Breaking Down Employer Decision-Making and the ACA

As more state legislatures establish the structures of their insurance exchanges, policy and business analysts, health services researchers, and the media have hotly debated to what degree employers will opt to drop the health insurance they currently provide, pay a penalty, and allow employees to seek coverage through the exchanges once that option is available to them.  Also at stake is the fate of more generous health plan benefits once employers face a 40 percent excise tax on spending above a legislated cap (beginning in 2018). In recent weeks, a report by McKinsey  provided estimates, based on a survey of employers, that 30 percent of employers will definitely or probably drop employer-sponsored insurance after 2014.  The report has been widely discussed in the national and business media with many weighing in on the methods used by McKinsey survey (see the blogs of Paul Krugman, the Wall Street Journal and The Incidental Economist to start).  A webinar on the future of employer-sponsored insurance sponsored this week by the Robert Wood Johnson Foundation’s Coverage Team touched on these issues as well. While the debate about employers’ ultimate response to the evolving health insurance market continues, a new AcademyHealth report by health policy consultant Mark Merlis takes a step back to examine the details of the Patient Protection and Affordable Care Act (ACA), the exact decisions different sized employers will face as the ACA is implemented, and the considerations upon which their decisions will likely be based.  The report is based, in part, on a panel discussion at AcademyHealth’s 2011 National Health Policy Conference last February moderated by Gary Claxton, Vice President of the Kaiser Family Foundation and featuring Christopher Goff, CEO and general counsel at the Employers Health Coalition of Ohio, James Klein, president of the American Benefits Council, Frank McArdle, a principal at Aon Hewitt, and Christopher J. Queram, CEO of the Wisconsin Collaborative for Healthcare Quality.  In the report, Merlis identifies four major decisions that employers will face once the ACA provisions take effect: 

• Should employers offer coverage at all or pay a penalty?
• If they offer coverage, should they redesign benefits and contribu­tion rules to account for new protections that limit the portion of premiums paid by lower-income employees?
• If they purchase group health insurance, should they shift to self-funded insurance to avoid new rules concerning standardized benefits required in the group market?
• How can they avoid the excise tax on high-cost plans that takes effect in 2018?

“The ACA play-or-pay penalties are lower than the cost of providing health benefits, and low-wage workers could use the ACA’s new premium tax credits to buy insurance in the individual market. Some people believe that many employers will stop offering coverage and pay the penalties. Others contend that the trade-offs involved are complicated, especially for firms with a mix of low- and high-income workers. In this view, few employers are likely to abandon their health plans altogether, but they may modify pre­mium contribution requirements or redesign their plans in other ways in response to the ACA’s requirements. Many employers may also see increased incentives to move from insured to self-insured coverage, with potential effects on the stability of the group health insurance market.”