Finding the Best Plan for Your Employees
With health insurance premiums rising faster than inflation, employers continue to search for affordable coverage. The Trump administration is attempting to reduce costs by broadening the availability of less expensive health care alternatives. Employers, however, need to make sure that such plans provide sufficient coverage for expensive medical procedures.
How do you find good health insurance for your employees? It’s a tough question, with answers that never seem to get easier. The challenge is especially acute for businesses with too few people to bargain effectively with insurance carriers.
“Affordability continues to be a challenge for smaller employers,” says Michael Thompson, President and CEO of The National Alliance of Healthcare Purchaser Coalitions, a Washington, D.C.,-based umbrella organization of some 12,000 employers and other health insurance purchasers in nearly 40 states. “They are looking for any solution that can help them sustain affordable coverage.”
The latest figures show the extent of the problem. The average family premium for employer-provided health insurance has hit $19,616, according to the “2018 Employer Health Benefits Survey” from the Kaiser Family Foundation (kff.org). That represents a rise of five percent from the previous year, a pace far greater than the 2.6 percent wage hike and 2.5 percent inflation clocked over the same time period.
The new figure continues a long-term trend, notes the Kaiser report: Over the past 10 years average family premiums have increased 55 percent, twice as fast as workers’ earnings (26%) and three times as fast as inflation (17%).
Employers searching for the right coverage find themselves navigating a confusing and shifting terrain. Making the picture murkier are recent challenges to the Affordable Care Act (ACA), the federal legislation passed in 2010 to solve the health insurance conundrum.
“The recent upheavals in the marketplace have been challenging for employers,” says Julie Stich, Associate Vice President of Content at the International Foundation of Employee Benefit Plans (IFEBP), Brookfield, Wisconsin (ifebp.org). “The current administration has been fighting the ACA and there has been some turmoil legislatively, as well as through regulatory actions and the judicial system. All of this has created uncertainty about the law as a whole.”
Indeed, the very survivability of the ACA is under question, given the late-2018 decision by a federal judge invalidating the law. The judge did not bar its enforcement until the Supreme Court can resolve the issue—a task which is not expected to be accomplished before 2020.
Despite the changeable environment, employers must deal with the ACA as it now stands, says Stich. “Maybe it will end up in the Supreme Court, but the fact remains that the ACA is the law of the land.”
While no one likes escalating costs, the Kaiser survey offers a bit of good news: insurance rate increases have actually been slowing down. “Family premiums increased 20 percent from 2013 to 2018,” says Gary Claxton, a Kaiser vice president. “That pace is less than the 29 percent and 40 percent increases during the previous five-year periods.”
What’s causing the moderation? One big factor is managed care: nearly all employees with employer-based health insurance are enrolled in a program such as a Preferred Provider Organization or an HMO, according to Kaiser.
The ACA, of course, was intended to help lower costs as well as increase access to care. Did it do so? The answer is “yes” for one group of employers: Those with poor experience ratings resulting when one or more employees incur expensive treatment. “Prior to the ACA, employers with big health care bills were particularly challenged in getting insurance at a reasonable cost,” says Thompson. “These employers can now purchase policies at the same rate as employers with good experience ratings.”
Beyond such extreme cases, though, ACA’s effect on premiums is less certain. “The guaranteed issue requirements of the ACA did improve access to coverage but did not necessarily improve affordability,” says Thompson.
And employers in general have a love-hate relationship with the law. “The general attitude of employers toward the ACA is a mixed bag,” says Cheryl Larson, President & CEO of Midwest Business Group on Health, a Chicago-based consortium of 125 employers of some 40,000 workers (mbgh.org). “Employers do like some of the law’s provisions. They are glad that everyone is covered, and they like the coverage for pre-existing conditions and for employees’ children up to age 26. Even though there is some cost increase with these provisions, employers recognize they help their employees have peace of mind.”
Despite the hassles and expense required to compare competing plans and manage paperwork, employers as a whole do not want to drop health insurance as a benefit. Some 57 percent of all firms offer some health benefits, according to Kaiser. The figures are 98 percent for businesses with over 200 workers; 70 percent for those with from 10 to 199 workers, and 47 percent for those with three to nine workers.
