. If that happens, the results could be costly.

5. The cost of coverage can be adjusted. While employers may have to cover more people, they do have options for reducing the costs of this coverage. For example, employers could reduce their lowest-cost coverage to stay just above the 60% minimum value threshold; they could reduce workers’ hours below the “full-time employee” level; and they could consider paying targeted penalties.

6. There are other financial implications. Employees may demand additional compensation from employers that elect to drop coverage to cover the cost of health care they must now purchase with their own, after-tax dollars. Employers who haven’t properly budgeted for nondeductible penalties may compound their financial burdens, especially if they don’t make long-term plans for penalty increases.

7. Carriers will address plan designs. Insurance carriers will become experts on coverage requirements out of sheer necessity, so the myriad plan design criteria won’t likely be a burden on many employers. In addition, carriers will implement a variety of tools to communicate with employees, helping to keep business disruptions to a minimum.

Thom Mangan is CEO of United Benefit Advisors, an independent employee benefits advisory firm. This commentary originally ran on EBN’s sister site,”