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By Benefit Innovators | September 13, 2013 at 01:51 PM EDT | 1 comment
Many employers looking for ways to reduce employee benefit costs do so by shifting cost to employees through plan design changes or employee contributions. But as employer shared responsibility penalties become a reality in 2015, increasing employee contributions could drive lower paid employees to the exchanges, thereby triggering penalties. So the dilemma many employers face is how to increase employee contributions without making the coverage unaffordable to employees, or perhaps employee contributions are already at a level that makes the coverage unaffordable to some employees. When the employee base is a mix of high and low paid employees like so many companies are, there is another option. Reducing employee contributions to make the employer sponsored coverage affordable for all employees may mean drastically reducing contributions and shifting a lot of cost back to the employer.
The good news is that the laws and regulation on discrimination do not protect higher paid employees. In fact, non-discrimination laws prevent employers from providing better benefits to higher paid employees, but not the opposite and the Affordable Care Act explicitly states that employers are not prevented from requiring higher paid employees to pay higher contributions. Section 1001 of the ACA revises the Public Health Service Act as follows:
SEC. 2716. PROHIBITION OF DISCRIMINATION BASED ON SALARY. (a)IN GENERAL.—The plan sponsor of a group health plan (other than a self-insured plan) may not establish rules relating to the health insurance coverage eligibility (including continued eligibility)of any full-time employee under the terms of the plan that are based on the total hourly or annual salary of the employee or otherwise establish eligibility rules that have the effect of discriminating in favor of higher wage employees. (b) LIMITATION.—Subsection (a) shall not be construed to prohibit a plan sponsor from establishing contribution requirements for enrollment in the plan or coverage that provide for the payment by employees with lower hourly or annual compensation of a lower dollar or percentage contribution than the payment required of similarly situated employees with a higher hourly or annual compensation.
Therefore, as stated in (b), an employer may require higher paid employees to pay higher contributions. One way to do this that would not likely be construed as unfair and would ensure coverage is affordable for all employees is to set employee contributions at a fixed dollar amount that the employer prefers, and as high as they want, but lower the contributions for individual employees to be no more than 9.5% of their annual income with the employer. This takes advantage of the first affordability safe harbor by ensuring that the employee contribution towards employee only coverage is no more than 9.5% of the W-2 income. At the same time, higher paid employees will pay the full contributions that the employer would like them to pay. This strategy means that contributions will be reduced for lower paid employees to 9.5% of their W-2 income, but all higher paid employees will pay the full contribution set by the employer.
By Benefit Innovators | August 13, 2013 at 04:08 PM EDT | No Comments
There are three main fees that will directly impact premium rates in 2014, although the PCORI program and its fee are already in place. Most carriers, are already tacking on prorated portions of each of these fees at renewal time this year.
Patient-Centered Outcomes Research Institute (PCORI). This fee was created to fund research, as the name suggests, and is paid by both fully insured and self funded plans. For policies with a plan year that ends prior to October 1st of 2013 the fee is $1 per member per year (PMPY). For all plans ending after this date, the fee is $2 PMPY and in subsequent years the fee will inflate at a rate to match the general inflation of healthcare costs. So in 2014 the fee is $2 PMPY and is expected to be in the $2.12-$2.20 area for 2015.
Transitional Reinsurance Program. This fee is assessed to support a reinsurance program to stabilize premiums in the individual market during the first three years of exchanges (2014-2016). The fee is $63 PMPY in 2014 and will also be assessed to both fully insured and self funded programs. The fee amount will decrease thereafter to meet reducing total budget goals. We expect the fee to be in the area of $44 PMPY in 2015.
Annual Fee on Health Insurance Providers. This fee was created to fund certain portions of the PPACA and is assessed only to fully insured plans since it is paid by health insurers. This fee will be assessed to meet total national budget goals and will vary by carrier based on their total premiums written. Based on a number of studies and estimates, we believe the percentage will average around 2% of premiums in 2014 and 2.5% in 2015, but again, this will vary from carrier to carrier.
