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State-Based Health Insurance Exchanges: Love ’em or Leave ’em?

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With the Patient Protection and Affordable Care Act (PPACA) officially the law of the land, employers are asking “What now?” For one thing, the PPACA provides for state-based health insurance exchanges. Will they help or hinder the quest to be an employer of choice?

In the early days, offering health benefits was truly a way for companies to differentiate themselves. But as the practice became more common—even expected—the rationale changed. Health care costs soared and employer-sponsored plans went from being “nice to have” to “need to have” for millions of employees who otherwise would not be able to afford coverage or sometimes even acquire coverage on their own at any price.

Come January 1, 2014, however, all that changes as the PPACA’s state health insurance exchanges come online. They act as a safety net giving both full- and part-time employees access to affordable health coverage with no exclusions for preexisting conditions. So what’s an employer to do? Does it make sense to continue to offer benefits the way you always have, or would it be better for your company and your employees to get their coverage via an exchange?

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Our coverage is still better.
We’ve structured our plan to offer more to our employees than anything they can find on the open market…wellness incentives, behavioral assistance, disease management, etc.
Better for whom?
We have a lot of lower-paid employees who could benefit from the federal subsidies available to purchase insurance on the exchange. The money they’d save could be like giving them a raise.
The inconsistency from state to state is an issue.
Every state exchange is expected to operate differently and have different choices. Offering our own coverage helps us make sure all of our employees are getting the same level of coverage, no matter where they live.
It’s all about choice.
State exchanges can give employees access to a wider range of plans and networks. Having more choice can offset any state-to-state variations.
The penalties for not offering coverage are steep.
Right now our cost per employee is manageable. We wouldn’t want to incur the $2,000 penalty to drop coverage and send our employees to an exchange.
We’d actually save money—penalties and all.
For us, paying a $2,000 penalty is a bargain. The money we save gives us a lot of options—keep some and use it to better manage the business… give some back to our employees…maybe offer a different benefit instead.
The law is flawed—we just can’t support it.
It’s wrong for the government to legislate what private companies and citizens have to do. These exchanges are simply not a good idea.
We have to start somewhere.
Health reform isn’t perfect but the health care system is broken and needs an overhaul. The exchanges are a necessary first step. Let’s start there and tweak things as we go.

My take

Rick Wald

Rick Wald, Director, Deloitte Consulting LLP

The Supreme Court’s ruling on the PPACA took many by surprise—nearly two-thirds of clients we polled in a recent Dbriefs webcast had expected either the entire bill or the individual mandate to be struck down. Now that the question of “Will it stand?” has been answered, it’s time for companies to start asking different questions.

Will continuing to offer health insurance position you as an employer of choice? Or, would your employees prefer that you discontinue offering benefits so they can take advantage of the subsidies available through the exchange?

Number crunching is an essential part of the analysis. You first need to know how much your company is paying per employee for coverage today, so that you can calculate your costs of retaining your current plan vs. paying a $2,000 penalty and sending employees to the exchange. The make-up of your employee population also matters. What percentage of your workforce is full-time vs. part-time, keeping in mind that the PPACA specifies a distinction between the two? Under the law, any employee working an average of 30 hours per week in a four-week period is considered an FTE (full-time equivalent) and must be offered benefits.

Other questions to ask are what is the average pay for your employee population and what percent of the population is higher paid? In this case, higher paid refers to those earning 400% or more of the federal poverty level. Those below this level would qualify for federal subsidies to help pay for insurance coverage on an exchange; higher paid individuals who are not eligible for the subsidy would likely pay a higher premium to use the exchange vs. continuing to receive coverage from their employer. Would you need to do something for this group to compensate for discontinuing health insurance?

Size also matters: The smaller the employer, the more likely using an exchange will be beneficial. The PPACA kicks in at 50 employees. Historically, we’ve seen that smaller companies of, say, 50 to 500 employees have been more likely to drop health care coverage in the face of ever-rising costs. If your smaller company has continued to offer coverage despite these cost increases, the law becomes the great equalizer in that you have been paying for benefits and now your competition will have to as well (thus increasing their costs). Furthermore, smaller companies have likely been paying more in coverage than their large counterparts, potentially making the exchanges a better deal financially. Even more, the smaller the company, the greater the likelihood that more employees are lower-paid under the law’s guidelines and would qualify for the federal subsidies. It could make sense to offer higher-paid employees a bonus in lieu of employee-sponsored health coverage and send everyone to the exchange, so everyone comes out a winner.

Other considerations also factor into the analysis. For example, say you choose to drop coverage, pay the $2,000 penalty and send employees to the exchanges. What are the administrative ramifications of this? Might you be able to help offset the $2,000 penalty with savings from no longer having to spend the time and cost to administer an in-house plan? Another consideration is the High Value Plan tax that takes effect January 1, 2018. It penalizes employers who offer benefits that exceed a set value (more than $10,200 for individuals and $27,500 for families) and includes both active and retiree plans, reimbursements under an health FSA or HRA and employer HSA contributions, among others. Some of our clients are on pace to exceed this threshold and would actually pay more in penalties to provide benefits than it would cost them to turn to the exchanges instead.

The point is: You have much to consider and there’s no one right or wrong answer about whether or not to use the exchanges or how your decisions will affect your company’s perception as an employer of choice. What is clear, however, is that the sheer availability of state exchanges is a game-changer the likes of which we’ve virtually never seen before. Come January 1, 2014, the reasons you used to cite about why you offer benefits and what it means to be competitive are moot. The rules are different, the options are different and the rationales are different. Rather than stumbling into your company’s approach, I urge you to do your research, compare the options and proactively make a choice that works for your company and your people. 

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