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,” said 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. That represents a rise of 5% from the previous year, a pace far greater than the 2.6% wage hike and 2.5% 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%, 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,” said Julie Stich, associate vice president of content at the International Foundation of Employee Benefit Plans (IFEBP), Brookfield, Wis. “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, said Stich. “Maybe it will end up in the Supreme Court, but the fact remains that the ACA is still 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% from 2013 to 2018,” said Gary Claxton, a Kaiser vice president. “That pace is less than the 29% and 40% 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,” said 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,” said 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,” said Cheryl Larson, president & CEO of Midwest Business Group on Health, a Chicago-based consortium of 125 employers of some 40,000 workers. “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. These provisions help their employees have peace of mind.”
On the negative side, many employers are still incurring premium increases, and they believe the ACA’s coverage mandates have precluded cheaper alternatives. The Trump Administration has responded to these concerns by promoting new categories of plans with lower premiums.
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% of all firms offer some health benefits, according to Kaiser. The figures are 98% for businesses with over 200 workers; 70% for those with from 10 to 199 workers, and 47% 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,” said 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,” said 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% at large firms to 38% 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 10 years ago to $1,573 today. That’s a much faster pace than the time frame’s corresponding 26% increase in wages and 17% inflation. “Over 26% of workers have deductibles of at least $2,000 a year, with higher ones more common at small firms,” said 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,” said 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,” said 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,” said 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,” said Claxton. “Fifteen percent of workers are in plans that have premiums of more than $24,000, and 9% 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,” said Steven Eastaugh, a Washington, D.C.,-based health economist, speaker and consultant. “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,” said 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 there the program covers only two of every 100 employees. But I estimate that by the end of 2019 SHOP will be covering about 190,000 Americans, and maybe 250,000 by the end of the following year.”
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.
The private exchanges are most attractive to employers who want to reduce internal administrative hassles. The exchanges often have technology platforms that can provide a combined interface for reporting, billing, COBRA, and employee plan evaluation.
Be aware, though, that such exchanges are not panaceas. “We have helped several clients evaluate private exchanges, and we have consistently found them to be less favorable than other solutions,” said Jessica Du Bois, benefits consultant with Business Benefits Group, an insurance brokerage out of the D.C region that serves businesses of all sizes. “Market data helps to reaffirm this, because less than three percent of employers report being in private exchanges. The reason is that they do not seem to affect health care costs, due to the expenses incurred by their administrative overhead.”
The Trump Administration is attempting to expand the insurance choices for smaller employers by championing the availability of less costly short-term policies, association health plans, and more flexible health reimbursement arrangements (HRAs).
Employers with tight budgets may be especially attracted to the short-term plans which sometimes go under the rubric “fixed indemnity” and sport monthly premiums as low as $200. On the downside, such plans also come with higher out of pocket maximums. And coverage is less comprehensive. “Bear in mind that a majority of such plans do not cover wellness visits, prescriptions, mental health and maternity,” said Du Bois. A lack of prescription drug coverage can be especially damaging, since drug prices are rising much faster than other health care components.
Furthermore, there is often a ceiling on benefits. “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,’” said Eastaugh. “The actual care takes a lot more time than that. What is cheap is not always what is good.”
Employers, then, need to realize 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,” said 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.”
Many states are setting up roadblocks to such plans, aware of their limited coverage and fearing they will erode the strength of the ACA-mandated health insurance exchanges.
Yet another pathway to coverage for smaller employers 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 Labor Department rules expanding their legality.
“Association plans let employers pool within similar geographic locations or industries,” said Du Bois. “I certainly understand their attraction. Spreading the risk over more people generally results in a lowering of premiums.”
Some four million people could be covered by association plans in the coming years, according to Labor Department estimates. Federal regulations prohibit the plans from denying coverage or charging higher rates to employees with pre-existing conditions. But some critics note that the plans are exempt from many other 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.
One problem with association plans is that businesses with healthy individuals may end up subsidizing the steep medical bills of others. “The reality is that association plans are not great fits for many companies,” said Du Bois. “Economies of scale are only a significant advantage if you are the least healthy group in the association. If you have a healthy, engaged population, why would you want to adhere to the risk of others?” Yet another potential problem is that association plans may introduce costly administrative levels that may end up bloating premium levels.
As is the case with short term plans, some state insurance regulators are blocking association initiatives, fearful they will undermine the state exchanges and in some cases may open the door to fraud.
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.
Employers with fewer than 50 employees can use HRAs to reimburse employees purchasing insurance and health care in the individual market. These plans are called qualified small employer HRAs (QSEHRAs). “HRAs can be a great option,” said Du Bois. “Some employers use them to self-insure a small portion of their healthcare. They increase their deductibles to save on premiums, then give employees HRA funds to supplement a portion, or all of the deductible.” These can be especially valuable when a business has only a few people who want to get health insurance, making participation requirements difficult to meet.
The Trump Administration is considering allowing larger employers to offer similar plans called individual coverage health reimbursement arrangements (ICHRAs). These may become legal beginning in 2020.
Finally, 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).
Employers looking to shave health insurance costs should first get a grip on how their workers are utilizing medical care. “The only way to create a long-term strategy for healthcare is to create a plan for cutting expenditures for your high-cost claimants,” said Du Bois. Small groups without adequate claims data should have employees fill out personal health questionnaires, she said. “Then the next step is to target those costs which are driving your premiums by helping those claimants navigate to the lowest cost and highest quality option for care.”
And don’t overlook outside help. “Insurance brokers are in the position to help employers save a lot of money on healthcare,” said Du Bois. “A simple example is implementing a virtual care program paired with employee education, as a cost-efficient alternative to office visits.”
Employers can address high health care costs by tracking internal usage and staying abreast of new coverage options resulting from more expansive federal regulations. Despite changes in the health insurance environment, though, the quest for affordability is not likely to end any time soon. “Health care is expensive for most employers,” said Kaiser’s Altman. “Finding the right insurance remains an ongoing, chronic headache.”