Workers and Their Health Care Plans
The Impact of New Health Insurance Exchanges and Medicaid Expansion on Employer-Sponsored Health Care Plans
SOURCE: AP/Mary Clare Jalonick
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During the long campaign to enact our nation’s new health reform law, President Barack Obama and other supporters of the legislation repeatedly promised Americans that they could keep their existing health care coverage if they liked it. This commitment was intended to reassure the overwhelming majority of Americans who already have good coverage that they would not be adversely impacted as coverage was expanded to the uninsured. The Affordable Care Act, they were told, would provide new options for obtaining health insurance but would not undermine existing employer-sponsored health care plans that currently cover most Americans.
Yet in the wake of the passage of the Affordable Care Act into law two years ago, speculation continues to swirl about the consequences of the law’s three central health insurance vehicles on existing employer-provided health insurance coverage: the two new health insurance exchanges for small businesses and individuals due to be up and running by 2014; and the expansion of Medicaid for those who cannot afford insurance. The Office of the Actuary for the Centers for Medicare and Medicaid Services, or CMS, the federal agency that administers those two government-run health care programs, projects that there will only be a slight decline of less than 1 percent in the number of people covered under employersponsored health care plans by 2019. Other studies reach similar conclusions.
In contrast, a controversial report by the business consultancy McKinsey & Company predicts there will be a much more precipitous shift in coverage from employer-sponsored plans to the new health insurance exchanges. The McKinsey survey, however, on which this report was based, faced criticism from the Obama administration, Congress, and others for relying on slanted questions and a flawed online survey methodology that did not provide employers with enough information to make fair evaluations. As a result, critics contend that the survey produced skewed results that are an outlier from most other studies.
In addition, some employers may have exaggerated the negative impact of the new health reform law on their health care plans in order to try to justify changes in the plans that would otherwise be resisted strenuously by employees.
The continuing debate over the impact of the new health insurance exchanges and Medicaid expansion on existing employer-sponsored health care coverage is important politically and substantively. This will have important ramifications for the implementation of the Affordable Care Act, including the costs associated with the new health insurance vehicles and whether workers and retirees will in fact be able to keep their existing employer-sponsored health care coverage if they like it.
For a number of reasons, labor unions have particular insights into the different economic and other factors that will determine whether existing employer-sponsored health care coverage will continue or will be displaced by the establishment of the health insurance exchanges and the expansion of Medicaid beginning in 2014. Today about 160 million people in the United States receive their health care coverage through work. Estimates of the number of people covered under health care plans negotiated by labor unions range as high as 50 million people, nearly one-third of the total population insured through employment-based plans. Labor unions negotiate health care coverage in diverse sectors across the economy, including the industrial, construction, telecommunications, hospitality, service, and public sectors, often establishing a benchmark for compensation in these industries—benchmarks that have a much broader impact on the coverage provided to millions of nonunion employees across the country.
This paper is based on detailed discussions with health care experts at 19 major unions and their umbrella organizations covering the vast majority of organized workers who work for a cross-section of private- and public-sector employers throughout the country. It also included discussions with independent health care policy experts and officials in the Obama administration. The analysis and recommendations set forth in this paper, however, are solely those of the author.
The results from these discussions
The consequences of the new health insurance exchanges and the expansion of Medicaid on existing employer-sponsored health care coverage will be greatly affected by a number of uncertain factors, including how well the exchanges function in different states, the status of the economy, and how regulations governing the exchanges from the Obama administration address various issues. Yet it also seems clear that there will not be a widespread displacement of employersponsored health care plans, with most of them remaining in place for employees without any significant disruptions.
This is because most middle- and upper-income workers covered under existing employer-sponsored health care plans will not be eligible for substantial subsidies in the individual exchanges or for Medicaid, and their employers will not be eligible for the small business tax credit in the so-called SHOP exchanges, the ones being set up so small businesses can more easily and more affordably offer health insurance to their workers.
The upshot: There will be little incentive for most employers to drop their existing health care coverage for these workers.
At the same time, in certain sectors of the economy, some employer-sponsored health care plans could be replaced by alternative coverage provided through the two health insurance exchanges or Medicaid. This is especially likely to happen in those industries where there are large numbers of lower-wage and part-time or seasonal employees. It is also likely that the longstanding decline in employersponsored coverage for retirees will accelerate due to the availability of these alternative sources of coverage.
In many cases, the shifts in coverage of these employees and retirees to the health insurance exchanges or Medicaid will be a positive development that enables them to have more secure and affordable health care coverage, and improves their standard of living. Furthermore, any adverse impacts can be avoided or minimized if the regulations implementing the new health care law adopt certain approaches, and if several improvements to the law are enacted.
This paper will explore these anticipated changes (small and large) in our nation’s health insurance in 2014, focusing specifically on: • The expansion of Medicaid • The new SHOP exchanges • The new individual exchanges • Family coverage for spouses and dependents • Part-time and seasonal workers • Supplemental “wrap” health insurance coverage • The treatment of tax-favored health accounts • The treatment of retirees
This paper will explore all of these issues in detail, but briefly, let’s preview the report’s findings and recommendations.
The expansion of Medicaid
The expansion of Medicaid will not have any impact on the existing health care coverage for most employees. But it will help to provide stable, affordable coverage for certain very low-wage, part-time, and seasonal employees who currently have inadequate or no insurance, and potentially improve their standard of living.
