Employer-provided health coverage has been the only game in town, but starting in 2014, state insurance exchanges mandated by healthcare reform will provide an alternative, and it may prove attractive to some employers and employees, particularly in low-wage industries.
Coverage from exchanges will come with a federal subsidy for people earning up to 400% of the poverty level. Given that, companies with lower-paid workers could realize substantial savings by eliminating health benefits and instead giving employees money to cover the premiums for coverage from an exchange, says Ed Kaplan, national health practice leader at consultancy Segal. He estimates companies could save despite the $2,000 per employee penalty they would pay for not providing health insurance.
“The federal subsidy amounts for employees in low-wage industries might be a game changer,” Kaplan says. Employers are modeling the situation, he says, and “some of them are looking at tens of millions in savings.” Eliminating health coverage also lets companies shed a considerable administrative burden, he says.
Still, he doesn’t expect to see many companies make moves in 2014. “Employers are going to plan for it and wait for the early adopters to see how they play out,” Kaplan says.
Low-wage employees could save by buying from an exchange, according to a recent analysis by the Employee Benefit Research Institute, especially if the effort to cut the federal deficit leads to taxes on the health coverage workers get from employers. EBRI estimates an employee with income at 150% of the poverty level would pay just $690 a year for single coverage from an exchange, vs. $1,500 from an employer. (Employees whose companies provide health benefits can’t use the exchanges unless their income is less than 400% of the poverty level and company premiums cost more than 9.5% of their income.)
One big question is how employees feel about using an exchange. “I think most employees would prefer to get health insurance through their employer,” says Mark Holloway, co-director of the compliance services division of Lockton Benefit Group, adding that workers not eligible for a subsidy may find exchange coverage “prohibitively expensive.”
Holloway says it’s likely that companies that offer health benefits to early retirees will shift those retirees to the exchanges.
For a look at a new model for providing health insurance Aon Hewitt is rolling out for corporate customers, see Early Health Exchange.