A recent article in The New York Times
, ”,” predicts that 90% of employers will transition to exchanges to provide their employees with health insurance by 2020. The author suggests that defined contribution health plans will follow the course of 401(k) plans where employers transitioned from pensions to a defined contribution type of retirement benefit. It may not be that simple. An employer's decision to move to an exchange may hinge on two competing factors: worker productivity, and the financial implications (including the so-called Cadillac tax) of moving to an exchange.
Many large employers recognize a connection between employee health and productivity and have been actively intervening with employees to improve worker health, seeing these efforts as a competitive business advantage. To date, employers have not seen any evidence – or even any consideration – from state and federally run exchanges that these health plans will address the issue. There is mounting evidence that employer-sponsored health promotion efforts have the potential to improve worker health and lessen the cost of disability. As the Medical Director for Health Promotion at Caterpillar, I was able to measure health improvements among employees for targeted risks and diseases. Employers understand the total cost of poor health goes beyond medical bills: just one third of the cost is direct medical expense while two thirds are the costs from absence, disability, and sub-optimal performance of workers with health issues.
Certain sectors of employers will look closely at exchanges, particularly those whose employees are not well compensated or have high turnover rates. The exchanges may be an appropriate alternative for those employers. However, in the sectors of our economy where knowledge workers are a valued and highly sought after asset, the exchanges are currently viewed as an unproven benefit. In companies who see their employees as a valued asset, health benefits are an important part of the overall compensation strategy, and employers are not willing (yet) to trust exchanges to serve their workers.
What about the competing factor? The financial implications are complex. It’s naïve to think a company currently spending ,000 per worker on healthcare would simply stop that benefit, pay a 00 fine and force their employees to pay the balance. At Truven Health Analytics, we have modeled the costs of moving to an exchange while keeping the employee “whole.” Given the penalties, the tax implications and the costs of the exchanges, for most employers it’s more expensive to move to the exchanges than continuing to offer health insurance. Moving to exchanges is only financially viable if employers force their workers to shoulder all or most of the burden without additional compensation. Most employers are not ready to take that step, especially given the uncertainty of the exchanges.
The game-changer may be the excise tax (“Cadillac” tax) currently slated to take effect in 2018. This provision requires employers to pay a 40% penalty for health insurance benefits exceeding a fixed dollar amount. It’s very unlikely that employers will pay this tax. Employer-sponsored health benefits will likely hinge on this excise tax: if it’s not repealed or significantly modified, the excise tax may force employers out of the business of providing health insurance for their workers. Ultimately, if high enough, cost will trump concern over worker productivity, and will cause employers to consider other strategies to maintain and improve worker health and productivity. Stay tuned – employer-provided health insurance will be hotly debated over the next several years.
Michael L. Taylor, MD, FACP
Chief Medical Officer