So to summarize, a self funded plan will pay a total of $65 per member in healthcare reform fees in 2014. A fully insured plan will pay the same $65 per member plus another 2% or so of premiums in 2014 in PPACA fees.
By Benefit Innovators | August 02, 2013 at 02:50 AM EDT | No Comments
Below are 10 reasons that I do not fear group health benefits going away anytime soon.
1. Health benefits are an important recruiting and retention tool. 2. Providing quality healthcare coverage and access to health improvement tools leads to reduced absenteeism and improved productivity. 3. Group health benefits continue to be the most efficient way to compensate employees due to tax advantages. 4. Employees expect it, and many are not accustomed to being a purchaser of health insurance, nor do they want to be one. 5. Group insurance is less expensive than individual insurance due to efficiencies within medical carriers, group purchase leverage, and access to self funding and other alternative cost strategies. 6. Employers will now have to pay a tax penalty in 2015 and beyond if they do not offer group medical and prescription drug coverage. 7. In almost every Pay or Play analyses that we have completed at Benefit Innovators, the combined impact to employer and employees of dropping group coverage is quite bad and increasing salaries is not a viable solution to replace the value of health benefits. 8. While exchanges may offer a way for employees to receive subsidized coverage, they will be even more confusing and cumbersome than the current individual market. 9. The most important employees to a company are typically older, higher paid employees and they are the ones that benefit most from the tax advantages of group benefits, would pay the most for individual insurance, and would receive no subsidies at an exchange. 10. Employed individuals tend to have better health than those that are unemployed. This is not a casual relationship, but mostly the result of some individuals that are in such poor health that they cannot work or choose not to. Not putting employees into that individual insurance pool is another reason why employer sponsored group insurance is less expensive on average than individual insurance. The elimination of underwriting and pre-existing exclusions only adds to this.
By Benefit Innovators | July 26, 2013 at 03:10 AM EDT | 1 comment
The premium subsidy amount that individuals will qualify for on an exchange is a relatively complicated calculation that many are confused by. Premium subsidies are based on three pieces of information; the number of members in the household, the adjusted gross income of the household, and the premium cost for the household to purchase the second cheapest silver level plan on the exchange. The household members and income are used to determine what percentage of the federal poverty level (FPL) the household is at and this percentage then sets the maximum percentage of the household’s income that must be contributed towards coverage for the second cheapest silver plan. Below is the table for this and interpolation is used within the ranges to determine the exact percentage of income.
% of FPL % of Income Paid for Silver Plan 133 - 150% 3 - 4% 150 - 200% 4 - 6.3% 200 - 250% 6.3 - 8.05% 250 - 300% 8.05 - 9.5% 300 - 400% 9.5%
So for example, a household that is at 200% of FPL would pay no more than 6.3% of the household income for the second cheapest silver plan. A family at 225% of FPL is half way between 200% and 250%, so their cost is capped at 7.175%, which is half way between 6.3% and 8.05%.
But let’s say the family doesn’t want to purchase that second cheapest silver plan, what happens then? Well, we use this benchmark plan, the second cheapest silver plan, to determine the subsidy amount that the family will receive regardless of which plan they do purchase. So let’s say our family at 200% of FPL has an approximate income of $40,000 (a family of 3), and therefore they will pay no more than $40,000 x 6.3% = $2,520 per year for that benchmark plan. If that benchmark plan costs the family $12,520 per year, their subsidy amount would be $10,000 per year.
Our example household can purchase the benchmark plan for $2,520 per year, but if they instead buy any other plan on the exchange, they will receive a subsidy of $10,000 per year towards that coverage. If they buy a bronze plan instead, they might get coverage for free. If they buy a gold or platinum plan, they will pay whatever the cost is for the plan they choose and receive a subsidy of $10,000 towards that cost. The subsidy in no way impedes customer selection at the exchange because the benchmark plan is simply used to determine the amount of the subsidy for the family, they don’t need to buy that plan to receive the subsidy.
