Healthcare reform might create a world in which employerspay penalties and send employees streaming into government andprivate exchanges to buy individual coverage.

The PatientProtection and Affordable Care Act (PPACA) might create abenefits world in which typical employers pay penalties and sendemployees streaming into government and private exchanges to buy individual health insurance.

If Mitt Romney gets into the White House and kills PPACA,employers might still move on their own to create a similar “bringyour own coverage” (BYOC) system. What would a BYOC system mean forthe employers, their health insurers, and their benefits brokersand plan administrators?

One way to analyze the question is to look at Web forums forowners and would-be owners of nightclubs.

New participants often ask about the idea of setting up a “bringyour own bottle” (BYOB) club. Other participants quickly askwhether some customers will bring in low-quality, or even lethal,grain alcohol; whether the BYOB club owner will face liabilityproblems; whether the BYOB policy will affect the club's ability toattract and retain patrons; and whether the BYOB policy will leadto ferocious administrative hassles. Such as: What happens whensome patrons' bottles go dry? What happens when some patrons arejealous of other patrons' bottles?

Similar questions can come up in discussions about a possibleBYOC health benefits universe.

Shawn Pynes, a partner at Barney & Barney, an independentbrokerage in California, chuckles when he thinks about theproposition that a BYOC system could make business managers' liveseasier. “It's going to be more complicated,” Pynes says. “It's notgoing to be easier.”

The U.S. government got employers into the health benefitsbusiness after World War II, when it tried to control inflation byimposing controls on wage increases. To get around therestrictions, employers began offering workers non-cashbenefits.

Rita Numerof, a St. Louis management consultant, says employees— and many employers — have come to expect employers to providegroup health coverage. “The benefits have gotten richer andricher,” Numerof says.

The latest federal Bureau of Labor Statistics survey resultsshow that 73 percent of U.S. civilian workers have access toemployer-sponsored health coverage and 54 percent of workersparticipate in their employers' health plans.

Health policy specialists once hoped health maintenanceorganizations (HMOs) and tough care utilization managers could reinin skyrocketing health benefits costs. A few bad utilizationmanagement decisions later, benefits experts mostly gave up on theidea that the savings from aggressive utilization managementprograms were worth the risk of creating more HMO horrorstories.

In 2000, National Underwriter Life & Health beganwriting about a new cost-management concept: Thedefined-contribution health plan. Consultants suggested that anemployer could give each employee a fixed amount of cash. Employeescould use the cash to buy their own coverage and get the employerout of the plan selection business.

In the real world, medical underwriting got in the way.

In the group market, underwriting has little effect on whetheremployees can get coverage. In the individual market, however,carriers in the states with reasonable health insurance rates usemedical underwriting to control risk and keep rates reasonable. Inmost states, employers that shifted to pure defined contributionhealth plans had no way to ensure that their employees could getaffordable coverage.

If PPACA survives its many foes, takes fulleffect in 2014 and works more or less as drafters expect, it couldbreathe new life into the defined-contribution health plan conceptby requiring health insurers to sell coverage to individuals on aguaranteed-issue basis. Insurers could charge three times as muchfor the oldest enrollees as they charge for the youngest enrollees,but they would not be able to consider health problems, such ascancer or kidney disease, when setting rates.

PPACA is supposed to create a new health insurance purchase taxcredit for people who have no access to affordableemployer-sponsored health coverage and earn from 133 percent to 400percent of the federal poverty level (FPL), or about $29,000 to$88,000 for a family of four.

Suppose John Doe has a family of four and earns $29,000 peryear. The full cost of his coverage is about $700 per month.Analysts at the Congressional Research Service say the PPACA taxcredit could cut Doe's share of the monthly premium to $83. Doe'sshare would rise to $230 if he earned $44,000 per year, and to $524if he earned $66,000 per year. If he earned more than $88,000 peryear, he'd have to pay the full cost of the coverage.

A PPACA employer responsibility provision will require employerswith more than 50 full-time workers to provide a minimum level ofaffordable health benefits or else pay a penalty.

Small, cash-strapped employers may be quick to send theiremployees to the exchanges, but larger employers may have moretrouble deciding what to do, Numerof says.

