How captives and insurance exchanges can reduce health care costs

Bill Goddard, Principal, Insurance Consulting, Brown Smith Wallace

Bill Goddard, Principal, Insurance Consulting, Brown Smith Wallace

Ron Present, Health Care Industry Group Leader, Brown Smith Wallace

Ron Present, Health Care Industry Group Leader, Brown Smith Wallace

The financial impact of the Patient Protection and Affordable Care Act (PPACA) may seem to be its  most challenging aspect. Mitigating that impact may seem like the most practical solution. However, Ron Present, health care industry group leader at Brown Smith Wallace, says, “There are a lot of strategic implications to what you do and how you do it. Management should avoid just calculating the math and saying, ‘This saves us money so it’s what we’re doing.’”

To that point, Bill Goddard, principal, insurance consulting at Brown Smith Wallace, says, “You should consider many potential solutions before making a decision that could drastically diminish your ability to retain and acquire talent, and keep your workforce engaged.”

Smart Business spoke with Present and Goddard about dealing with health care insurance after the PPACA from a cost and strategic perspective.

How has the PPACA affected private insurance?

Starting Jan. 1, 2014, employers with 50 or more full time or full-time equivalent employees, considered large employers, must offer health insurance that fits certain affordability and coverage criteria or face a penalty. This could have an immediate impact on an employer’s cost to provide health insurance because a group of employees that had not had insurance may enroll in the plan and because of pre-existing conditions or high use of care, will cost the employer a significant amount of money.

Also, the health care law changes the status of some who had been considered part timers for insurance purposes to full-time employees. In some industries, many employees have not historically taken health insurance, sometimes as much as 66 percent of a company’s workforce. These employees will need to be offered coverage, potentially tripling costs.

How might that impact employers?

Companies are calculating their potential risk to cost. However, that’s only one aspect. The other is the strategic impact.

Some companies have considered limiting their variable hour, or part time, employees, to less than 30 hours per week to reduce the number of employees considered full time. To maintain an adequate workforce, such changes can require hiring additional employees, or changing existing employees’ workloads and job descriptions to keep up production and prepare for 2014.

Should employers not provide coverage?

Let’s say a large employer decides not to offer health insurance and instead pay the $2,000 per employee (minus 30) penalty, which may seem cheaper. However, the law requires individuals to have insurance regardless of employer coverage, so employees may leave for a competitor that provides it. Those who stay out of necessity may always be looking for another employer that provides coverage, lessening their productivity and loyalty while raising turnover, which is a significant expense.

Counsel employees. Let them know that they can refuse insurance coverage from the employer and either purchase insurance through a public exchange/marketplace or instead pay an annual penalty. Employees may prefer to pay the penalty instead of paying far more each month for coverage.

How can employers that provide insurance cope with rising premiums?

Large employers offering health insurance to a population of purely full-time employees can potentially control premium costs by forming a captive insurance company. This is an insurance company that non-insurance companies with 50 or more full-time employees can start. It is generally owned by the company that forms it and insures a limited population, typically just its own employees.

Another potential solution is to form a private exchange, which may be complementary to forming a captive insurance company, in that the entity forming it creates its own marketplace, which means it may qualify as providing insurance with a defined contribution that may help control costs.

Bill Goddard is a principal, insurance consulting, at Brown Smith Wallace. Reach him at (314) 983-1253 or [email protected]

Ron Present is a health care industry group leader at Brown Smith Wallace. Reach him at (314) 406-5105 or [email protected]

 

WEBSITE: For more on this topic, visit http://bswllc.com/industries/health-care.

 

Insights Accounting is brought to you by Brown Smith Wallace LLC

 

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