Every employer is struggling with health insurance costs. How much can we afford and how much will employees share? For many people, health insurance equals peace of mind. But you have to look at the total cost of care — insurance plus cost sharing (deductible, co-pays, co-insurance).
“A lot of people are under the impression that if the doctor says you need it, the health plan should pay for it,” says Al Ertel, chief operating officer for Alliant Health Plans. “Many figure, under a worst-case scenario, they might be out a few hundred to a few thousand dollars and, overall, they think they have complete protection. Most people don’t understand their responsibility or, in numerous cases, their financial exposure.”
Smart Business spoke with Ertel about why it’s important to be aware of your financial exposure when purchasing health insurance, and how employers can pick a plan that works for their employees and their bottom line.
Why have financial exposures gotten so large?
As premiums increase, employers must look for ways to offset the cost. They can raise the employee contribution or change benefits by raising the deductible or co-pay amounts. Each time an increase occurs, it shifts the financial obligation onto the back of the employee or plan member. That seems to be the fairest way for employers to continue to offer benefits and engage the members in an ever-changing health care environment. By changing benefits there may be no increased cost on the premium itself.
How does this cost shifting impact employees?
For example, the employer increases the physician office co-pay from $25 to $40. If you are healthy and see a doctor once or twice a year, that increase may be no big deal. If you are chronically ill and need to see a doctor frequently, that change may have added $500 or more to the cost of care in the new year.
What are the dangers of not understanding your exposure?
Many decisions are made by looking at co-pays and whether your physician is ‘in-network.’ People think, ‘I’m not going to be in the hospital for a week, or have any outpatient surgeries. I’m going to pay $25 to see my doctor, $10 for my prescription (and my monthly premium).’ But that isn’t the total picture. In many plans, co-pays apply for prescriptions and physician office visits. Then there are the tests, labs, x-rays or other outpatient testing, CT scans or MRIs. What about an outpatient procedure or surgery or an extended hospital stay? The deductible and co-insurance applies, but to what and how much? Statistically, most people do not have enough claims to reach their deductible. Those that do may end up meeting their deductible and the co-insurance out-of-pocket maximum ($5,000 to $10,000.)
How can these exposures occur?
Let’s say eligible expenses from the hospital are $20,000. You immediately owe the deductible. For this example, consider a $2,000 deductible. There is 20 percent co-insurance on the next $18,000. Or $3,600 is still owed by you. You’ve paid $5,600, and it’s assumed that once out of the hospital you’re healthy and can go back to work. This is not likely as there are usually residual costs associated with rehabilitation that may require co-payments. Those costs are determined by the plan. The actual items covered are explained in the information provided by the insurance carrier or the benefit booklet from the employer in the case where the health coverage is being self-insured. The point is the information is usually available before benefits are required. Employers must continue to communicate and educate employees about the health coverage being offered.
How can employers determine what level of exposure is best for their health plan?
The higher the cost sharing or risk being moved to employees, the lower the premium you will have to pay out. What is ‘fair’? The hard part is how to strike a balance when deciding. Employers are making financial decisions for the company. Yet the new benefits will apply to them and their family. The total financial exposure has to be considered. If the benefits remain ‘rich,’ premiums increase as benefits are enhanced or added. Many employers are looking to offer a more complete program that includes employee responsibility for wellness or at least health improvement. If you practice healthy behavior, out-of-pockets or premium sharing may be reduced.
How can employers ensure they are making the right choice?
Employers struggle with this. What is the most cost-effective and best value for the company and in the best interest of my employees? In simplistic terms it is an economic decision for the company. But we want to take care of our employees and recruit for the best and brightest. One of the answers is choice. Offer a couple of benefit plans.
Employers are freezing contributions. By defining their contribution now and in the future employers are limiting their exposure. That means greater responsibility to educate and communicate available options to the employ. What does the health coverage include — deductible amount, out-of pocket maximums, co-pays, drug cards, physicians, hospitals and exclusions? Any required activities that may lower employee costs — smoking cessation or exercise? Any additional value-added programs? Employees tend to look at health coverage differently than an employer and especially if there are specific health care needs.
The right choice is the one determined by you. Each employer’s specific needs and circumstances are different. And with the unknowns created by health care reform, it’s bound to get just plain crazy.
Al Ertel is the chief operating officer with Alliant Health Plans. Reach him at (800) 664-8480, ext. 234, or firstname.lastname@example.org.
