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What will employers do with the insurance exchange?

When President Barack Obama laid out his agenda for the next four years during his State of the Union address, he barely mentioned the Patient Protection and Affordable Care Act, his legacy legislation from his first term. But it is on the mind of employers, as public health insurance exchanges are set to roll out on Jan. 1, 2014.

I sat in on a meeting this month with the head of human resources for a large U.S. manufacturing company. His C-suite has directed him to figure out how to shut down company health plans in 2014 as soon as the public exchanges hit the street. But after running the numbers, this HR leader is not so sure it is really the best option for his company – or employees.

The first consideration is whether the exchanges truly will be put together across the country in a way that makes them a feasible solution in 2014. The federal government and states hoping to create their own exchanges are trying to build an airplane at the same time they need to fly it. Regulations overseeing their formation are being issued nearly every day. The complexity of such a comprehensive insurance marketplace is astounding. These need to be ready for open enrollment in the fall. So, while technically the exchanges may be up and running, no one expects them to run smoothly.

Another consideration is that employers will lose all control over their plan design and influence on wellness and productivity if they move employees off their plan to a public exchange. Active health plan management, providing wellness programs like biometric screenings and disease management programs for actively managing asthma and high blood pressure, provides a return to employers when fewer people call in sick and when people at work are healthy and productive. If employers stop managing their health plans, they will have less control.

Finally, take a look at the numbers. If employees buy health insurance on a public exchange, they will do it with after-tax dollars instead of paying contributions with pre-tax dollars. So, it will likely cost more out-of-pocket, and they will want their employers to make up that difference in higher wages that will also be subject to greater taxes. Lower-wage employees may qualify for a government subsidy to offset the cost, but higher-wage employees will not.

When a Buck actuary ran the numbers for this particular client, we found a 40-year-old employee making $35,000 a year would have to pay nearly $3,500 more a year to maintain the same level of employee-only coverage on a public exchange as he currently receives from his employer. At the same time, a 40-year-old employee making $100,000 a year would have to pay nearly $4,500 more. And the numbers got even worse as employees aged. When you change that higher-earning 40-year-old to age 60, still making $100,000 a year, that employee would have to pay nearly $11,000 a year more for the same level of coverage.

Not only will many employees feel it in their pocketbooks if they are sent to the public exchange, but employers will as well. You see, when employers offer insurance on a pre-tax basis, they also receive a tax deduction on the plan – a tax deduction they will lose and that will affect the bottom line of their balance sheets.

The math got this HR leader thinking, and he is now running even more numbers to educate the company’s decision-makers about the real dollar effect of putting employees on a public exchange. He quickly learned that it makes sense for employers to think carefully about how the numbers really add up before making the leap to a public exchange.


Michelle Hicks, a senior professional in human resources, is a director in the communication practice of Buck Consultants, a Xerox company. 

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