The fact that all those figures have remained fairly steady over the past couple of decades testifies to the sticky quality of the benefit: Employers who offer health insurance are reluctant to let it go. The reason’s not hard to figure: Quality employees expect good health insurance and may jump ship for a competing firm if the benefit is dropped. That’s a particularly believable threat given the nation’s low unemployment numbers. “We have a shortage of labor right now,” says Claxton. “Employers have to provide competitive wages and attractive benefits or people will go somewhere else.”
Rising health care costs, of course, can erode the bottom line. Employers are stemming the tide by asking employees to shoulder more of the premiums. “Today’s employees experience a significant dent in their take-home pay as a result of health insurance premiums,” says Drew Altman, president and CEO of the Kaiser Family Foundation. “Their cost sharing has been rising much faster than their wages.”
Of the total premiums of $19,616 for family coverage in 2018, employers paid an average of $14,069, with employees kicking in $5,547, according to Kaiser. The average employee premium cost sharing varied from 26 percent at large firms to 38 percent at smaller ones.
Employers are also asking their workers to accept higher deductibles when they go to the doctor’s office. The average deductible has risen from $735 ten years ago to $1,573 today. That’s a much faster pace than the time frame’s corresponding 26 percent increase in wages and 17 percent inflation. “Over 26 percent of workers have deductibles of at least $2,000 a year, with higher ones more common at small firms,” says Kaiser researcher Matthew Ray.
The 2017 tax reform act reduced the penalty to zero dollars for individuals who failed to meet their individual mandate. But that change in the law did not affect businesses with 50 or more people who are deemed to be full-time equivalent employees (FTEs). “If you do not provide coverage you will be charged a penalty,” says Stich. “And the IRS has already been sending out penalty letters.”
Employers with fewer than 50 FTEs are not required to offer any coverage at all. Does your own business qualify for an exemption? The answer can be elusive. “In many cases it can be difficult to determine who is a full-time employee,” says Ryan Moulder, a partner at HealthCare-Attorneys.Com, a nationwide consultancy based in Santa Monica, CA (healthcare-attorneys.com). “A lot depends on how good your internal data is.” For help in calculating your own FTE, go to healthcare.gov/shop-calculators-fte. You may also want to consult with your accountant.
So how can you reduce your own health insurance costs? Start by making sure you compare all of the available plans in your region. “It’s important for smaller employers to go out to bid for plans,” says Larson.
Does shopping around really make a difference? Apparently so, judging from the Kaiser numbers. “There is a substantial variation in the average amount that people pay for premiums,” says Claxton. “Fifteen percent of workers are in plans that have premiums of more than $24,000, and nine percent are in plans with premiums of less than $14,000.” While the variance may stem from many causes (including regional variances), the experts say employers who spend the time comparing offers can snag better deals.
If you employ fewer than 50 full-time workers your first stop should be to The Small Business Health Options Program, or SHOP, the ACA-sponsored Internet-based insurance marketplace. SHOP policies are available through insurance brokers.
“For smaller employers in many states, SHOP is a great resource,” says Steven Eastaugh, a Washington, D.C.,-based health economist, speaker and consultant (eaglestalent.com/Steven-Eastaugh). “It allows them to get the pricing that only larger employers enjoyed before.” Another benefit is flexibility. “Small business can enroll in SHOP coverage any time of the year,” says Eastaugh. “And if you add one or two new people during the year you can cover them by locking in new start times.”
Also, take advantage of the tax credits available for SHOP participants if you have fewer than 25 FTEs, with average annual wages of less than $50,000.
Some awkward sign up procedures and a lack of sufficient publicity, says Eastaugh, has kept the program from expanding very quickly. “Today just under 30 states are offering SHOP programs, and even in those states the program covers only two of every 100 employees. But I estimate that by the end of 2019 SHOP should be covering about 190,000 Americans, and maybe 250,000 by the end of the following year.”
For more information about SHOP, go to www.healthcare.gov/small-businesses/.
