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The Biggest Decision Employers Face

In a recent briefing paper on health care reform, the actuarial consultancy Milliman offers various strategic considerations for employers as they approach the year 2014, and the choice of continuing health care coverage.

It states:

      If a suitable individual market emerges through the American Health Benefit Exchanges (beginning in 2014), employees will have an alternate source of coverage that will essentially compete with employer-sponsored plans. Employers will need to analyze the value of continuing to directly offer healthcare benefits compared to offering cash to employees to purchase coverage on their own or simply discontinuing the benefit

This decision is similar to employer decisions to provide defined benefit plans (e.g., pensions), defined contribution plans such as a 401(k) plan, or some combination of both types of plans. However, active employee healthcare programs differ in many aspects from retiree income benefit programs. The awareness and immediate use of healthcare benefits must be considered in the decision-making process. This decision could represent a fundamental change in the employer-employee relationship.

Read the Milliman Briefing Paper here (PDF).

The paper goes on to list several questions for consideration, including:
  • Will employees understand the importance of purchasing coverage? What assistance will they need from their employers?
  • What is the (selection) impact on the remaining covered population of employees who elect to change coverage from their employer plans to exchange plans?
  • What is the post-tax impact to employees of any change to the health care benefit program?
  • How would discontinuing traditional defined-benefit health care benefits affect attraction, retention, and productivity?
  • How would the employer's competitive position be affected by discontinuing traditional benefits (or by continuing to offer continuing benefits)?
Other legislation provisions that may affect employer costs include:
  • Minimum loss ratio requirements for insured plans
  • Increased prescription drug costs stemming from 12-year patent protection of biologics
  • Increase in taxes paid by insurers passed through to employers and individuals
  • Ban on physician-owned hospitals which could limit unnecessary care prescribed
  • Increase in Medicaid provider reimbursement (to primary care physicians) may decrease cost-shifting to employer-sponsored plans
  • Success, or failure, of various efficiency initiatives in wellness, provider reimbursement, cost control, and quality of care
If legislators don't increase penalties for not offering coverage (now at $2,000 per employee), large employers may face a relatively straightforward cost-benefit decision. Politics, however, may complicate that decision, if employees buckle at having to pursue their own health care choices, and the state insurance exchanges fail to become viable structures.

Expect an already uncertain employer-based marketplace to weigh heavily on corporate strategy, especially if health care costs continue to escalate and economic recovery slows or falters.

Disclosure: "No positions"