By Benefit Innovators | July 21, 2013 at 10:29 AM EDT | 2 comments
Below are a few common Pay or Play terms and their definitions, but before we get into those we better define Pay or Play. Pay or Play simply means the decision of an employer to pay employer shared responsibility penalties or play by the law and offer affordable coverage to all full time employees. The following terms are relevant to all applicable large employers starting in 2015 when employer shared responsibility taxes begin.
Employer Shared Responsibility Taxes – this is the term for the penalties employers may incur under 4980H if that employer either: 1. Does not offer minimum essential coverage to at least 95% of all full time employees. The penalty for failing to do so is $2,000 (with healthcare index increases starting in 2015) times the total number of full time employees minus the first 30 if at least one of those employees receives a subsidy at an exchange. 2. Does not offer a plan that provides minimum value and that is affordable to each full time employee. The penalty for failing to do so is $3,000 (with healthcare index increases starting in 2015) times the number of employees for which the employer fails to offer minimum value and affordable coverage AND that go to the exchange and receive a subsidy. The aggregated $3,000 penalties will not exceed what the penalties would have been if no coverage was offered. These penalties are not tax deductible expenses.
Applicable Large Employer – only applicable large employers will possibly incur employer shared responsibility taxes. An applicable large employer is one that employs at least 50 full time employees plus full time equivalent employees. Different measurement periods may be considered in determining if an employer is an applicable large employer.
Full Time Employee – employees that work 30 or more hours per week are classified as full time under PPACA, regardless of the definition used by the employer for benefits. There are special rules for variable hour and seasonal employees and employer plans may have up to a 90 day waiting period before the employee must be offered coverage.
Full Time Equivalent Employee – employees that work fewer than 30 hours per week are aggregated into FTEs for the purpose of determining applicable large employer status. For example if two employees each work 15 hours a week, they are each 0.5 FTEs and together equal 1.0 FTE. This aggregation of part time employees into FTEs is only relevant in the determination of applicable large employer status.
Minimum Essential Coverage – this term is not defined in the law other than to exclude certain types of coverage. So in general terms, a benefit plan that provides medical benefits to employees is considered minimum essential coverage.
Minimum Value – 60% actuarial value. Any plan that does not provide minimum value may result in shared responsibility penalties to the employer.
Actuarial Value – the actuarial value of a benefit plan is the percentage of claims paid by the plan, as opposed to paid by the participant through deductibles, copays or coinsurance or because of benefit limits. For example, a plan that pays 80% coinsurance on all services would have an actuarial value of 80%. So simply put, it is a measure of the cost sharing of a benefit plan. However, it is only applicable to claims for individual members and their in network claims that fall within the essential health benefit categories. In other words, services that are out of network or not an EHB are not part of the equation, nor is any family cost sharing. When put all together, the equation is: (In network EHB claims paid by the plan for the average individual) / (In network EHB claims incurred by the average individual)
Affordable – under the affordable care act, affordability is defined as an employer plan that requires an employee to pay 9.5% or less of household income towards EE only coverage. So if the employee contributions towards EE only coverage are less than or equal to 9.5% of that employee’s household adjusted gross income, that plan is affordable to that employee. An affordable plan must be offered to all employees to avoid the possibility of shared responsibility penalties. There are three affordability safe harbors for employers to ensure they do not incur any such penalties using the W2 income with the employer, the federal poverty level and the rate of pay.
By Benefit Innovators | July 08, 2013 at 03:13 AM EDT | No Comments
There are a few ideas around the affordable care act that you might categorize as alternative strategies making their rounds in the employee benefits world.I am going to discuss three such strategies and my opinions on them here.
