The Individual Mandate and How It Will Prompt Employers To Drop Health Insurance Plans

Posted on by Patrick Paule

Recently there has been much in the news about employers shedding their health insurance administration burden when PPACA is fully implemented in 2014. One side of the political aisle says this won’t happen and the other side says it will. Neither side has any idea of what these new regulations will accomplish.

Before we discuss the employer mandate and how it will dramatically change we must first explain why the shift will be so easy. In 2014, PPACA will offer four things for individuals that will make employer plans obsolete. Guaranteed issue, no preexisting conditions, and community rating all will take effect. Simply put, you will be guaranteed the ability to purchase health insurance at any time and not be subject to coverage exclusions due to health issues. Your rates will be based on the pool of people and will only differ based on age (3 to 1 ratio), tobacco user (1.5 times regular rates), and geographical region. The fourth thing for individuals is that they will be eligible for subsidies if they purchase insurance on a Government exchange. Subsidies will be available for anyone earning up to 400% of the Federal Poverty Level. People who earn roughly $44,000 for single and $92,400 for a family of four will all qualify for some form of a subsidy on their insurance premiums. There is a fifth item that some believe will force people to purchase insurance. PPACA created a new tax that will be levied on individuals who choose not to purchase insurance. However, the fine for not purchasing in 2014 will be $95 for a single person ($695 for a family of four) or 2.5% in additional income tax, whichever is greater. As you can imagine, the high premium costs will send more people onto the roles of the uninsured as paying the tax will be drastically lower than purchasing a plan.

Essentially someone will be allowed to purchase insurance when they are in a situation when they need it and drop it when they don’t. Imagine purchasing hurricane damage insurance two minutes before your home is destroyed then being able to drop it once your settlement check has cleared and your new home is complete. In the world of property insurance many companies simply aren’t writing insurance on homes within a certain distance of the coast in Florida. Under PPACA the Government is forcing insurers to continue to write these policies even though the outcome of adverse selection is clearly there. Simply put, there is no way that this system the Government has designed will survive because…

Employers WILL drop insurance plans.

In private industry profits are the ultimate goal. The bigger the profit the better the company can grow. The bigger the profit the greater the dividend shareholders receive. The bigger the profit the more stability for the employees.

Employer sponsored health insurance premiums are one of the highest costs a business incurs. Most employers pay a fairly high amount of the premiums for their employees. The last several years companies have seen premiums increase on average of 10%+ per year. With the costs continuing to rise and no end in sight, many employers are looking for ways to exit the insurance business. Aside from premiums, employers also face added costs of administration. Some of these costs include: HIPAA and COBRA compliance, new hire and termination processing, employee communications, and in some cases, claims administration. Add to these costs the upcoming MLR rebates and many other PPACA reform regulations and most employers are looking at increased overhead simply to maintain regulatory compliance.

With the individual mandate and corresponding subsidies, many employers will see this as an opportunity to relieve themselves of the costly burden of providing health insurance. They see this as a way to shed one of their highest line item expenses and can sell their employees on it through wage increases and the promise from our Government that insurance will be available to them with a potential subsidy.

Through real case examples we can show that employers will come out ahead by discontinuing benefits and instead increasing wages to their employees. The pros of offering insurance to employees aren’t close to the actual cons of dropping it. The two main pros are the advantage of tax deductible premiums and the other is that offering a solid plan with contributions in many cases gives employers a leg up in the hiring process. The big con is that if you have more than 50 full time equivalent employees you will have a fine to pay the Government if you don’t have a “qualified” plan offered to employees. If you are under the 50 employee threshold then there is absolutely no reason to continue to offer benefits. Cut your costs and give employees more in wages. They can have flexibility to purchase a plan through the Government exchanges and be eligible for subsidies without the employer having to deal with the ongoing administration and cost increases.

Here is a real example of a small group who can save significantly by eliminating their current insurance plan. Savings and Loan limited has 34 employees and offers two comprehensive benefit plans to their employees. They pay 80% of the premium costs for employees and 70% of the dependent costs. There are 17 single contracts, 8 two party contracts, and 9 family contracts. Based on average premiums of $4500 for single, $8200 two party, and $12,000 for a family (extremely conservative figures) this employer will spend $157,970 annually. Subtract tax savings out (34% corporate rate) and the actual cost to the employer is $104,260. If the employer were extremely generous in a “fair” way and gave all of the savings back to the employees each one would receive an equal amount of $3066.

In the 50+ employee segment the fines will be $2000 per employee but you get to subtract the first 30 employees from the equation. The real example here is Dr. Death’s Specialty Care. They employ 120 people and contribute 80% of the single cost but only 50% of the two party or family cost. They have 57 single, 33 two party, and 30 family contracts. Based on average premiums stated above here is how there scenario will work out. The premiums work out to $633,900. Tax savings are $215,526 for savings of $418,374. Then we subtract the fines payable to the Government for not offering a plan. We take total employees minus 30 and multiply by $2000. This works out to a fine of $180,000. Actual net savings will be: $238,374!!! Passing all of this along to employees would generate an annual wage increase per person of $1986.

The savings can be immense. These figures don’t include the reduction in administrative costs and the unknown future insurance premium increases.

One last thought: If you really think an employer is going to pass the entire amount along I have a bridge to sell you.