The new SHOP exchanges
The new SHOP exchanges—SHOP stands for Small Business Health Options Programs (with a silent “B”)—will make it easier for some small single employers to continue to provide stable, affordable health care coverage to low-wage workers and could lead to an improvement in the standard of living of these workers. These new exchanges also could have the same positive impact on health care coverage provided through so-called Taft-Hartley funds (multiemployer health care programs run by a joint labor-management board) and through regional or statewide trusts that provide health care coverage to education and local government employees who work for many different employers—but only if the regulations implementing the new health law allow these types of funds and their contributing employers to have equal access to the SHOP exchanges. Otherwise, the SHOP exchanges could undermine the existing coverage provided through these funds.
The new individual exchanges
The new individual exchanges present the most complex set of issues for employers and employees. It seems clear that the individual exchanges and premium tax credits and cost-sharing reductions that are part of the Affordable Care Act will not have an impact on most existing employer-sponsored health care coverage provided to middle- and upper-income employees in a wide range of industries.
At the same time, they likely will displace existing coverage for some lower-paid, part-time, and seasonal employees. In many cases this will be a positive development that enables these workers to have access to more stable, affordable health care coverage and to improve their standard of living.
There is a danger, however, that this could be a negative development for low-wage workers in the food service, hospitality, and other service industries, and some parts of the construction industry and local governmental units in rural areas and the South. Economic and political forces may enable employers in these sectors to use the shift in coverage to the individual exchanges as a mechanism to cut back health care benefits and reduce compensation for employees.
The regulations implementing the new health care law could adopt a number of approaches to avoid or minimize the potential adverse impacts in these sectors. Ultimately, the Affordable Care Act may need to be amended to impose an “antidumping” fee on large employers to discourage abuses and help offset increased costs to employees in these sectors.
Family coverage for spouses and dependents
The new law is not likely to have a significant impact on family coverage currently offered by employer-sponsored health care plans covering most middle- and upper-income employees. But there could be a more significant impact on family coverage offered by employers with lower-wage workers. Depending on how various issues are resolved in the final regulations issued by the Obama administration, employers with lower-wage workers might have an incentive to shift family coverage to the exchanges. Or many spouses and dependents could be trapped in unaffordable employer-sponsored coverage.
To avoid these dangers, the final regulations should give spouses and dependents an independent right to receive subsidized coverage through the individual exchanges when they are not offered any family coverage or when the family coverage offered to them is unaffordable, regardless of whether the employee-only coverage is affordable.
Part-time and seasonal employees
For many part-time and seasonal workers who currently are uninsured or have inadequate insurance, the availability of subsidized health care coverage through the individual exchanges will be a very positive development. But in the food service, hospitality, and service sectors where part-time and seasonal work is common, some employers may manipulate work schedules and their corporate structures to make sure most of their workers are considered part-time or seasonal, enabling them to avoid any employer-responsibility assessments and thereby increasing the likelihood that these employers will terminate their existing health care coverage for these workers and transfer them to the individual exchanges.
The regulations implementing the new health reform law should define full-time employees in a manner that reduces the opportunities for such employer manipulation. A more effective solution to prevent such abuses would be to amend the Affordable Care Act to require a proportionate employer-responsibility assessment in situations where an employee works less than 30 hours per week or 120 hours per year.
Supplemental “wrap” health insurance coverage
The regulations implementing the new health care law should allow employers to provide supplemental “wrap” coverage to employees who are enrolled in the individual exchanges and potentially receiving premium tax credits and costsharing reductions. This could include supplemental benefits such as dental and vision coverage, as well as coverage for copays, deductibles, and other cost sharing required by health insurance plans offered on the individual exchanges. This would help maximize health care coverage and avoid any loss of benefits due to the establishment of the individual exchanges.
The treatment of tax-favored health accounts
The new health law specifically states that employees cannot use a flexible spending account (or FSA, a tax-advantaged account that allows employees to set aside part of their earnings to pay for various benefits, including health care) to reimburse premiums they may pay for subsidized coverage through the individual exchanges. But the Affordable Care Act and the proposed regulations issued by the Obama administration do not provide any clear guidance as to whether the same position will be applied to payments from health reimbursement accounts (or HRAs, which allow employers to set aside funds on a tax-favored basis to reimburse medical expenses for employees and retirees) and health savings accounts (or HSAs, tax-advantaged medical savings accounts available to individuals enrolled in high-deductible health care plans). It is important that the regulations implementing the health care law do not treat HSAs more favorably than HRAs. Otherwise, this could lead to an explosion in the use of HRAs by employers, which would undermine health care coverage for employees.
The treatment of retirees
The introduction of individual health insurance exchanges in 2014 will likely accelerate the longstanding decline in employer-sponsored coverage for retirees. Many employers, Taft-Hartley funds, education and local government trusts, and Voluntary Employees’ Beneficiary Associations (or VEBAs, which are tax-exempt medical expense funds covering employees or retirees with a common employment- related bond) will consider the option of terminating their existing retiree health care plans and shifting the retirees to the individual exchanges.
In many cases, this may be a positive development that guarantees retirees a stable, affordable source of health care coverage. It also may help to avoid cutbacks in health care coverage for active workers, or enable resources to be used to address pension or other issues facing retirees.
The regulations from the Obama administration
The regulations that are in the process of being issued by the Obama administration to implement the Affordable Care Act could have a major impact on whether the new health law is successful in providing more stable and affordable coverage to millions of Americans without displacing existing employer-sponsored health care plans and making certain groups of workers and retirees worse off.
In the pages that follow, this paper will explore in much greater detail the consequences of the new health care law and the regulations on existing coverage for employees and retirees in union and nonunion occupations.
In the end, it seems clear that the establishment of the exchanges and expansion of Medicaid will benefit the vast majority of employees and retirees. At the same time, the approaches adopted by the final regulations on various issues will be important in making sure that existing coverage provided by Taft-Hartley funds and education and local government trusts is not undermined by the SHOP and individual exchanges. Certain improvements to the Affordable Care Act would also be helpful in this regard.
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