The Next Wave

Employers are already starting to get the same cancellation letters that went to millions of people in the individual market late last year. The Washington Post reports that the big surge should take place in October, but it will happen all through the year as employer plans come up for renewal.

shutterstock_160789127Contrary to many press reports this affects not just the small group market, but all fully-insured health plans. Very few meet the requirements of “essential benefits” of ObamaCare, which include things like pediatric dental coverage.

The Washington Post article tried to minimize the effects, quoting Jonathan Gruber, one of ObamaCare’s archictects –

“We’re ending discrimination [against people who are sick, and as a result] the people who were previously benefiting may now suffer,” Gruber said. “That’s sad for them, but it does not mean we should continue discrimination.”

He concludes that the number of losers will be “very, very small.” Right.

Writing in the New York Post, Betsy McCaughey does a pretty good job of rebutting Mr. Gruber. She estimates the number of people who will lose coverage is 25 million, which is the same estimate I’ve been using for some time now. But even she understates the problem by focusing entirely on the small group market.

The main difference between the small group market (50 or fewer employees) and the rest of the fully-insured employer market is that the former are exempt from the employer mandate to either provide coverage or pay a fine.

One other difference is that in some jurisdictions the local insurance department is requiring smaller employers to buy coverage through the exchanges. The Washington Post article notes that Vermont is requiring all employers with 50 or fewer employees to buy coverage exclusively through the exchange, while DC is applying the same requirement to groups of 100 employees. We don’t know if other states are doing the same.

In any case, virtually all fully-insured employers will be getting their current plans cancelled. Many will simply comply with the new requirements and pay more for coverage. Many others will make a different decision.

Some may decide to self-insure their coverage. Anecdotally, we hear of relatively small employers (under 100 employees) making that decision and becoming exempt from the ObamaCare coverage mandates. There is no way of knowing how frequently this is happening, but it comes with significant risks. Yes, they may be able to access a reinsurance program to protect against a surge of large claims, but state regulators are already concerned about companies that do this to avoid state requirements. If it becomes common the insurance commissioners might prohibit such reinsurance in their states.

Large numbers of employers may decide they simply can’t afford to pay the additional premiums, especially now that the exchanges are operational. Plus, the exchanges offer a selection of health plans and subsidies that often are more generous than the employer can provide. Employers no longer have to feel guilty about sending their workers out into the individual market and the companies can relieve themselves of the enormous burden of selecting and administering a health insurance program. The savings in the Human Resources departments alone will be substantial.

This decision is a no-brainer for employers not subject to the employer mandate (under 50 workers), especially those with lower wage employees, but also makes sense for a whole lot of larger companies, too. Sure they may have to pay a fine, but that is small potatoes compared to the cost of providing coverage. I would expect the employers of some 50 million workers will make this decision — close to the 30% who told McKinsey three years ago that they would drop their coverage.

So, we may suddenly have 50 million people newly uninsured and looking for coverage. They will have more money in their pockets because their bosses gave them raises to compensate for the loss of coverage. The added income will make them less likely to qualify for subsidies on the exchanges.

Importantly these folks are significantly different than the people who lost their coverage in the individual market. The latter group universally thinks coverage is important and they universally are experienced at shopping and paying for health insurance. They have been doing it for years.

These newly uninsured workers have never done any of that. They have always been passive recipients of whatever the boss has provided. For them the enrollment process has been no more than checking a box and signing their name on a form the company provides. They’ve never had to arrange paying the insurance company; their share of the premium is automatically deducted from their paycheck. If they have a question about what is covered or how to file a claim, they pop into HR at lunchtime to get the answer. If they have a complaint about the services provided by the insurance company, they tell HR and the folks in that department follow-up.

Suddenly they will have to take the initiative to –

  • Go on the website and choose a plan.
  • Find a “Navigator” to answer any enrollment questions.
  • Understand what doctors they may see and what hospitals they may use.
  • Make arrangements for paying the premium.
  • Report to the exchange any change in income or living arrangements.

Many of them (my guess is half) simply won’t do it. They don’t value the coverage very much. They are actively at work, which means they are busy and healthy. They have other things to do with their time and their money. Even if the process worked will, it would be a hassle –

Where do you find a Navigator? Are they listed in the phone book? Do they really know what they’re talking about? Whaddya mean I can’t see the doctor I’ve used for years? Send me a bill, I’ll pay it when I have a chance. My transmission broke down, can I pay you half this month? My boyfriend moved out, I’m a little short on cash. I just got a raise, why should that change my premiums? I’m moving to Texas, but I’m not sure where I’ll be staying yet.

