I wrote in IBJ two weeks ago about how 200 or more companies in central Indiana had ended their group health plans since the onset of Obamacare, opting instead to help their workers obtain health insurance via the Obamacare exchange.
And there is strong evidence that more employers will join this trend in coming years.
But I’m finding that Obamacare is a two-way street for employers. While some are driving away from group health plans, others are heading toward them.
And there is strong evidence more employers will be joining that trend, too.
That’s because group health benefits still enjoy both tax and perception advantages that many employers find too good to pass up.
Case in point: Indianapolis-based Morning Light Inc., which operates the Abbie Hunt Bryce Home for the terminally ill.
It tried a version of an individual benefits strategy starting in January 2015. It offered to reimburse its employees for 70 percent of the amount they spent on health insurance they bought individually. Morning Light capped its reimbursements at $350 per month for single coverage and $700 per month for family coverage.
Working through Utah-based Zane Benefits, Morning Light could make those reimbursements tax-free to its employees, mirroring some of the tax advantages enjoyed by traditional employer health plans.
But the program was a flop, said Tom Fodor, Morning Light’s CEO.
“Nobody did it. No took advantage of it,” he said. He said the vast majority of the 17 Morning Light employees who were eligible for reimbursement over the course of 2015 simply went uninsured instead.
Fodor didn’t make the reimbursement program apply to him. Instead, he purchased 2015 individual coverage on the Obamacare exchange, Healthcare.gov, where he didn’t qualify for a subsidy. He found the whole experience disappointing.
“Compared to when I was self-insured outside the current [Obamacare] system, the costs dramatically went up,” Fodor said.
He also said the shopping experience on Healthcare.gov was unpleasant.
“I’m pretty healthy. I know my away around benefits fairly well. And it was frustrating for me. So I can’t imagine someone who hadn’t had my education or life experiences trying to find good options for themselves.”
That experience, combined with the lack of response by his workers to the Zane Benefits program, led Fodor to recommend group health benefits to Morning Light’s board of directors. The estimated cost is $45,000 to $55,000.
The board went for it. For 2016, Morning Light will join Professional Staff Management, which is a professional employer organization, or PEO. A PEO becomes a co-employer of the workers at any company that joins, allowing it to buy benefits as if it were one large company.
PEOs typically handle all legal and compliance issues, as well as contracting with insurers and other benefits companies. They also usually provide dental, vision and long-term disability coverage, as will be the case with Morning Light.
“Our board decided to make the commitment to stabilize the benefits for our employees and really send a solid signal that we’re an employer that cares,” Fodor said. That was especially key, he added, since Morning Light asks its employees to be caring toward the 40 to 50 terminally ill patients who stay at the Abbie Hunt Bryce Home each year.
“How could we expect our staff to be compassionate in the care that they provide when the company wasn’t compassionate enough to provide health coverage,” Fodor said. “To fulfill our mission, this was something we had to do.”
There isn’t great data on how many companies are moving each direction on this two-way Obamacare street. A March report by the Bureau of Labor Statistics found that the percentage of full-time workers offered health coverage rose to 88 percent his year, up from 86 percent in 2012.
Andy Kaelin, a human resources consultant at Indianapolis-based KBIC, said he expects to see most employers keep their group health benefits or add them.
His company has helped three employers end their group health plans in favor of an individual strategy. But he said that typically only works for companies with fewer than 25 workers that tend to pay lower wages, so their workers qualify for significant subsidies on the Obamacare exchange.
The Obamacare exchanges offers tax credits on a sliding scale for those who don’t have the option of employer insurance. The subsidies are especially generous for those with incomes below 250 percent of the federal poverty limit, or about $59,000 for a family of four.
Employers that are ending their group health plans are typically offering additional wages to their workers to help them buy individual insurance. While those contributions can be counted as a business expense, and thus excluded from corporate income taxes, the extra wages are subjected to the employer portion of Social Security and Medicare taxes—whereas health benefits spending is not.
Also, workers must pay income-based taxes on the extra wages.
But proponents of the individual strategy, such as Minnesota-based Gravie, note that individual health premiums are cheaper now than group benefits, in part because group health prices have been pushed up for nearly 20 years by a requirement they accept all applicants. That requirement was added to individual health plans by Obamacare, beginning in 2014.
Compared with that kind of individual strategy, Kaelin said, most employers can still get a better deal on group health insurance by using a PEO, as Morning Light did, by joining a health plan offered by a trade association, by self-funding their health plan (which frees it from some regulatory restrictions) and then hiring insurance companies to provide administration and “stop-loss” coverage.
Employers can also hang onto their pre-Obamacare plans until late 2017, a situation called “grandmothering.”
“Most employers can still get a better group deal through grandmothering, PEO, small partially self-funded or association plan," Kaelin wrote in an email. "Low risk companies (i.e. healthy) can usually outperform individual costs mainly due to the tax efficiencies of group coverage."
He also noted that the cost of health insurance on the Obamacare exchanges is artificially low right now because it is subsidized by $25 billion being collected over three years from taxes on health insurers and employer-funded health plans. Those reinsurance subsidies are designed to keep the individual markets stable until 2017, when the subsidies will go away.
“Long term, I feel that the law and how it touches the tax code will do what it was intended to do: encourage employers to provide or manage the majority of their workers’ health care costs, regardless of size,” Kaelin wrote. “ Unhealthy or low-income residents that have limited insurance options will have ‘guaranteed access’ to coverage via the Obamacare exchanges.”