An issue brief released by the Employee Benefit Research Institute (EBRI) has concluded that employers might benefit from using a private insurance exchange/fixed contribution approach to providing health insurance to their workers once many of the Affordable Care Act’s (ACA) provisions take effect in 2014. The brief – Private Health Insurance Exchanges and Defined Contribution Health Plans: Is It Déjà Vu All Over Again? – examines the insurance market reforms that are taking place, as well as how the future insurance exchange structure will impact employers.
As discussed in the document, the ACA calls for the establishment of state-based insurance exchanges through which individuals and small businesses can purchase health insurance beginning in 2014. In 2017, states will have the option of allowing large employers to avail themselves of the Exchanges, although these employers may do so beforehand if they choose to drop coverage and provide employees with taxable payments to purchase their own insurance through the Exchanges. According to the EBRI, the lack of certainty surrounding the state Exchanges has led to the development of private insurance exchanges. The brief explains that an employer that provides a defined contribution to purchase coverage through a public exchange would be subject to the $2,000-per worker penalty under the ACA. However, “an employer offering access to a private exchange would be considered to be offering health coverage and would therefore not be subject to the penalty.” This option would also allow employers to provide pre-tax subsidies to employees to purchase insurance through the private exchanges.
According to the EBRI, the benefits of providing fixed amounts towards the purchase of insurance through a private exchange include: cost certainty; total compensation transparency; uniformity of benefits in multi-state environments; reduced adverse selection costs associated with COBRA; avoidance of the 40% excise tax on high cost coverage (“Cadillac tax”) to take effect in 2018; the potential for reduced administrative costs; and higher employee satisfaction.
The EBRI paper states that employers interested in participating in the fixed contribution/private exchange model would still need to consider how much they would want to be involved in the plan design; the implications for adverse selection; the level of the fixed contribution they plan to offer; how much choice participants would have in the insurance exchanges; and geographic cost variation.
A complete copy of the issue brief can be accessed here. (pdf)