In response to Kip Piper’s recent post, “What Your Employer Is Secretly Thinking As Obamacare Goes Live” Michael Turpin writes:
A very comprehensive article and predominantly spot on. I do have a few alternative views.
Employers are waiting to see if public exchanges are viable alternatives – As a consultant who works with employers every day, the universe of employer sentiments is varied. The preponderance of public exchange options with be narrow network, lower level reimbursement plans that will not be like for like equivalents to employer sponsored open access PPO plans. With low individual mandate penalties and higher costs for younger exchange enrollees due to 3:1 community rate banding, there is concern that the first enrollees will select against the plans and not be offset by younger, healthier participants who will balk at the prospects of higher premiums.
Self insurance will be highly prevalent – The average employer can save as much as 6% by self funding their insured benefits. It is true they take on higher liability but the first 6% is essentially playing with house money because the employer will not pay taxes on insured benefits or insured PPACA taxes. Employers, especially those with young healthy employees, would be better served self insuring to avoid community rate cost old to young shifting and insured premium taxes. Younger consumers use fewer benefits. Average year over year medical trends will likely be low single digits — much lower than the likely community rated increases tendered the first year in the exchanges.
Private exchanges will gain some traction – The IBM decision is only for retiree medical benefits. Walgreens is the first major retailer to adopt a private exchange for actives. A private exchange is to health plans what the 401k was to defined benefit pension plans. A true private exchange pits multiple insurers against one another in a Cost Co type private market where individual enrollees are given an annual stipend to buy benefits. Each enrollee can choose between a range of plans and insurers.
The premise is that insurers will cannibalize each others pricing — not unlike a retail store, and in doing so, drive pricing below what employer sponsored plans have been able to achieve as single purchasers. The current private exchange market is very limited in terms of employers choosing to force active employees to buy on a defined contribution basis. It is appealing for employers who want to cap their annual liabilities by merely cost shifting to employees. Employees tend to be less fussy about having less purchasing power if they have lots of health plan options to choose from — versus the usual two to three options available from their employer. There are risks. Many employees tend to buy down, purchasing high deductible plans to achieve more affordable monthly premiums.
As premium dollars reduce with each cheap plan selection, there are fewer dollars to offset the cost of claimants. This was the demise of cafeteria plans in the 1990s when young, healthy employees opted for cheaper coverage and contributed fewer dollars to the employers plan. High utilizers continued to incur the same amount of claims but now had fewer plan dollars to offset losses. Loss ratios spiked and plan options disappeared because they became too expensive.
Private exchanges are more a Trojan Horse opportunity for employers to cost shift to employees without overtly dropping coverage. Most of the initial private exchange players will be low wage workforces and low margin businesses — retail, hospitality and agriculture. White and gray collar firms will wait and see what choices prove best for their strategy.
Expect employers to drop spousal coverage for working spouses – Expect changes to plans with aggressive wellness, smoker premium differentials, a greater prevalence of high deductible plans, penalties for non compliance with biometric testing, carve outs of bundled high margin insurer programs like RX and a more aggressive enforcement of a bi-lateral contract of health: we provide your healthcare and you take personal responsibility to ensure you are not assymptomatically ill ( get an annual physical ), close gaps in care ( be compliant with chronic care treatment regimen ), improve consumerism with cost comparison tools for ambulatory services( don’t get a $3,000 MRI when you can get one for $800 ) and reduce access to outlier providers who charge higher costs for similar outcomes.
It’s going to be a wild time as providers become insurers, insurers become providers, consulting firms begin to see products and a group purchasing market fragments into a variety of consumer based procurement models. There will be lots of misinformation.
Employers will bear the brunt of the responsibility for educating an irritable, insured and uninsured employee population that does not like the idea of being the first generation to leave the safety of open access PPO, co-pay island to enter the primordial world of medical homes, captivated care and tightly managed medical oversight.
Michael Turpin is frequent speaker, writer and practicing benefits consultant across a 27 year career that spanned assignments in the US and in Europe. He served as the northeast regional CEO for United Healthcare and Oxford Health from 2005-2008 and is currently Executive Vice President for Benefits for the New York based broker, USI insurance Services. He writes at Usturpin’s Blog.