Employees may rebel against Obamacare

July 7, 2014
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As I wrote in the latest edition of IBJ, the Obamacare exchanges have proved quite attractive to insurers and customers alike. Now five new insurers will offer plans on the Obamacare Marketplace in Indiana for 2015 and, collectively, they expect enrollment to grow by 60 percent or more.

But that’s modest compared to what could happen if small employers decide, en masse, to end their group health plans and instead help their employees buy through the Obamacare exchanges.

Tony Nefouse, a health insurance broker at Indianapolis-based Nefouse & Associates, thinks exchange enrollment could reach 400,000 as early as this year.

“I think we could see another 300,000 this year,” said Nefouse, which would join the 110,000 Hoosiers that bought on the exchange for 2014. “You’re going to have a lot of small businesses, what we call micro businesses, with 10 or fewer employees, especially those with lower wages, they’re going to drop their group health plan.”

Matt Kleymeyer, a benefits consultant at the Indianapolis office of Bernard Health, also thinks enrollment will spike as small employers end their group health plans. Although, he noted, that might not happen until 2016—when the Obama administration will finally require employers with 50 or fewer workers to end their pre-Obamacare health plans.

Among the factors increasing exchange enrollment is Obamacare’s individual mandate, which taxes individuals for not having health insurance. That tax will rise from $95 per adult this year to $395 next year and $695 the year after that.

But the big factor will be the phase-in of Obamacare’s community rating rules. Those rules say all small employers and individuals buying from a given insurer will be charged whatever it takes to cover their bills—BUT the oldest person can’t be charged any more than three times as much for coverage as the youngest member.

That helps companies that have lots of older workers—because before Obamacare, health plans charged older members about five or six times more money than the youngest members. But those rules will hurt companies with younger workers.

For employers with younger-than-average workers, avoiding those rules could help them dodge premium hikes, which insurers have estimated could be as high as 50 percent to 100 percent

“When we’ll see the greatest growth in membership is when the Band-Aid’s ripped, with small group community rating,” Kleymeyer said. “I think the pain will be too great, at that point, for a lot of groups.”

What Nefouse and Kleymeyer are seeing jibes with a prediction made earlier this year by the Congressional Budget Office, which suggested exchange enrollment in Indiana will reach about 500,000 by 2018 but then hold steady at that level.

But some expect it to go much higher than that. New York-based market research firm S&P Capital IQ predicts the benefits to companies’ bottom lines of off-loading health benefits would be so great that, by 2020, 90 percent of all employees will be buying health insurance via the Obamacare exchanges.

If that proved true in Indiana, it would mean at least 3 million Hoosiers would obtain coverage via the exchanges, if only group employer plans are included. If self-employed coverage is also counted, that number could run as high as 4.5 million, according to data from the U.S. Census Bureau.

I think there’s a lot of good evidence for those predictions.

But a big if in all those predictions is whether workers perceive the Obamacare exchanges positively or not. And a new poll released by Morning Consult suggests that workers are, by and large, worried about ending up in the exchanges.

That poll, conducted online in June with 1,250 “likely voters,” found that 40 percent of them are very or extremely concerned their employers will send them to the Obamacare exchanges. Another 23 percent are somewhat concerned.

They worry that the quality of their health insurance coverage would be worse in the Obamacare exchanges. I wonder if that has to do with the narrow networks, which have reduced consumers' choice of doctors in the Indianapolis area by as much as 45 percent. But, unfortunately, the poll doesn't explore that issue in detail.

Whatever the reason, 51 percent said a shift to the exchanges would have a very or somewhat negative effect on their coverage. Only 16 percent said it would have a very or somewhat positive effect on their coverage. The rest said it would have no impact.

Those concerns could translate into concrete action. If their employers sent them to the Obamacare exchanges, 29 percent of those polled said they would look for another job either very or extremely seriously. Another 23 percent said they would search for another job somewhat seriously. The other 48 percent said they would be unlikely to search for another job.

