Obamacare and Employer-Based Benefits
(A version of this Health Alert was published by American Thinker.)
Now that we have over one full year of ObamaCare under our belts, a mystery is unfolding: What is happening to employer-based benefits? Data from different sources convey widely different messages, but until we solve this mystery, it is difficult to predict the political future of President Obama’s troubled health reform law.
The puzzle is obscured by the media’s focus on topline figures, which indicate significant increases in the number of insured people, including millions added to Medicaid, the joint state-federal program for low-income households. In truth, it is inappropriate to categorize Medicaid dependents as “insured” — for the same reason it is inappropriate to consider jobless people who receive cash welfare benefits as “employed.” The fiscal difference between people who depend on government benefits and those who do not is one of kind, not of degree.
But how should we classify consumers covered through the ObamaCare exchanges? Are they government dependents or not? The issue is tricky.
Although almost nine of 10 people enrolled in the exchanges pay premiums discounted by the tax credits the federal government gives health insurers, they are not fully dependent on government welfare. On average, they pay 28 percent of their premiums with their own money. Whether or not they are net recipients of welfare is not clear, because their net tax liabilities are not determined until the Internal Revenue Service processes their 1040s.
For those who are net taxpayers, we cannot say whether they are paying more or less taxes than they would pay without ObamaCare — not unless we know whether the healthcare law caused them to lose (tax-exempt) employer-based benefits.
Before Congress passed the Affordable Care Act in 2010, many experts anticipated that it would lead to a hemorrhaging of employer-based benefits, as businesses and their employees figured out that going into ObamaCare’s exchanges would reduce their net tax burden. Unfortunately, the data so far are inconsistent and even contradictory.
- In March, the RAND Corporation published survey results that show the number of adults under 65 years old with employer-based health coverage rose by 8 million since the ObamaCare exchange rollout. This figure swamps the 6.5 million uninsured who became dependent on Medicaid and the 4.1 million uninsured who obtained coverage through an exchange. It’s also more than the 7.1 million enrolled in exchanges who were previously insured. This is why the RAND report can be called “optimistic” on employer-based benefits.
- One report that contradicts the RAND report comes from Goldman Sachs. According to Scott Gottlieb of the American Enterprise Institute, the investment banking giant estimates that small employers dropped 2.2 million beneficiaries from coverage, a reduction of 13 percent from 2013. So much for optimism.
- Another pessimistic report was published last year by Heritage Foundation researchers Ed Haislmaier and Drew Gonshorowski. They reviewed actual filings by health insurers and concluded that nearly 3.8 million people lost employer-based coverage through June 2014.
- In March, the Centers for Disease Control & Prevention reported early estimates from the National Health Interview Survey. It concluded that the number of people aged 18 through 64 years with coverage increased by 7 million from 2013 to September 2014. However, only about 1.7 million of them became dependent on Medicaid or other public coverage. Over 5 million received private coverage, including Obamacare exchange coverage. These numbers sound neither “optimistic” nor “pessimistic.”
- Also from 2013 to September 2014, the Gallup-Healthways survey shows a decrease of 1.7 million with employer-based benefits, and an increase of 5.9 million with individual policies (including those bought on Obamacare exchanges). This implies a net increase of 4.2 million with private coverage. However, the survey also shows an increase in public dependency of 5.3 million people! This report, which points toward pessimism, is the one most widely reported in the media because it was turned around quickly.
So what may we conclude about Obamacare’s results to date? For reasons yet unknown, the most certain outcome that the president’s healthcare reform has caused immense confusion about the numbers of uninsured. That in itself is reason for Congress to revisit this controversial and unpopular law.
Another obfuscation, John: The neverending transition accommodations have blocked the true effects of the law from many thousands of businesses. As these deferrals expire, we’ll see more of a true picture–but even if no additional special graces are authorized, we’re talking 10/17 before the full effects are borne by the affected businesses and their employees. In that case it will be 2018 or 2019 until we can really start to see the broad effect of the rules, and start measure a complete picture of their reactions.
Hmm: How can I “obfuscate” something which has not yet occurred?
Brian is absolutely right. All of the delays and transition rules, as well as the structure of health reform has created a situation where employers have no obvious lever, no trigger point, that will justify a dramatic change to their longstanding health coverage strategies – other than various “tweaks” to adjust current coverage so that it meets PPACA compliance requirements.
I have worked with hundreds of employers over the past five years. We call this the “check the box”, “once and done”, “comply as you go” “strategy”. It is really no more than “status quo compliance”.
That is, specifically, the employer shared responsibility thresholds (60% Minimum Value, 9.5% contribution for single tier coverage, no required employer contribution for other than self-only tier, no coverage need be extended to spouses, step children or foster children), these thresholds were set so low, so far below the typical employer-sponsored plan, that those with responsibility to manage the plans found their plans would be PPACA compliant … if they only made a few tweaks (eliminate lifetime maximums, add coverage for kids up to age 26, drop pre-ex, etc.). So, there was no senior management support for radical change that might create a competitive financial advantage, when the status quo could be maintained with only incremental adjustments.
Each of those changes, modest individually, substantial in their cumulative totality, each, in an of itself, implemented over four or five years, would not justify a radical change in strategy to dump employer coverage with the goal of pushing individuals to the public exchanges.