They ain’t gonna do it. Not going to happen. Welcome to the real world, Mr. President.

Comments (23)

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  1. Thomas says:

    “‘We’re ending discrimination [against people who are sick, and as a result] the people who were previously benefiting may now suffer,’ Gruber said. ‘That’s sad for them, but it does not mean we should continue discrimination.’”

    There is no free lunch. Someone has to pick up the cost somewhere, unfortunately now its everyone.

    • Jay says:

      Instead of discriminating against a segment of the population, they discriminate the entire nation as we all suffer under ObamaCare. That’s not called ending discrimination.

  2. Matthew says:

    “She estimates the number of people who will lose coverage is 25 million, which is the same estimate I’ve been using for some time now. But even she understates the problem by focusing entirely on the small group market.”

    So 25 million is the “very, very small” amount of “losers” that Jonathan Gruber was alluding to?

    • Walter Q. says:

      25 million is a large chunk of the population that they should be depending on to sign up on the marketplace. Calling them the losers is not a good start.

  3. James M. says:

    “They’ve never had to arrange paying the insurance company; their share of the premium is automatically deducted from their paycheck.”

    This is when things were much simpler for insured workers. The way their coverage will be now is much more less convenient with very little incentive to seek coverage.

  4. Andrew says:

    “Employers no longer have to feel guilty about sending their workers out into the individual market and the companies can relieve themselves of the enormous burden of selecting and administering a health insurance program.”

    Now every HR department can celebrate, until they find half of them are laid off.

  5. Bubba says:

    I get the feeling the average health coverage Navigator couldn’t locate the North Pole on an atlas of North America!

  6. Jay says:

    “The added income will make them less likely to qualify for subsidies on the exchanges.”

    The government seems to be leaning on the fact of subsidies to lure people into the exchanges. However, if they don’t qualify, they will be misled into a costly premium trap.

  7. Francis U. says:

    I don’t understand Mr. Gruber. According to him the system was “broken” because those who suffered from different afflictions couldn’t buy insurance. He calls discrimination what should be called business. One does not conduct business to be the savior of humanity. Businesses in a free market are there to make money, there is no altruism behind. He states that because in the past those who were healthy received “benefits” the sick were discriminated. (Here I want to make a point, there were no benefits to the healthy, they bought insurance at an established premium according to their health conditions, and thus there was no discrimination against the sick. Everyone paid according to their health conditions.) What makes me wonder is why there has to be a punishment on the healthy today? Were the healthy guilty that insurance companies didn’t saw it economically viable to provide insurance to the sick? Or we are going back to the Hammurabi Code, an eye for an eye? It is foolish to think that because in the past a group was not covered with insurance, today the majority of the population has to pay for it. The argument made by Gruber is insulting; it is unbelievable that the intention of one of the most transcendental reforms in the healthcare system in the United States is to make those who were benefited previously suffer. It is depressing that the architect of ACA affirms that “We’re ending discrimination [against people who are sick, and as a result] the people who were previously benefiting may now suffer, that’s sad for them.”
    A reform such as the Affordable Care Act should seek the common good.

    • Andrew says:

      “they bought insurance at an established premium according to their health conditions, and thus there was no discrimination against the sick. Everyone paid according to their health conditions.”

      Very astute observation.

      • Erik says:

        Also not true.

        A pre-existing condition made you ineligible for insurance which is discriminatory.

        Francis also contradicts himself and this is a classic. “He calls Discrimination what should be called business”

        Also as Francis says “business in a free market are there to make money, there is no altruism behind.”

        So yes, the system was broken as to not only withhold healthcare but it also simply transfers money upward.

        Notice how premium increase have stabilized…

    • perry says:

      It’s called “redistribution”.
      But even then, the so-called benefactors of this huge debacle are going to get the shaft.

      • David Hogberg says:

        That’s because you think redistribution part of Obamacare is about redistributing wealth. Rather, it’s about redistributing power from the citizens to the politicians. Many citizens will “get the shaft,” but politicians will do quite nicely.

    • Thomas says:

      It does seem Gruber somehow feels the population is indebted to pay for discrimination of the sick, which is a cost that is not their fault.

    • John Fembup says:

      Francis I agree with most of your comment, but not this trite old clinker:

      “Businesses in a free market are there to make money”

      Well, they sure aren’t in business to lose money, but the statement falls so far short of describing why a business exists as to be laughable.

      As laughable as saying the Yankees show up at the Stadium, night after night, to keep score.

      That’s not true about the Yankees. It’s no more true about business. I know, people say it all the time about business. . . but please, think about it.