The poll has a margin of error of plus or minus 3 percentage points, so it’s possible that a slight majority of respondents would not search for another job.

The concerns reflected in the poll may not be grounded in fact. I have found that the Obamacare tax credits, if they remain as generous as they are now, will be a pretty good deal for the majority of workers—though probably not a good deal for higher-income households.

But the concerns about the Obamacare exchanges could cause employers to reject the math of Obamacare and instead follow the mood of their employees. It will be interesting to see how these cross currents play out in the next couple years.

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  • Tough decisions ahead for employers
    What a tough environment for employers to navigate. When they actually run the tax-affected costs of sending their people to the government marketplaces, most will find that only the older lower compensated (in relation to the FPL) employees will find monetary refuge on the exchanges. Then they must take into consideration the following factors; narrow networks (on exchange) vs. relatively open in group or off exchange products roughly worth 7% to 15% actuarially , group insurers offering narrower network plans to reduce the individual vs. group gap, removing employees medical 125 deduction and then adding back income for on exchange benefits will increase their employees MAGI and therefore reducing their subsidy, the loss of the expanding small business tax credit (which is directly targeted to employers that would be enticed by an individual exchange program), the uncertainty of premium in the individual markets (although stabilized by ACA taxes) do the adverse selection that is likely to happen. The architects of the ACA are savvy. An unbiased evaluation of these challenging variables will yield two equations (small group (insured, PEO, Association, partially self-insured) vs. individual) with very similar monetary outcomes. This reality makes the question of the article very important to employers. Will employees rebel against their employers Obamacare approach? And is it worth it?
  • No pre-tax for premiums
    JK - good article. Employees (and employers) are in a for a rude awakening when they fully realize that Obamacare premiums are not deductible on a pre-tax basis like employer plans. That essentially means that Obamacare plans will feel about 25-30% more expensive than they really are compared to employer plans. It's major lost purchasing power for employees!
  • Isn't that the point?
    Employer plans are a benefit. If they choose to eliminate the benefit, the good employees will move on. The sad culture in Indiana is how cheap our employers act. You get what you pay for.
  • A Few More Points to Consider
    Good article. Just a couple of points that need more emphasis: (1) the ACA is the closer to a true marketplace than has existed for decades meaning that costs and benefits are comparable for the would be purchaser, (2) more participants should result in more competitive rates/benefits, (3) would-be consumers from small businesses need more information/education on the exchanges (which I hope small businesses that elect to go the ACA exchange route will provide),(4) the ACA continues to be a fluid marketplace as the law takes hold, and (5) the income tax effects are not clear although most buyers will probably be in the 7-15% effective tax rate, which is lower than another commenter suggested.
  • Micro-employers with low wage workers get HUGE Tax Credits
    This article of course fails to mention that these Micro-Employers with low-wage workers would be idiotic to drop their health insurance since they qualify for the HUUUUUUGE 45% ObamaCare TaxCredit. That's FREE MONEY.
    • Small Biz Tax Credit
      Jeff, I am a CPA who has prepared that small business tax credit form- it is only fully utilized for employers with under 10 employees and under $25,000 of average wages. It phases out up to $50k of wages and 25 employees. In practice, the small biz tax credit does not apply to very many companies and the few it does receive a $3k credit and pay the CPA $500 to fill out the form. Alternatively, the Marketplace subsidies for that same employee making under $25k would give a family of 4 insurance at $100/mo with incredibly low cost sharing deductibles versus the market rate of more like $1,000/mo with high deductibles. As someone who has consulted with a number of small businesses, particularly nonprofits, related to this law, the small biz tax credit is not a viable option as it's currently written.
    • Writing is on the JK Wall!
      I think what is not mentioned in this article is how many Indiana residents could be eligible for a tax credits. All one has to do is look at the median income for Indiana. All of the comments on this article are good points but the reality is based on income. The tax credits are to big to ignore for most Hoosier small companies. As owners become more aware of the tax credits, attitudes towards the exchange will change.
    • !!!
      There's no such thing as "free" money.

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