And, as Brian noted, when we get to 2018, a minority of plans will have coverage whose value/cost exceeds the high cost health plan dollar thresholds where we will see the cost of employer supported coverage as a combination of already high employer-paid costs AND new taxes on the excess value. At that point, since there is no high cost health plan tax on coverage provided in the public exchange, expect employers to reconsider their long-standing strategy to offer employer-sponsored coverage. That is, the choice changes:
FROM: Maintain the status quo total rewards package or obtain a competitive financial advantage by facilitating enrollment of individuals into the public exchanges,
TO: Making significant changes in total rewards to accommodate new taxes in addition to already expensive health coverage, or maintain most of the total rewards strategy other than health coverage, by facilitating enrollment of individuals into the public exchanges.
You’ll likely see such a change in strategy only where it is needed to maintain all/almost all other aspects of existing total rewards, or as a least undesirable strategy to cope with new costs/expense.
Until then, the changes will continue to be concentrated among small employers who can, with either no penalty or only a modest tax penalty, push employees to public exchanges and replace employer-subsidized coverage with taxpayer-subsidized coverage.
Thank you. I appreciate the comments. A counter argument would be that the premiums for Obamacare plans will also be sky-high by 2018 and the networks so narrow that people will value employer-based health benefits even more than they do now.
You miss the point that almost 90% of those with coverage in the Public Exchanges receive taxpayer subsidies that are based not on the cost of coverage, but based on family income. The subsidy increases as necessary to meet certain maximum cost targets. So, almost 90% of individuals (so long as they are choosing a silver or a bronze option), won’t see much of the cost increases.
So, yes, to some extent, employer sponsored coverage will be more valuable than ever – particularly to those who have household incomes > 400% of FPL.
The problem is that PPACA burns the candle at both ends – mandates (market “reforms”) raise the cost of employer-sponsored coverage, while the cadillac tax effectively caps the value (I know of no employer who plans on paying for coverage and also shouldering the cost of the cadillac tax). You end up with ever higher deductibles and other point of purchase cost sharing – eroding the perceived value of employer-sponsored coverage.
With the exception of higher income professional groups, small employers are dropping coverage in droves. Virtually 100% of small groups in the hospitality industry (the 2nd largest industry in the US) have dropped as providing coverage would exclude their employees from eligibility for subsidies. The small business tax credits are mostly smoke and mirrors for employers with >10 EEs and average salaries of $25K.
On the growth side, the plan year transition relief and the 80 EE exclusion in 2015 have delayed the uptake by employers that will have to begin offering coverage. Further, multi entity hospitality groups are still in denial with respect to control group provisions. They will wake up when IRS starts assessing penalties based on the 1094-C forms that will be due for the first time early 2016.
Alas, the prohibition against even small employers from being able to contribute to employees individual plans (penalties started 7/1/15) will further corrode the small group market. The only reason for that restriction, with respect to small groups, HAS to be to increase revenues– by reducing small employers tax deductible expenses and forcing individuals not eligible for subsidies to pay with after tax dollars.
Thank you. Are you anticipating that employers with 50+ employees will just throw in the towel and pay the fine? Or go to part-time workers (easier said than done, I think)?
Employers I have worked with will manage their spend (or plan design) as needed to stay below the cadillac tax threshold – dropping options that trigger the tax.
Look for some selection here, as higher and higher point of purchase cost sharing (ever higher deductibles, etc.) will likely prompt those who anticipate significant medical expenses to look more favorably on public exchange coverage.
LoOver time, look for employers to change their total rewards strategies so as to facilitate a choice of public exchange coverage or employer sponsored coverage for lower income employees who would qualify for taxpayer financial support. The goal will be to ensure employees understand that they have access to health coverage options of greater value where they are financially superior to the higher deductible options employers will increasingly offer.
Finally, note that there is no cadillac tax on public exchange coverage options – it only applies to employer-sponsored plans. So, an early casualty will be early retiree medical coverage – assuming the IRS direction in 2015-16 becomes a reality.
I don’t understand the third paragraph. What do individual plans have to do with the small group market?
The individual policies and the small group policies are both part of the public exchanges. Elena notes that a practice that some employers have pursued in the past, giving employees access to an employer-funded Health Reimbursement Account where a qualifying expense (for tax favored reimbursement) would be the premium for an individual policy, has been effectively eliminated by IRS regulation (there is no statutory support for this action). In the past, few employers went this route because of HIPAA compliance concerns.
Interestingly, this is the same process members of Congress and their senior staffs use to fund their coverage through the Public Exchange. It is one more example of do as I say, not as I do. Where Congress claims tax preferences that the IRS asserts are not available to other Americans.
Still, I would expect that prohibiting employer contributions to individual plans would, if anything, bolster small group plans (even if some employers dump their employees onto the exchanges instead).
John, in labor intensive industries like hospitality yes, especially this year and at least until their plan year renewal in 2016 since they get a pass on 80 EEs this year and, because of the high turnover in this industry, using the lookback measurement period you eliminate much of your eligible EEs. Many of these employees also qualify for subsidies so even the employees are better off.
Jack, I had forgotten about that–that the government is exempt from the prohibition against employers setting aside money for individual insurance. What is good for the goose in not good for the gander…