PPACA could ironically undermine employer-based coverage
Underlying the enactment of the Patient Protection and Affordable Care Act (PPACA) in 2010 was a fundamental policy choice that rejected the idea of cutting out private “middle man” health plans and insurers in order to make coverage more accessible and affordable by adopting a Canadian-style single payer model in which the government pays all medical bills. Or have a government-run insurance plan compete with private payers — the so called “public option.” The Obama administration rejected these deprivatization schemes as too radical and instead chose to build upon the existing system largely based on working age people and their families having private health coverage paid for by employers.
Two recent surveys by benefit consulting firms Towers Watson and Mercer suggest however the foundations of that system could ironically erode under the PPACA if employers drop their group insurance and managed care plans and opt to have their employees purchase coverage in the individual market. One of the major motivators, this AP article suggests, is the creation of health benefit exchanges designed to make it easier for individuals and families to buy their own coverage.
Given steep medical cost inflation that has rapidly accelerated the cost of covering workers over the past decade, at least some employers see “opting out” of providing health coverage as their cost control “nuclear option” despite the adverse tax implications and penalties they would incur by not covering their employees.
The implications of the Towers Watson and Mercer surveys are controversial and are drawing caveats from administration officials, particularly insofar that the benefit exchanges won’t open for business until January 2014. With more than two years until then, it’s hard to draw any firm conclusions regarding what employers will actually do when the exchanges become operational. But benefits consultants warn that it won’t take many employers to start a trend of opting out as the AP story notes:
Benefits consultants say most companies, especially large employers, will continue to offer coverage because they need to attract and keep workers. But that could change if a competitor drops coverage first.
Michael Turpin, a national practice leader at broker and consultant USI Insurance Services, said one of his clients plans to drop coverage as soon as any competitor does. The client, a major entertainment industry company he declined to identify, will be at a financial disadvantage if it doesn’t.
“In those industries … if somebody makes the first move, the others are going to follow like dominoes,” Turpin said.
If that happens, the PPACA will have the unintended consequence of radically altering the employer-based system of health care coverage in the United States, moving it instead toward one based in individuals purchasing their own coverage.