Dan Maynard, president of Connecture, a company that developsWeb-based health insurance sales and exchange systems, says it'snot clear whether employers really want to get out of providing anyhealth benefits, or if they simply want to escape from the cost ofinsuring against health care claims risk.

Pynes notes that, in most of the United States, employersprovide health benefits today because they want to attract andretain the best employees and maximize workers' productivity, notbecause any law requires them to provide health benefits. The PPACAtax credit would do nothing for higher-income workers, Pynesadds.

At companies that offer good health benefits today, theresult may be that health plans will continue to look about thesame, Maynard says.

For employers that do decide to shift to a BYOC system,insurance costs might be much lower, but administrative costs andadministrative headaches could grow, benefits specialists warn.

Mark Yoest, a director with Deloitte Consulting, scoffs at theidea of the kind of business owner who offers good health benefitstoday simply e-mailing employees PPACA exchange contactinformation. “The consumer has really relied on the employer toprovide some guidance,” Yoest says.

“It's not easy for employers to get out of the middle,” Pynessays. Employers that want to shift to a BYOC system without ruiningemployee morale will have to find someone to advise employees onhow to cope, Pynes says.

What could a BYOC shift mean for insurers?

Bernard Tubiana, a principal with Deloitte Consulting, says theshift could create opportunities for a small insurer, a regionalinsurer, an insurer not known for participating in the group healthmarket, or a company like Amazon.com or Wal-Mart to “figure out themagic sauce” for becoming a BYOC benefits market giant.

Maynard says a BYOC market could be especially friendly toinsurers in the voluntary benefits market or the Medicare Advantagemarkets today.

Voluntary benefits insurers already know how to persuade workersto use their own money to pay for life insurance, disabilityinsurance and supplemental health insurance.

Medicare Advantage and Medicare supplement insurance marketplayers already know how to sell heavily regulated health insuranceproducts to individuals without having much, if any, ability to usemedical underwriting procedures to manage claims risk.

One thing that's noteworthy about the voluntary benefits,Medicare Advantage and Medicare supplement insurance markets isthat health insurance agents are active in all of thosemarkets.

Good group health insurance agents and brokers who want tooperate in the BYOC universe should be able to find ways to stay inthe game, health benefits market watchers say.

Traditionally, health insurers have marketedto brokers, brokers have golfed with employers and employers havegenerously and magnanimously provided health benefits for theemployees.

“Health insurers have not been able to invade that ownershipthey [brokers] have over these employer relationships,” Maynardsays.

In 2014, a health insurer that enrolls 10 auto body shopemployees through an exchange program would probably be thrilled tosee a broker help the body shop and the employees with the shift,Maynard says.

“That auto body shop is not going to hire a human resourcesperson,” Maynard says.

PPACA is supposed to create an ombudsman program — a Navigatorprogram — to help consumers understand the exchange system, butit's not clear whether that program will be a temporary program ora permanent program, and the Navigator program staffers are notsupposed to help consumers decide which coverage to buy.

In some cases, Yoest says, employers with BYOC health benefitsprograms might handle the programs roughly the same way they handleworksite benefits programs. Individual health insurance marketersmight come to see the employers as the gatekeepers who controlaccess to the workers' attention.

For brokers and other BYOC advisors, limits on the availabilityof competent live human advisors could be a major constraint, Pynesand Maynard say.

When workers call for help with exchange bureaucracy, “theadvocate at the other end of the line really needs to help themnavigate,” Pynes says.

At Barney & Barney, getting a new enrollee advocate licensedtakes 52 hours of training, and getting the new hire to be askilled benefits navigator takes about two years, Pynes says.

For insurers, brokers and exchange managers, another BYOC shiftchallenge might be learning how to run business-to-consumermarketing programs.

Nital Patel, a partner at Lippincott, a brand strategy firmowned by Marsh & McLennan, says a company in the BYOC gameneeds to start by making sure that it can deliver what consumerswant and that its own employees believe the company can deliver onits promises. A successful brand “needs to be rooted in somethingthat's very true,” Patel says. “It's about empowering consumers andcreating advocates.”

Patel says a company in the BYOC market will know it's succeededwhen the customers themselves start marketing the company to theirown friends and relatives.

See also:

• Private exchange firm: PPACA should help us
• Aon Hewitt health exchange attracts big employers