Much attention has been paid to the American Health Benefit Exchange, the facet of the Affordable Care Act (ACA) designed to help individuals who do not have employer-provided insurance.
The ACA also requires states to utilize Small business Health Options Program (SHOP Exchange). Each state is required to set up these exchanges by Jan. 1, 2014.
“Both the state of Georgia and Georgia businesses will face challenges when it comes to meeting requirements set forth in the ACA, or health care reform law,” says Albert Ertel, COO of Alliant Health Plans.
Smart Business spoke with Ertel about how health care reform is changing how your company purchases health insurance.
How can SHOP exchanges help small businesses with health care costs?
The whole idea of health care reform is to reduce the number of uninsureds by lowering costs. But the law is not addressing the cost of care. It is attacking the cost of insurance, and adding hopefully lower-cost alternatives.
The goal of these exchanges is to create a well-functioning marketplace providing an array of affordable, high-quality health insurance plans for small businesses and their employees.
States can combine individual and small business exchanges — an option with many proponents, because expanding the pool would mean more competition among insurers, which leads to more choice and should result in better pricing for consumers.
Also, companies that purchase insurance through the approved exchanges may be eligible for a sizable health insurance tax credit. The credit is based on an employer’s number of employees and average payroll. If the average payroll is less than $25,000, the employer receives 100 percent of the premium through the tax credit. It declines proportionally as average payroll increases to $50,000, at which point the credit is no longer available.
How will small businesses determine whether they’re eligible to participate in an exchange?
Currently, Georgia law defines ‘small businesses’ as two to 50 employees for insurance purposes. The federal law indicates eligibility is up to 100 employees. This leads to two important questions: Will single entrepreneurs become eligible? And what will Georgia decide?
What issues will the state of Georgia run into when implementing exchanges?
Numerous decisions will have to be made. First, whether the exchange is going to be public, private or a combination — the state of Georgia is working through that now.
There are questions about whether the SHOP exchange, single or multiple, will end up competing with individual exchanges. Also, there will be competition outside of the exchanges. For small business health insurance, price is king.
Additional considerations include a regional approach to the exchange, dividing Georgia into regions, similar to the approach used to enhance competition for Medicaid plans. Or another option is joining states to form a ‘compact.’ Adding multiple states to an exchange is a double-edged sword. With that expansion, you may eliminate competition by turning it over to the big players in those states, because they are already there.
What can states do to help exchanges be successful?
They have to understand what their constituencies are: small and medium-sized businesses. They must decide if they are going to do it on a defined contribution basis, and whether they are going to set up an active or passive exchange. Competition should rule, and my bet is that Georgia will choose a ‘passive’ approach. Most involved in the current committees do not want to add more levels of bureaucracy, which is something they would have to do with an ‘active’ exchange. The state would have to set up a separate committee to approve not only the carriers, but also the plan designs.
One of the keys to the success of the exchange will be the technology that is needed. If the exchange is going to be charged with approving and monitoring whether individuals qualify for the tax credit, there has to be successful transfer of qualifying data sets and information provided by the employer to the exchange. An example is payroll through the IRS. Ensuring qualification may need to occur as often as quarterly, or will be an annual process, so there will have to be an active link to the IRS, Department of Labor, HHS and several state agencies. There are many issues yet to be defined.
What are some potential problems ahead?
Health care reform expands the definition of eligibility for Medicaid. With the increased definition, Georgia may add up to an additional 850,000 to Medicaid. That’s going to be very costly.
Also, as long as it is an employer-sponsored plan, health insurance is deductible as a business expense, allowing employers to continue to provide the insurance. Also, the current system allows employee payroll deductions to be done on a pre-tax basis. That option will be lost in the individual exchange, because individual insurance is purchased with post-tax dollars.
That whole system could be up in the air, because Congress has talked about an option to reduce the deficit, which is to eliminate the tax deduction for employer-based health insurance. You talk about blowing up a system — with unintended consequences. With no incentive for employers to provide insurance, the number of uninsured goes through the roof. If you give the individuals the choice without serious penalties, many would take the ‘insurance’ dollars and fend for themselves. The result is the loss of a significant amount of people in the insurance pool, which hurts these exchanges, because insurance relies on a large pool of covered lives to be successful. I agree changes are needed, but an exchange may be unnecessary when we already have one — it’s called ‘the market.’
Albert Ertel is COO of Alliant Health Plans. Reach him at (706) 629-8848 or email@example.com.