The first such strategy is one discussed in a Wall Street Journal article not too long ago.It is a strategy to avoid the $2,000 penalties under 4980H for not providing coverage to employees.The law and regulation clearly state that minimum essential coverage (MEC) must be offered to employees to avoid these penalties, but no substance is given to the term MEC.Therefore, as long as an employer provides MEC that complies with other portions of the law and other regulation, it is meeting this requirement.In the large group and self funded group markets, plans must not provide all of the essential health benefits.Therefore a plan that only provides, for example, preventive service benefits can be offered in these two markets, and would qualify as MEC.Therefore an employer can offer only a “bare-bones” or “skinny” plan, without regard to the actuarial value being above the minimum value threshold of 60%, and avoid paying the $2,000 penalties per year for each full time employee after the first 30.This seems as though it may be a strategy for employers that aren’t currently providing coverage, or that do not want to in the future, to avoid penalties without incurring much in terms of cost.The problem is, that most of the times, those employers are ones that employee fairly low paid employees and most of those employees would qualify for subsidies at an exchange.If one of those employees goes to an exchange and does get a subsidy the employer would incur a $3,000 per year penalty.Those penalties would be incurred for each such employee that gets a subsidy, up to a maximum of the total penalty that would have been incurred for not providing any coverage.So it is likely that the employer is not going to avoid as much penalty cost as they anticipate, perhaps none at all if many employees get a subsidy and trigger the $3,000 penalties.It is also important to remember that the penalties are not tax deductible and therefore their true cost is much more compared to the cost of paying for employer sponsored insurance.This strategy may also lead employees to believe that the employer sponsored plan is enough insurance and may leave employees open to financial catastrophe if a costly health condition develops quickly.
A second strategy, and one that is very similar to the first one discussed, is to offer a comprehensive benefit plan with 60% actuarial value, but the employer contributes very little to the cost of this group insurance.In this instance, the coverage would meet the minimum value requirement, and for higher paid employees would also be affordable.So unlike the first strategy, for some employees, this strategy would avoid the possibility of the $3,000 penalties being incurred as well.But it does still have the same issues with lower paid employees, that if they qualify for and receive a subsidy at an exchange, they would trigger the $3,000 penalties and these may add up quickly.I do believe, that for an employer simply looking to avoid penalties without incurring much cost, that this strategy is somewhat superior to the first one.The employer is providing employees access to comprehensive medical insurance through a group plan.This in itself may be beneficial to employees if individual plans are much more costly than their group counterpart in the given market.It is also a comprehensive insurance plan, as opposed to one that provides little benefit and may be misunderstood like the “bare-bones” plans in the first strategy.Neither of these strategies is a good one for most employers that have to compete for employees.
A third strategy is one for employers that do provide affordable, comprehensive coverage to employees, but cannot afford to do so for spouses and dependent children as well.These employers often pay most of the cost for EE only coverage, but little or nothing toward the cost of covering a spouse or child.The problem with this, under PPACA, is that this strategy prevents those spouses and children from getting subsidized coverage at an exchange, simply because the one parent is getting affordable coverage from the employer.This portion of the law makes little sense, and perhaps it will be revised, but as it stands, some households that are not being offered affordable coverage for the whole household cannot get an exchange subsidy simply because one adult in the household receives an offer of affordable coverage for just themselves.One strategy by an employer to help out such employees is to not offer coverage to spouses.Instead of offering spouses coverage and not paying any of the cost, the employer simply makes spouses ineligible.These spouses, would therefore be able to get a subsidy at an exchange since they are not being offered any MEC from another source.In some companies, this may spouses of employees obtain coverage the family can afford.So this is a strategy that an employer may want to consider, not to reduce cost, but to help employees and their families.
By Benefit Innovators | July 08, 2013 at 02:38 AM EDT | No Comments
The Employer Penalties, or shared responsibility taxes, under PPACA imposed on applicable large employers for not providing coverage, or for providing coverage that is either unaffordable or does not provide minimum value, will be pushed back to 2015.This is presumably to provide more time to work out the processes and reporting involved in administering these penalties.Regardless of the reason for the push back, many employers welcome the change because they were putting off making decisions about medical benefits, including the plans they offer and who they offer those benefits to.
