Benefits Practice Leader, HNI
The big news regarding health care reform this week is the controversial McKinsey study that predicts 30% of employers will drop health coverage by 2014 when the state health care exchanges are up and running. With McKinsey’s refusal to release its survey data, this figure is hard to substantiate, but the fact remains that Health Care Reform will leave a dramatic footprint on the way health insurance works in this country.
Many employers have experienced adverse selection within their existing health plans – that is, employees are opting out of their employer’s plan in favor of a spouse’s plan or in many cases, opting for no coverage. Adverse selection will grow increasingly more complex as health care reform unfolds because when the exchanges go into effect in 2014, subsidies may be available for those whose income falls between 134 and 400 percent of the federal poverty level, allowing them to select a plan of their choosing through the exchange. Employers have the option to increase or decrease this possibility based on the contributions they require and/or how their plan is designed.
These subsidies may lead to many more employees selecting plans other than those offered by their employers, possibly leaving sicker and more expensive employees on the employer-sponsored plan. If this were to occur, the cost of employer-sponsored plans will rise and may prompt some employers to drop coverage altogether. Conversely, if the employees who purchase their coverage with a subsidy on the exchange are high utilizers of expensive heath care, employers may find that their premiums go down for the employees remaining on the employer sponsored plan.
Even among employers that choose to maintain their plans, new Medicaid and subsidy requirements will require employers to reconsider plan design and contribution methodology, as the government programs are based on family income and the number of dependents.
While it is disconcerting to not have a clear picture of how health care reform will unfold, much of the understanding will come from “waiting and seeing.” Studies like the one recently released like McKinsey can help guide discussion, but the reality of how heath care reform will change insurance in this country is complex. In any case, employers should be ready for the changes that are on their way and be prepared to adapt to new developments.