The Loop

Should You Still Offer Health Insurance as a Benefit?

Filed under: Benefits

The percentage of larger employers (100 to 1,000-plus workers) that provide company-sponsored health insurance has remained stable over the years. However, smaller firms have struggled with the rising costs associated with healthcare insurance, with some opting to drop the benefit altogether. Between 2008 and 2015:

  • Among employers with 25 to 99 workers, those that offered healthcare insurance
    dropped from 81.3% to 73.5%
  • Among employers with 10 to 24 workers, those that offered healthcare insurance
    dropped from 66.1% to 48.9%
  • Among employers with less than 10 workers, those that offered healthcare insurance
    dropped from 35.6% to 22.7%

The primary goal of the Patient Protection and Affordable Care Act (PPACA) is to extend affordable insurance coverage to a larger number of Americans. The promise of affordability was so highly anticipated that there was speculation as to whether companies might stop offering health insurance since workers would be able to afford to buy it on their own.

However, those expectations were vastly over-estimated. While millions more Americans have received coverage, the healthcare reform law – which has become both derisively and affectionately known as "Obamacare" – was inherently flawed in some of its assumptions. As a result, the legislation inadvertently increased premiums due to combining its cache of mandatory benefits, coverage for pre-existing conditions and ban of annual and lifetime limits, with no significant penalty for not purchasing coverage.

While most employers still offer healthcare coverage to workers, they continue to shift more of the cost to their workforce via higher deductibles and co-pays. Fortunately, one of the trends Obamacare did manage to reverse was the rampant growth in the cost of delivering actual healthcare services. With more people included in health insurance pools, the practice of going to hospital emergency rooms for minor illnesses was reduced. More people received preventive care to avoid infectious diseases. Thus, the rising tide of costs began to stem.

In 2017, however, Obamacare is in the crosshairs of the Republican-dominated Congress and White House. The lack of uncertainty over how the government may legislate changes in the future has held the insurance industry hostage. It has no choice but to retain high premiums to ensure it can continue paying for coverage for millions of newly- insured Americans.

High drug prices, higher utilization of healthcare services and high insurance premiums have virtually priced some small business owners right out of the market. While many may desire to continue offering workers coverage, with no cost certainty it is difficult to budget this overhead expense – leading many to wonder whether it's time to drop coverage altogether.

Decision Factors
Companies are between a rock and a hard place. While Congress seems dead-set on repealing and replacing Obamacare, it is at a philosophical stalemate on how to accomplish this task. For the time being – and into the 2018 enrollment period this fall – the PPACA remains the status quo. This means that the following decision factors as to whether or not to offer worker coverage remain the same as they have been over the past couple of years.

Obamacare Penalties
Employers must weigh the cost of providing healthcare coverage against the fees associated with the employer mandate. Presently, the PPACA requires that all businesses with 50 or more full-time workers provide health insurance to at least 95 percent of their full-time employees and dependents up to age 26, or pay a fine. The penalty is a flat $2,000 a year per full-time employee (excluding first 30 employees), paid in monthly installments. The mandate does not apply to employers with 49 or less full-time workers or part-timers who work less than 30 hours a week.

While the penalty per worker is far less than the $12,600 average annual cost for family coverage, the comparison does not take into account the considerable tax breaks employers receive for providing coverage.

It's also worth noting that President Trump signed an executive order when he took office to weaken the enforcement of Obamacare penalties. While the legislative provisions of PPACA are still in force until changed by Congress, it is unclear whether the IRS will enforce the employer mandate penalty.

Talent Market
Another factor employers must consider is whether or not their direct competitors offer health insurance. With unemployment levels as low as they are today, it's a tough market to compete for talent. Businesses should stay on par with competitors in terms of benefits, as health insurance is certainly a key factor that would make or break the decision to accept a job.

While job listings and career pages usually include a description of the company's core benefits package, employers can gain a competitive edge by being even more transparent. Once you know you're interested in a highly coveted candidate, take the time in interviews to detail the strength of your benefit package. Interviewees may assume all companies have comparable benefits, so touting any differentiating features could put you ahead of the competition.

Employee Demographics
To this point, it's important to consider the socio-economic demographic of the majority of your workforce. Are wages low enough to qualify for marketplace subsidies? If so, they may be able to purchase coverage for less than they would as part of a group plan.

Exchange Options
Due to high coverage costs, more insurers have exited the individual market in various states. As an employer, you should investigate the range of options available to your workforce should you drop coverage. Many workers will be less concerned with costs if their choices are limited on the exchanges, which in turn could generate resentment for employers who drop coverage.

Individual Exchanges: Provide Support
Basically, employers should shop both the group and individual markets before making a decision to drop coverage. If your company determines dropping coverage is the best option, you need to proactively make the case for how this decision can benefit workers. One option is to increase wages to help workers afford to buy individual coverage. Another way to help make this a smooth transition is to offer company resources to help workers shop for insurance, take advantage of available subsidies and save money for their families.

Group Exchange Plan: Tax Benefits
Before deciding to drop coverage, check out your business' eligibility for the Small Business Health Care Tax Credit. This credit of up to 50 percent of premium costs is available to small employers with less than 25 workers that purchase a group plan from the exchange.

Manage Expectations
If you've provided healthcare coverage for many years and are now considering dropping coverage, tread carefully. It is human nature to feel "entitled" to benefits – called the "endowment effect" – so you'll need to present a strong rationale for your decision. By the same token, you'll need to manage expectations if you decide to merely downgrade your healthcare benefits and pass on more of the expense to workers.

Enhancing Coverage
Consider, too, that the opposite is true. If a company decides to offer richer healthcare benefits to better compete for talent and enhance its value, it is very important to assess the sustainability of that new benefit package. If you find it is expensive and need to cut back benefits down the road, you'll suffer the same problem of the endowment effect. The blowback could mean losing key talent.

Economic and Healthcare Trends
Currently, the economy continues to grow and government subsidies are available, so despite the high cost of providing coverage, both companies and workers appear able to pay for it. However, that situation could change if the U.S. experiences another economic decline or if new healthcare legislation increases costs through higher premiums or by slashing the government subsidy program.

Current State of Obamacare
While the future of the PPACA remains uncertain, the status of its impact is fundamentally stable. Most areas of the country have reasonably robust insurance markets and the legislation limits annual premium increases. As of this writing, the current replacement bill is under consideration in the Senate and no one knows – if passed – if any changes would be slated to begin in 2018. This is unlikely given that insurers have been working all year for open enrollment season, which begins on November 1, 2017.

As for the group market, employer coverage remains intact. Group prices are based on a separate member pool, which is considered far more stable than the individual market. Changes to marketplace plans could have an effect on group plans, particularly if the mandate for essential benefits is lifted. However, to date no healthcare reform legislation has significantly impacted coverage offered by the employer market, which provides coverage for about half the country.

For now, industry analysts predict that employers will remain the primary source for healthcare insurance coverage in the foreseeable future. It continues to be the primary benefit that workers seek from a job, and is thus an important recruitment and retention tool. Alas, from a perception perspective, the very definition of a "good job" is one with healthcare benefits.

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