Rolling the Dice on Employer-Sponsored Health Insurance

by Cathy Miller on March 20, 2012

in Health Care Reform

 

Even non-math wizards recognize funny numbers when we see them.

Since the passing of health reform’s Affordable Care Act (ACA), the estimates of U.S. employees losing employer-sponsored health insurance have been all over the board. 

  • A McKinsey Survey reported 30% of employers will definitely or probably stop offering employer-sponsored insurance in the years after 2014
  • The Congressional Budget Office (CBO) Report released this month gives a worse-case scenario estimate of 20 million people losing their employer-sponsored insurance in 2019 and best-case of three to five million
  • The Robert Wood Foundation issued a brief that concludes thorough analysis…supports the conclusion that the ACA, as intended, leaves employer-coverage intact

Combine an election year and statistics, and often the result is funny math.

Too many moving parts are missing from the equation.

Factor This

Health Insurance Exchanges

Much of the statistical rolling of the dice comes from the ACA’s provision on health insurance exchanges.

  • Federal subsidy – based on income, certain individuals are eligible for federal subsidies when enrolling in a health insurance exchange
  • Employer penalties - ACA does not require employers to provide health coverage; however penalties may apply if they don’t offer coverage or if it is “unaffordable”
  • Higher coverage costs - Analysts speculate that (for certain employers) paying the penalty is less expensive than paying for insurance

Enter the funny math.

Wage Increases

Reports indicate the CBO analysis assumes employers will increase wages when they no longer have the expense of sponsoring health coverage. I don’t know about you, but I find that assumption highly suspect.

Do you really think an employer will take the entire amount saved per employee and increase the employee’s wage by that amount?

Rate Increases

Any discussion regarding projected rate increases ought to come with a dartboard. Who can really predict with any certainty how much rates will increase from health reform fallout.

The CBO report assumes a slower growth rate for premiums than projected in its January 2011 report. To me, it appears premature to predict slower rate growth.

By the time 2014 rolls around, insurers will have more data on the true costs of various ACA provisions, such as:

  • Dependent coverage for adult children
  • Preventive services covered at 100 percent

Those mandates will not come without a price.

Cost-sharing

Surveys from consulting firms, Towers Watson and Willis reveal employer costs rose because of health care reform.

Employees Share of Premium Cost – Towers Watson estimates 66 percent of employers will increase employees’ share for single coverage and 73 percent will increase the employees’ portion for dependent coverage.

The Willis survey reports that nearly two-thirds of the responding employers expect increased employee contributions.

Increasing Out-of-Pocket Costs

The Willis survey shares that many employers are taking a wait and see attitude regarding health care reform.

That may be true, but the high cost of providing health coverage continues to prompt cost-cutting strategy. One popular approach is a shift to consumer-directed health plans, like health savings accounts (HSAs) with High-Deductible Health Plans.

  • A recent Bloomberg report shows Bank of America had a 34 percent increase in the number of HSAs
  • JP Morgan reported servicing 900,000 HSA accounts in 2011 versus 700,000 in 2010

Employers may not drop health coverage, but there is a definite trend towards increased out-of-pocket costs for their employees. 

Adding It All Up

One of my favorite Mark Twain quotes summarizes this discussion quite nicely.

There are three kinds of lies – lies, damn lies, and statistics.

You can create towering sandcastles with statistics, but I think I’ll weigh these reports as I would a grain of sand.

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Notice of Disclaimer –Cathy Miller is not an attorney and cannot provide legal advice. The information provided is for your general background only, and is not intended to constitute legal advice as to your specific circumstances. We recommend you review legislation with legal counsel.

 

{ 6 comments… read them below or add one }

Jake P March 20, 2012 at 9:42 am

I’m not an economist or a consultant, but based on a year of living in Canada, I predict this: Healthcare in the coming years will be a *lot* more expensive than anyone realizes, both in visible ways such as out-of-pocket costs and quasi-hidden ways like taxes. Care will be harder to come by, despite politicians’ soothing words. And there is absolutely no way employers will raise salaries commensurate with any savings they experience.

I shudder to think what my tax bill will be in 2014 and beyond. Moreover, I think U.S. citizens will react much more poorly to the new paradigm than our more laid-back and culturally homogenous neighbors to the north. I believe we are going down a very dangerous path; I hope I am wrong.
Jake P´s last blog post ..Freelance Follies: It DependsMy Profile

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Cathy March 20, 2012 at 9:49 am

Hi Jake: Thanks for dropping by and weighing in on the simple topic of health reform. :-)

The scariest part for me (as a card-carrying Baby Boomer) is what health care will look like when we all start the inevitable maintenance work our bodies need as we grow older. With 75 million of us, that’s one crowded waiting room. :-)

Thanks again, Jake.

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Roy A. Ackerman, Ph.D., E.A. March 20, 2012 at 12:57 pm

Here’s to the can of worms.
First, some REAL facts to add to your case.
1. Employers have been cutting back on providing health insurance for the past decade. Any predictions should be those changes above or below said baseline.
2. Employers have been increasing the copays for insurance. Both in the co-pay when healthcare is provided AND in the co-pay for the premium itself. For the past ten years.
3. Under ObamaCare (since no one – on either side really knows it full name), insurance companies have to justify their premiums. No more can they count marketing costs (ok, they’ll try for sure) as part and parcel of the cost for providing us health insurance. That will ameliorate future increases.
4. I would expect every WrongWing entity to terminate its insurance if and when ObamaCare receives its blessing from the Supreme Court. So they can make a political case against it- and try to turn public opinion against the benefits that consumers already feel.
5. No (ok, I’m sure if I search pretty darned hard, I could find one or two) employer has raised salaries as they went off-shore (i.e, chose to terminate American employees) with their production. [And, then bitched and moaned that they had fewer sales in the US, since their now terminated employees had no money to purchase their products.] Why would ANYONE of sound mind expect corporations to start a new trend now and cut health care and raise salaries? Did they do that as they increased co-pays?
Roy A. Ackerman, Ph.D., E.A.´s last blog post ..It’s that little bit extra…My Profile

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Cathy March 20, 2012 at 2:16 pm

Roy-thank you as always for your insight. I thought you might have something to say about this. :-)

That’s what so ridiculous about this whole crystal-ball gazing. One, there’s two many moving parts, and two, the assumptions made have no basis in reality.

Thanks for your REALity, Roy. ;-)

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Ann March 20, 2012 at 3:13 pm

As someone who has to pay all my health insurance costs and higher co-pays and med costs, I’d be thankful for anything an employer would do to help with what I pay per year.

I am afraid I think the bunch of people getting help at work are a bunch of crybabies who are in for a rude shock if and when they have to pay it all and if they have conditions of any sort.

Grrrrr.
Ann´s last blog post ..Business Blogging—Proof that You Still ExistMy Profile

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Cathy March 20, 2012 at 3:16 pm

Hi Ann: Employee benefits/insurance was my 30+ year career before I started my own business writing company. I knew what I was getting into, but it doesn’t make it any less difficult to deal with. Seems like life’s little irony that I struggle with insurance, just like everyone else.

Thanks for stopping by and sharing your point of view, Ann.

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