Access vs. Affordability

Posted on by Patrick Paule

When insurance companies and providers can’t come to terms on a contract agreement it typically revolves around payments. The one who gets hurt most is you, the consumer. As an insurance advisor it is my responsibility to provide your company with the best benefits and network at the greatest cost value. A good example of this for our region is St. Luke’s Hospital in Maumee. They are currently undergoing a major merger into ProMedica where the Federal Trade Commision has ruled that the proposed partnership is in violation of anti-competition laws.

Most of us like to have choice when it comes to our health care needs. Being able to go to the doctor and hospital we want and not have restrictions on care. One of the biggest components of your insurance carrier relationship is the discounts they negotiate with physicians and hospitals on your behalf. Typically these discounts are anywhere from 30% to 60% lower than “retail” charges.

In this lawsuit the FTC contends that “if the partnership forged last year is allowed, hospital rates could rise more than 56 percent at St. Luke’s and nearly 11 percent at other ProMedica hospitals.” Obviously ProMedica is disputing this and the lawsuit continues on.

For consumers this merger has allowed for Paramount Health Care members to have access to another facility giving a choice to many who couldn’t use St. Lukes before. However, this means going to St. Lukes is going to cost your insurance company more money.

So, here is the dilemna. At what point does access to as many facilities and providers become too costly?

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November 1, 2011 Domestic Partner Coverage Available Through Medical Mutual

Posted on by Patrick Paule

Medical Mutual of Ohio has announced that effective November 1, 2011 both same -sex and opposite-sex domestic partnerships will be eligible of enrollment into their group insurance products.  Eligible partners can apply only during the group’s annual election period and must complete the proper form along with the application.  Billing will be done as two single contracts and NOT as an employee and spouse contract type.

Check Out My Interview with Valued Partner, COMPackage CEO, Joe Blattner

Posted on by Patrick Paule

Recently I was interviewed by COMPackage CEO Joe Blattner regarding the future role brokers will play in serving businesses and individuals in the health insurance market. It provides insight into how Health Care Reform is impacting professional employee benefits advisors.  http://blog.compackage.com/health-care-reform-effects-on-insurance-agencies/

Understanding Why Healthcare Spending Is Out of Control

Posted on by Patrick Paule

As consumers we purchase goods and services every day.  We all know how much a gallon of milk costs and constantly are reminded of the daily fluctuation in gas prices.  We also know how to clip coupons, can easily tell you the best value in town for pizza deals, and know how to use resources to help negotiate the price for a vehicle. 

However, when it comes to our health we have very little comprehension on the costs of services.  Most people understand that similar to a gallon of gas, the price for a routine doctor visit has increased over time.  What most don’t realize is that through our purchase of insurance we pay very little of the actual cost of the visit.  Instead we pay premiums that subsidize the cost and what’s left for us is the copay.  In the employer paid world of benefits where employee premiums tend to be heavily subsidized there is a major disconnect in the real value of the medical benefits they receive.

In healthcare the subsidized amount has had significant impact on why medical costs are out of control.  Simple economics show that if the price of a good or service is low or decreasing, then the demand for the good or service is likely to increase.  Going back to the implementation of Medicare in 1965 the average person was responsible for 43% of their medical expenses.  Now we fast forward to 2008.  Consumers were directly responsible for roughly 12% of health care expenditures.  That means that 88% of all medical costs were paid by someone other than the consumer.  This disconnect in connection with highly subsidized health insurance premium costs is a recipe for disaster, as many of us are oblivious to the actual costs associated with our medical conditions.

Since 1965 consumers have averaged out of pocket increases of roughly 6.7% per year.  While this number seems very high, it pales in comparison to the spending increases in private insurance of almost 11%, Medicare at 15.5%, and Medicaid at 15.4%.

Why is this important to employers and their employees?  The answer is simple.  With the passage of PPACA (Health Care Reform) the percentage of people who will have even higher percentages of subsidized insurance will increase significantly.  People who aren’t exposed to the true costs of care or insurance will continue to consume more.  If we don’t put more responsibility on people’s shoulders for their medical decisions and costs, our entire economy will soon be consumed by mounting health costs.

Compare this to buying a car.  Remember when we had Cash for Clunkers?  When government subsidized your car purchase people were more inclined to buy new ones and spend a little more money because the bill you paid was lower.  Just think if the program was still going and the subsidy had grown to cover 88% of your car purchase.  How often would you be buying a new car?  What type of care would you give to your old car since the cost of a new one was so cheap?  What would happen to everyone who worked at a repair shop or a used car dealer?  What would happen to the prices of new vehicles?  Pretty easy to see where our health care and delivery system are heading.

HHS Issues Rules on Birth Control Under Preventive Care Services

Posted on by Patrick Paule

The Department of Health and Human Services issued new rules this morning regarding coverage of all U.S. approved birth control methods including the “morning-after pill” taken to stop a potential pregnancy.  The rules also include coverage for oral contraceptives, injection contraceptives, and voluntary sterilization.

Effective August 1, 2012 all new health plans must make these benefits available at NO cost to the insured.  They will be considered preventative care services.  While many news outlets will be reporting these benefits as “Free” it is well known in the private insurance market that these costs will simply be passed along to those purchasing insurance through higher premiums.

The goal of the rule is to help reduce unintended pregnancies.  According to HHS Secretary Sebelius, the decision is being touted as part of PPACA’s move to stop problems before they start.  In her news release she states:  “These historic guidelines are based on science and existing literature and will help ensure women get the preventive health benefits they need.”