Rumors abound about how many employers may find it more cost-effective to drop health insurance in 2014 and send their employees to the health insurance exchanges. Now a report from the Lockton Benefit Group – crunches the numbers and provides details in a report here about how that will play out.
Report Summary
"Actuarial modeling of more than 130 employee benefit plans by employee benefits consultant Lockton shows that last year’s health reform law imposes additional costs on employers’ health plans. The study also shows that the law will create a financial incentive for some employers to terminate health benefit plans in 2014 when new Insurance Exchanges take effect."
Lockton's actuarial modeling project analyzes the additional costs for both employers and employees in their current health plans due to changes imposed within the health reform law. It also evaluates the financial implications of options employers will have in 2014 when they are required to offer health coverage to full-time employees or risk penalties.
The report details how a vast majority of Lockton's clients currently spend far more on health insurance per employee than the nondeductible penalty under the “Play or Pay” mandate. By 2014 this gap will be much larger still, the data shows.
Employers may cut their benefit provisions to get their costs lower but then they would most likely not meet the essential benefits package minimum requirements under that 'pay or play' mandate.
As a result, were they to terminate their group coverage in 2014, companies would, on average, save 44 percent of their projected 2014 health insurance costs. For clients whose health plans tend to be more expensive, savings are larger (84 percent for governmental clients, 60 percent for hospital clients in the study).
“What they will do in 2014 depends on their health insurance costs and budget in 2014, and their perceived need to use a health plan to gain a competitive advantage for labor,” said Lockton Benefit Group President Mike Brewer.
My Analysis
While the Affordable Care Act expands coverage to many currently uninsured Americans, for many employers with current health coverage the law actually creates a financial incentive for some to end their coverage in 2014 when insurance exchanges take effect.
In a nutshell, the Lockton Benefit Group's analysis of its clients benefit plans illustrates clearly that those employers will save money paying the Affordable Care Act's penalty rather than continuing to insure their employees.
Brewer summarized his client's position by saying in testimony to Congress that his clients are telling him, 'We won't be the first to drop coverage, but we won't wait to be third, either.'"
This clearly illustrates how complex the American health insurance system has become and how developing a reform package to lower costs is nearly impossible. Creating a system that increases costs this dramatically is not surprising though.
It's not surprising because the reforms are almost entirely on the insurance side while nearly everyone knows the problem lies largely in the ever-rising costs in the provision of health care itself.
Little emphasis is being placed on taming the health care cost beast. The reform possibilities that can make that a reality continue to get discussion, but little action. These proven reform ideas include the following:
- Incenting lean efficiency process improvments in the health care system.
- Payment reform initiatives emphasizing "episode of care" reimbursement rather than "fee-for-service"
- Medical home to improve coordination of care and create greater efficiency
- Expansion of Accountable Care Organizations beyond the ACO Medicare pilots provided in the Affordable Care Act
All of these models, in addition to seeking lower health care costs, also have been shown to improve health care quality AND patient outcomes. Its time to move beyond the pilots that have proven improvement and reduced cost are possible. Its time to change the system using these mechanisms.