The earlier these decisions are made and a strategy is designed, the better off both the employer and employees are.Employers now have more time to work out the details of how healthcare reform impacts them and their bottom line.Consultants now have more time to help their clients figure all of this out, and help them put together a program that meets their goals and their employees’ needs.It always seems easier to put things off until tomorrow, and those who procrastinated just received another year…to further procrastinate, or to catch up on what they should have been doing?I think it is our job in the consulting community to make sure it is the latter.
By Benefit Innovators | November 18, 2011 at 02:12 PM EST | No Comments
The PPACA is a complicated set of new rules and regulations but most employers just want to know, “How does it effect me?”.One change that effects the great majority of employers, and is often overlooked with all the bigger discussions around health care reform is the change to W-2 reporting that starts with 2012 tax year reporting (the reporting done in early 2013).Specifically, Section 6051(a)(14) of the tax code requires that employers include the aggregate cost of employer sponsored health coverage on Form W-2, Box 12, using code DD.
As per the interim guidance published by the IRS in Notice 2011-28, the amount to be reported is based on the “applicable premium” for employer sponsored group health coverage, not including policies that cover dental or vision services only.It also does not include policies for disability income, life, workers compensation, auto or any other coverage in which medical care benefits are a secondary or incidental part of the policy.Essentially this means only group medical and prescription drug coverage are to be part of this new reporting.However, the amount to be reported also does not include HRA, HSA or FSA contributions by either the employer or employee.What it does include, for employers with insured group health plans, is the premiums paid by both the employer and employee toward the group health plan sponsored by the employer.For self funded employers the amount reported is based on COBRA applicable premiums.For more details you can read the interim guidance here www.irs.gov/pub/irs-drop/n-11-28.pdf.
This may seem like just another demand put on HR departments or another cost to those that use payroll service companies to produce W-2s.However the intent of this portion of the legislation is to make employees more aware of the cost of the benefits they receive.It is not overly complicated to produce the aggregate cost for each employee and I think the information can be powerful.One of the problems with our healthcare system is that so many people have very little idea of the cost associated with their health benefits.This is a good step towards making everyone aware of those ever increasing costs that we all like to complain about.
By Benefit Innovators | November 01, 2011 at 12:46 PM EDT | No Comments
As a follow up to my last article, I thought I’d discuss the decision making process a group should go through when deciding whether or not to change its health benefits from a fully insured product to a self funded plan.As I mentioned there are many reasons self funding saves money for most groups with the biggest one being the reduction in cost associated with transferring less of the risk associated with claims variability.In other words, if you retain more of the risk and accept the variability in claims, your expected cost will be less.There are other reasons to support self funding including increased plan flexibility and better claims data for use in wellness programs but most employers are going to focus primarily on the financial aspects.
So how does a group go about making this decision and how do they know how much additional risk they are taking on?The simple method employed by many brokers and consultants is to show the employer the expected and maximum cost calculated by the reinsurance carrier.There are a few problems I have with this method.First, the reinsurance carrier is concerned with its risk not yours.They are adequately pricing for the individual and aggregate stop loss that you are transferring to them.Their concern is not a reasonable picture of the risk retained by the employer.So there is going to be a slight bias towards conservative (high) estimates in the numbers produced by a reinsurance carrier.This method also leaves little room for examining different potential programs as a reinsurer will quote you one or a few options and leave you to choose.None of these might be the best fit for the employer’s risk tolerance but it is hard to know that if the options aren’t presented.
The method that I have used in the past, and that I now help brokers and consultants to provide to their employer clients, is a third party analysis of funding options.This involves a review of historical claims to determine appropriate trend assumptions, modeling of large claims at the individual level, and modeling of aggregate claims retention by the employer.Not only does this provide an unbiased estimate of expected and maximum cost under different self funding arrangement options, it also provides additional information including the probability of hitting the maximum cost and confidence intervals of where total cost will fall.This type of analysis also provides for comparison to what the reinsurer says the cost should be and a basis to determine if their pricing is reasonable.The analysis gives employers information on what it means to retain more risk and shows them the tradeoff in lower expected costs for increased claims volatility.Then an employer can decide whether fully insured or self funding makes sense because they have a true picture of what exactly the differences are.
