Employers can get out of healthcare and do right for
employees, the company, and country. Most
employers are reluctant agents in providing health insurance and would be happy
to find a clean exit. Obamacare gives
them the opportunity. Let me be
clear. It is not about evading
responsibility, e.g. reducing employee working hours to avoid providing
insurance or spinning off separate companies to get the number of employees down
to under 50, but about making wise investment decisions for the benefit of all
stakeholders.
Employers got into the health insurance role during WWII in a
deal to provide tax free benefits during a wage freeze. The freeze thawed but the “temporary” measure
has continued for 70 years. It costs the U.S. Treasury $260 billion in
reduced tax revenues and is the largest single tax expenditure. Most economists would agree that providing
insurance through employers does not make sense. Employees do not realize that benefits are
provided in lieu of increased wages. Employers
are sick of the volatility of premium increases and increased medical costs. But, if employers leveraged this tax
advantage to actively improve health and productivity it might be a good deal,
but few do.
Large employers who do not “play” in providing insurance
benefits must “pay” a penalty of $2000 per employee per year starting in 2015. Yet, the average insurance premium per
employee in 2013 is over $11,000 with the employer paying about $9000. Do the math.
According to a survey by McKinsey & Company, between 30 and 60
percent of employers will stop offering health insurance after 2014 and at
least 30% would gain economically even if they paid the penalty and made employees whole through other benefits or increased wages.
How can this be? The
bottom line is that the health insurance exchanges provide subsidies to low to
mid income people (up to 400% of the federal poverty level or about $46,000 per
individual or $94,000 for a family of four) such that their out of pocket
insurance expenses are low and in some cases can be zero (if they chose a plan
of lower cost compared to the benchmark plan).
About 67% of households have income below the 400% level. Other advantages of the exchanges are that people
also have a choice of plans to meet their needs, not usually available from
employers. And their total out of pocket
costs for health care expenses are capped at lower levels than most employer
plans. So, the majority of Americans could
be better off in an exchange if the employer provided a minimal subsidy in
addition to the large subsidy provided by the government. Higher paid employees may need alternative benefits
or compensation to remain whole.
The pay or play rules for large employers have been delayed
until 2015. And it is possible that some
state exchanges will make insurance available to employees of large companies
in 2017 which could be funded by employers on a tax free basis with a health reimbursement
arrangement. So, many employers may be
wise to do watchful waiting and see how the exchanges emerge and succeed over
the next few years.
The inevitable slide away from traditional employer
sponsored health insurance is underway and will be accelerated with the presumed
success of the exchanges. Some employers
may find a competitive advantage to pull the trigger earlier rather than
later. The competitive advantage will
come from lower benefit costs and from providing a better deal for their
employees which may reinforce the primary purpose of compensation…to attract
and retain employees.
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