LOOMING UNDER OBAMACARE
Premium Hikes—Most states will see premium increases, ranging from low to high, with different impacts on different subsets of people. Political spin on the level of the increases will confuse Americans.
Some Employers Will Drop Plans—At penalties of only $2,000 per full-time worker, firms with high employee turnover will pay the penalty and send their workers to Medicaid or the exchanges.
50-Employee Max—Small firms will do somersaults to stay under the 50-employee limit and avoid ACA penalties.
30-Hour Employees—Companies are managing part-time hours aggressively to avoid the health care mandate that kicks in at 30 hours per week.
Young Healthies Will Fly Naked—Young adults will pay the small penalty and sign up for guaranteed health insurance only when they get sick.
Insurers Won’t Play—Major health insurers have decided not to offer individual policies on some state exchanges. That spells limited choices of carriers, often duopolies or oligopolies. Many available health plans on the exchanges will offer narrow networks, which means some hospitals, clinics, and doctors won’t be accessible.
Reduced Benefits—Many plans will cut back to avoid the 40 percent Cadillac tax.
Doctor Shortages—Workforce experts predict huge shortages of physicians by 2020 because of the increased demand.
Some have decided, though, to retreat to a defined contribution, say $5,000 to $7,000, where employees will get a check and will be asked to go to the exchanges to buy individual health policies. How big that trend will be remains to be seen.
TYPICAL ARE THE QUOTED COMMENTS of Randy Baker, president of Joy Global’s surface mining division: “It is certainly a large line item in our budget, but we are going to continue to offer health care at our company regardless of what the federal government wants to do, because our employees deserve that.”
My company reached a similar conclusion. After a rigorous analysis, Serigraph Inc., which self-insures about 1,100 lives, made its decision in 2013 to keep its full health plan, mainly because we cannot afford to lose talented employees if we drop coverage. Some would surely look elsewhere for work at companies with full benefits. There are several such soft costs involved in dropping coverage, and they offset the hard costs of continuing coverage. The competitive reality, at least for now, is that providing coverage for employees is still considered the norm for mid-size and large corporations.
THE COSTS OF HEALTH CARE
Companies that have done the best job of managing the health of their workforces and, therefore, of controlling medical costs, will be the ones most likely to keep their health care benefits. Best-practice employers in the private sector deliver health care for a total cost between $8,000 and $10,000 per employee. That has been and will continue to be a bearable level of expense for companies that want to attract and retain talented employees.
Companies that have done the best job of managing the health of their workforces and, therefore, of controlling medical costs, will be the ones most likely to keep their health care benefits.
Employers who haven’t applied management disciplines to health care often pay more than $20,000 per year. At that level, the small penalties under ObamaCare for dropping coverage, $2,000 per employee, look like an easy way out. In short, the higher the costs of a plan, the more likely the company is to drop coverage and pay the penalties for not offering coverage.
The “Cadillac plans,” those that cost more than $27,500 for a family, face a 40 percent surtax under ACA, effective 2018. Those bloated plans cover some executives, many union members, and some public employees. They show how far out-of-control costs can climb if not managed. Assuming an 8 percent upward trend in premiums, more than 50 percent of plans could face the 40 percent tax within a decade.
Employers will only escape the penalty if they redesign their plans or Congress yields to pressures to raise the cap. Companies are already trimming back their plans in anticipation of 2018.
SOFT COSTS
The proposed rules are maddeningly complex, and thus the decision to stay with health care or drop coverage has been complicated. For openers, the soft costs are as vexing as the hard costs. For exempt smaller companies, among the soft costs are legal fees. They are hiring lawyers and benefits experts to make sure they stay exempt at fewer than 50 employees. The new law has created an army of consultants.
For medium and large employers, the soft costs of discontinuing the health benefit go beyond turnover, but that is the biggest one. Another major one is the loss of influence over promoting health among employers.
If a company drops coverage and instead chooses to pay the modest ACA penalties, what’s the cost of losing a top engineer who leaves for a position with a full-benefit employer? Turnover brings the steep expenses of recruiting a replacement, of training a successor, of slower technology advancement in the interim while there is a vacant position. Such transitions could easily cost $100,000 each. Further, recruiting an equivalent engineer to a company not offering health care would be a challenge. The same can be said of other skilled positions, from press operator to programmer to executive.
As for losing positive leverage over the health of the workforce, companies in the vanguard of containing health costs do it by managing health. In the process, they enjoy improved productivity, higher morale, less absenteeism, and lower workers’ compensation charges.
Companies in the vanguard of containing health costs do it by managing health. In the process, they are enjoying improved productivity, higher morale, less absenteeism, and lower workers’ compensation charges.
Where health plans are well designed, including such amenities as on-site primary care, employees see their employer as making an investment in their families. That commitment creates a long-term bond. It acts much like tuition reimbursement and is appreciated by employees as a similar investment in their futures.
In contrast, dropping health care and telling people to go to the public exchanges for individual policies will inevitably be viewed as a step backward in a company’s commitment to its workers. That will be true even if the employer gives the employees a raise or a “defined contribution” to help purchase the individual policies.
It will be especially true if the premiums for individual policies sold on private or public exchanges show a big hike over today’s prices. Because of expensive ACA mandates on what a health insurance policy has to look like, some major insurers have decided not to offer policies in some states. That means less competition for individual policies, and less competition always means higher prices.
HARD COSTS
There is also a numbers side, the hard costs, in a company’s go or no-go analysis.
Suppose an employer currently delivers health care at a total cost of about $8,500 per employee, which is tax deductible to the employer