By Benefit Innovators | October 22, 2011 at 12:40 PM EDT | No Comments
For many employers, self funding employee health benefits is an opportunity to save substantially on the cost of those benefits.There is a tradeoff to the expected saving in that the employer is giving up knowing exactly what the benefit costs will be.Variability and volatility are the price one must pay to reap those expected savings.So why is self funding cheaper on average than a fully insured plan?As is the case with any investment or financial instrument, there is a tradeoff in risk and return.This is as true in interest rates of debt and prices of equity as it is in the insurance industry. So part of the reason self funding is cheaper on average is because less of the risk is being transferred, hence less of a risk charge is paid.That is obvious perhaps, but there are some other reasons self funding is less expensive and I want to talk a little about some of these.
The first such reason is premium tax.By paying a portion of claims directly, and not paying a carrier to pay those claims for them, employers avoid paying the premium taxes that carriers undoubtedly pass along to the consumer.This is not an unsubstantial amount as premium taxes can be as high as 5% depending on the state you are in and the state your carrier is domiciled in.Another large savings area is flexibility of plan design.Increased flexibility is achieved because the employer is not dependent on an insurance carrier to offer the plan they want and because state mandated coverage is avoided through ERISA.This increased flexibility allows employers to take on the cost of only the benefits they want to offer.
Another area where the cost of self funding can be much less than it is with fully insured plans is administrative costs.This is partly because the administrative costs are known when purchased from a third party administrator (TPA) or on an administrative services only (ASO) contract with an insurer while they are mostly hidden in an insurer’s premium rates.It is also partly the result of how insurers load for administrative costs.Most, if not all, insurers load their administrative costs as a percentage of premium which doesn’t very well match up actual cost with priced charged.Larger groups and those with richer benefits, even with sliding administrative loads, will most of the time subsidize the true administrative costs of smaller volume groups.
The last area of potential savings I’ll talk about only applies to some groups and that is capturing good experience that an insurance carrier does not give credit for.One instance of this is when multiple years of consistent claims experience that demonstrate a group’s good experience is more credible than traditional credibility formulas would give it.Most carriers, when experience rating, will look only at the most recent twelve months of experience and apply credibility based on just those twelve months of experience.So a group with good experience in many past years will be getting the short end of the stick in experience rating.Another example would be if a group’s experience warrants a reduction in rates, which will often lead to the carrier holding rates but not reducing them.The last instance I’ll mention where a carrier won’t give credit for good experience is when they don’t know about it.In other words, a company may know things about its usage of benefits that those outside of the company do not.For example, decision makers may know that pregnancies are expected to drop off, or that a high cost employee is about to retire, and an insurance carrier obviously wouldn’t take that into consideration.Often times having more information, means knowing costs will be lower than in the past and self funding presents a way to take advantage of that.
By Benefit Innovators | October 12, 2011 at 06:02 PM EDT | No Comments
Over the last month or so I have been asking the question on LinkedIn groups and in a poll (view my profile) of what is most important to controlling the cost of healthcare in the future.Answers included tort reform, eliminating errors and wasteful procedures, wellness initiatives, and a lot of political opinions of course.But the one subject that came up more than any other was the idea of consumerism.Empowering us as consumers to make good decisions about our healthcare purchases seems to be something most agree on as a staple to improving our healthcare system here in the U.S.Better information, better aligned incentives, and a system that allows us as consumers to make the right decision is all part of the solution.Of course, this alone won’t solve our healthcare cost crisis, all of the methods to improve our system I mentioned will be important to fixing our problems.But a lot of it depends on big changes that will take time, effort and resources to make any impact.
One small step that can be taken towards better consumerism today is the use of consumer driven health plans (CDHPs).It isn’t the solution to the problem, but it is a move in the right direction that any employer can make right now.Most commonly this means the coupling of a high deductible insurance plan along with a health reimbursement account or health savings account.Regardless of which is chosen, and they each have their benefits and negatives, the idea is to have consumer directed funds to close some of the gaps of the high deductible plan.