Not thrilled with the SHOP selection? Investigate the offerings of any private health insurance exchanges that have sprung up in your state. These are often set up by insurers, brokers or consulting firms. Like SHOP, these exchanges take care of the basic human resource functions (such as tracking which employees are signed up with which polices). But they offer more choice and plan customization.
More information about private health exchanges can be found through an organization called The Private Exchange Evaluation Collaborative at THEPEEC.com.
The Trump administration is attempting to expand the insurance choices for smaller employers by championing an expansion of less costly short-term insurance policies, association health plans, and more flexible health reimbursement arrangements (HRAs).
Smaller employers may especially like the bare-bones policies which sometimes go under the rubric “fixed indemnity plans” and sport monthly premiums as low as $200. They typically offer more limited benefits and require greater cost sharing. “While larger employers can afford to absorb some of the costs of rising premiums, smaller ones often find themselves in the difficult position of making decisions about what expenses must be cut next,” says Larson. “As a result, many smaller employers have opted for high deductible plans that shift more costs to employees.”
Many states are setting up roadblocks to these plans, given their lack of catastrophic coverage. “What is cheap is not always what is good,” says Eastaugh. “I do not like plans that say things in fine print like ‘we will cover two days of a hospital stay if you need heart surgery,’ or ‘if you need chemotherapy, we will cover four visits.’ The actual care take a lot more time than that.”
Employers, then, need to realize that such plans can backfire. “We’re seeing that many employees who select the least expensive plans with the highest deductibles often avoid getting the medical care they need because of the required out of pocket costs,” says Larson. “This is a particularly serious issue with low wage workers who do not have the money to pay high premiums and deductibles. The result for employers is often a decline in productivity because workers may struggle with managing their health issues such as diabetes.”
Again, many states are setting up roadblocks to such plans, fearing they will erode the strength of the ACA-mandated health insurance exchanges, and in some cases might even open the door to fraud.
Yet another pathway to coverage are association plans. Severely limited by the ACA, these programs have gotten a new lease on life from the Trump Administration, in the form of new Labor Department rules expanding their legality.
“Association plans would be especially attractive for smaller employers, because aggregating numbers can often get you a better price,” says Larson. “The risk, though, is that the plans may introduce costly additional levels of support to administer the plans.”
The Labor Department has stated that the association plans will not be able to deny coverage or charge higher rates to employees with pre-existing conditions. However, some critics note that the plans are exempt from many consumer protections detailed in the ACA. These include coverage of what the ACA deemed “essential health benefits” such as mental health care, emergency services, maternity care, and prescriptions drugs.
Some four million people could be covered by association plans in the coming years, according to Labor Department estimates. Again, though, some state insurance regulators are blocking the initiatives, fearful they will undermine the state exchanges.
For information go to https://www.dol.gov/general/topic/association-health-plans
Health Reimbursement Arrangements
Finally, Health Reimbursement Arrangements (HRAs), another coverage pathway blocked by the ACA, are getting a boost from the Trump Administration. HRAs are tax-sheltered accounts, owned and funded by employers, from which funds are withdrawn to reimburse employees for health care they receive on the open market, including on the state public exchanges. These may become legal in early 2020.
The danger of these plans is that employers may be tempted to dump sick employees on the open market rather than include them in the company group plan. The new rules will supposedly contain guardrails to prevent this.
Again, states may block these arrangements for the reasons already stated.
An alternative arrangement is to increase the salary of employees with the idea that they can—but are not required—to use their additional income to buy their own insurance. Such an increase, though, would be subject to payroll taxes. (Additionally, businesses with 50 or more FTEs, and for that reason are subject to the employer mandate, would incur penalties because the increased salary on its own does not constitute health insurance coverage).
As employers continue to grapple with a confusing health insurance environment, changes in federal regulations and marketplace innovations are opening new channels of coverage. These changes will be particularly helpful for smaller businesses which lack the clout to deal effectively with insurance carriers.
Despite these alterations in the health insurance environment, the quest for affordability is not likely to end any time soon. “Health care is expensive for most employers,” says Altman. “Finding the right insurance remains an ongoing, chronic headache.”
Phillip M. Perry is an award-winning business journalist based in New York City. He covers management, employment law, finance and marketing for scores of business magazines.