  8. Walter Q. says:

    “Sure they may have to pay a fine, but that is small potatoes compared to the cost of providing coverage. I would expect the employers of some 50 million workers will make this decision”

    When it is more cost efficient to pay a fine not to provide insurance benefits to your employees than to actually provide those benefits, you know you have a flawed system.

  9. Doug Badger says:

    While Congress might be forgiven for not foreseeing the first round of cancellations, missing this next round is inexcusable. They should pass legislation that would do three things: 1) no cancellations; 2) no bailouts; 3) no tax on the uninsured. Here’s more: http://bit.ly/1mFjDc2

  10. Bonnie says:

    The full force of Obamacare will hit right at the 2014 elections. Small Businesses will be dropping their coverage in favor of the exchanges or will have higher premiums to pay. There will be an awkward one or two month coverage gap depending on their last enrollment. New premiums to meet the new requirements will be costly to employers, who have generally been subsidizing ee premiums. Grossing up ees is bad for both sides as its more employment taxes and less business deductions. For ees, if they are grossed up, they likely lose any federal subsidy, plus getting a more expensive plan that they have to figure out how to enroll in and pay for individually. Not going to be a pretty picture next Oct/Nov.

  11. Bob Hertz says:

    This is a valuable discussion to have now, at least a few months before the fact.

    However Greg I will register an old complaint of mine — namely, that the term
    “cancellation” is sometimes too melodramatic a term.

    Many group plans are not that distant from ACA compliance. These group plans already have maternity coverage, drug coverage, and compressed age ratios.
    They are much closer to compliance than many of the individual plans were.

    In addition, some states including CA and Washington ordered individual insurers to cancel plan, so they could cynically get more healthy persons over to the Exchanges.

    A group insurer that wants to stay in the business, and wants to keep their current customers, will almost certainly offer a compliant plan right in the ‘cancellation’ letter.

    I am NOT talking about premium increases, which will happen for a number of reasons. And I would never defend Gruber, who is going to go down in history as a health care Torquemada.

    Anyways, I think the word ‘revision’ or ‘pricey amendment’ might be more appropriate than ‘cancellation.’ Less politically potent, I grant you.

  12. Dick Matthews says:

    Hey Greg,
    As usual your comments are spot on – especially at the “30,000 foot level”.

    As you know I live and work in the less than 100 live employer environment and I would offer just a few “quibbling comments”:
    1) There will be a substantial move to self funding by small employers – there are plans now available down to 10 lives. In most cases these plans are really sort of group versions of HDHP/HSA programs – aggregate only coverage with deductibles of 10K to 25K. But they are self funded so they gain huge advantage in the current environment of insured plans. Half of my January 1 renewal moved to self funding (PARTIAL self funding to be more correct).
    2) You are correct that insurance commissioners are suspect of these plans and may very well fight them. But so far national TPA associations have been able to fight off these types of efforts in California (and one other state I cannot recall). There will be concentrated push back to save these self insured plans
    3)The role of agents in small group is much different than large group – and in many if not most cases they serve a significant HR function. And this more often than not now includes web based enrollment for benefits and all that this implies. I suspect that the majority of small group employees are comfortable going on line to choose a plan (though the choice is typically just between 2 or maybe 3 options). It is incumbent upon agents to figure how to add the value to replace the Navigators and retain their advisory status amongst the employees. I suspect many employers will be willing to reduce the amount of cash they give employees by say $10 per employee per month to fund access to the agent they all have learned to rely upon for service and
    advice.
    4) Right now with the IRS reg issued in September last year, individual plans have a distinct disadvantage by losing the tax preference that remains with group plans. Unless this reg is repealed I think many employers will retain group coverage (even if it must be self funded) to attract and retain quality employees.

    As you might comment – “jsut sayin’……..

    Dick

  13. Jimbino says:

    Folks like Thomas at 1:26 don’t quite get it. Sure, Obamacare is a plan to line the pockets of the insurance-medical-drug complex. It intends to pick winners and losers and transfer income from men to women, young to old, prudent to hypochondriac, healthy to infirm, single to married, and childfree to breeder.

    But it will result in a decrease of wealth for the society in general. An iron-clad rule of economics is that you get more of what you subsidize and less of what you tax. We need to expect lower labor-force participation by young, single, healthy childfree males, especially those who can sell their IT or weapons-design skills overseas, and an increased supply of old, sick, hypochondriac, married and breeding females.

  14. Val says:

    Unless someone qualifies for subsidies, and unless that person is willing to take taxpayer money, there is virtually no reason to go anywhere near any government exchange. Your private information is not private.