In my opinion the best designed CDHPs today provide three major things to employees.The first is the incentive to make good decisions, which properly designed CDHPs provide because the consumer is making purchasing decisions with money that is, to some degree, their own.The second thing needed is good information to make these decisions.This is an area where I believe we have failed as a society so far.The information available to make informed decisions is sparse, confusing and sometimes completely wrong.Little information is available on the cost of services at a hospital or other provider and providers themselves are rarely well equipped to help a patient make a decision that properly takes into account cost.The final thing I feel is important to a good CDHP program is some sort of wellness program.It could be as simple as periodic communication on healthy habits, but once you have employees involved financially in the cost of their healthcare decisions they will better see the repercussions of their lifestyle choices and be more incentivized to improve their own health.A wellness program gives them even more incentive and opportunity to act on it.
I am a big proponent of CDHPs as I described them, because I think they are an immediate change an employer can make today that saves them and their employees money, and gets their workforce involved in the issue of rising healthcare.As I said, it isn’t the end of the story, and as the debates go on in public forums of all types around what we need to do to fix our nation’s healthcare crisis, it seems like a small drop in a huge bucket, but why not take a baby step that can do a lot of good.Healthcare consumerism doesn’t work as well as it can, and a big reason is the lack of information available to consumers, but the article linked to below is a great example of the fact that it can work, even before we make the drastic changes needed to the system.
By Benefit Innovators | October 02, 2011 at 12:53 AM EDT | 2 comments
Everywhere you turn these days people are talking about healthcare reform and the PPACA. Most of the talk is about the Constitutionality challenges to the mandate on coverage or other aspects of the act.What I haven’t seen too much discussion about is preparation for one of the most impactful changes under the PPACA; the state run exchanges coming in 2014.Sure, some or all of the PPACA might be overturned or rewritten, but it seems inevitable that public exchanges, private exchanges or both are around the corner.
What are companies doing to prepare for this huge change and what are brokers and consultants doing to educate and prepare their clients? Many struggling companies and those in industries that don’t need to worry about employee retention will take this as an opportunity to drop coverage.The only formula they care about is penalties < cost of coverage.They see this as an opportunity to reduce total compensation to their employees and book the difference.However, most employers are not going to take this simplistic view of the decision to “Pay or Play”.Many companies face competition to attract and retain employees even in a down market, and who knows what the job market will look like two years from now.Other employers realize that even in the absence of intense competition for employees, a happy and healthy employee is a more productive one.
So what can a broker or consultant do?The first step is to educate yourself and co-workers on what is involved in the decision to Pay or Play.You can only then start to educate your clients on the many inputs and considerations to this decision.Cost of coverage, out of pocket costs, employer penalties, subsidies and taxes are the major considerations.Employers will want to consider the total impact to their cost as well as their employees and the most prudent employers will seek out the option that offers the best value and lowest cost for their company and employees in aggregate.Complicating the issue further is the fact that the effect to employees of sending them to the exchanges will vary, sometimes greatly, employee to employee.Fairness and effect to key employees are also considerations of the prudent employer.
So when should employers start thinking about the Pay or Play decision?As my title suggests, the best time is now.One option available to employers will be to revise the coverage they offer employees, perhaps to utilize consumer driven health plans or to move towards a self funded platform.These changes are often times easier to make over two plan years rather than one, allowing for a more gradual change.The decision isn’t an easy one though; the considerations are complicated and it is difficult to get the right information to make the right decision.Proper decision making requires good information, and in this case that means comprehensive modeling of the options available to the employer.Benefit Innovators is one company offering this type of modeling to brokers and consultants that are looking to be that decision making partner with their clients.Employers are going to be looking for answers, if they aren’t already.An informed broker or consultant is one in a position to retain those clients asking questions, regardless of the coverage option they end up choosing.I recommend insurance professionals, at the very least, be knowledgeable enough to encourage employers to consider all ramifications and options before making the decision to Pay or Play.