Employers Need to "Do the PPACA Math"
In the June 16, 2013 issue, The Wall Street Journal asked, “Will Companies Stop Offering Health Insurance Because of the Affordable Care Act?” Truven Health Analytics™ has worked with a number of employers to analyze this question using it’s proprietary Patient Protection and Affordable Care Act (PPACA) impact model and the employer companies’ premium and premium contribution rates, benefit design data, and employee-level wage, demographic, and cost detail.
For employers in low-wage industries (retail, hospitality, etc.), our modeling has shown that there can be a purely economic argument for an employer to walk away from existing group health arrangements. In this situation, the employer would pay penalties and perhaps provide some sort of after-tax, defined dollar contribution to help defray at least a portion of the employees’ cost to purchase health insurance exchange coverage. For these low-wage employees, the premium and out-of-pocket subsidies available through an exchange can be significant, they may currently pay relatively high contribution rates for relatively meager benefit designs. So the PPACA can offer a win-win for both the employer and the low-wage employees. More generously compensated individuals may, however, lose out in this scenario as they will not be eligible for much, if any, subsidy and they stand to lose proportionally more in payroll/income tax savings if group health benefits are eliminated.
For Company ABC, with 261 employees, with an average 2014 wage of $17,522, the federal premium subsidies available are estimated to be worth roughly $6,700 per employee per year in 2014, and the low-wage employees are additionally eligible to have their out-of-pocket costs capped — thus eliminating what would otherwise be an unfavorable cost shift to go from richer group health benefits to a “silver” exchange plan. It is therefore possible to develop several “Pay” scenarios that provide a “win-win” for employees and employers in 2014. However, depending on trend assumptions for exchange-based benefits relative to group health, this picture may or may not hold in 2015 and beyond …
For employers in higher-wage industries, the picture is typically quite different. In our example below, Company XYZ has 825 employees and average 2014 wages of $46,369 per employee.
This company’s relatively higher-earning employees lose more in tax savings and are projected to enjoy much less favorable federal subsidy and out of pocket limitations compared to Company ABC. There are no obvious “win-win” scenarios for Company XYZ using the model; there are just different ways of allocating the costlier provision of benefits through an exchange.
Employers need to “do the PPACA math,” because the combination of corporate tax rates, wages, benefit design and employee contribution strategies make for a very dynamic cost environment and the PPACA regulations and emerging exchange environment have created both opportunity and hazard. Utilizing a tested and proven model is essential as employers make their decisions. Employers choosing to “stay the course” with group health for the foreseeable future still need to evaluate the potential for their lower-wage employees to access subsidized care in the case their group health plans are not deemed “affordable.” Market changes will also dramatically impact the math, 2014 is just the beginning…
Senior Director, Practice Leadership