Texas Tech University Health Sciences Center
Nationwide Coverage Is Changing, And It’s Not All Because of the ACA

Nationwide Coverage Is Changing, And It’s Not All Because of the ACA

Ever wonder why businesses provide health insurance to their employees? Historically, it has not been required by law.  Undoubtedly, employers do so for more than one reason.  Most would acknowledge the desire to keep their employees healthy, both physically and fiscally, as one of the bigger reasons.

Perhaps an even greater reason is that providing insurance has become pretty much essential if an employer is going to recruit and retain employees. An exception to this rule is the business that has no problem in recruiting and retaining employees and that business is usually one that pays lower wages. Two other major reasons why companies offer health insurance are that it is tax deductible to the business, and employees pay no taxes on the benefit.

Federal government initiated these tax incentives in the early 1940s, and by the mid-1960s, employer-sponsored health benefits were the norm. Today, about 160 million Americans are covered by their employers’ plans. So, even before the passage of the Affordable Care Act (ACA), which places demands on employers with 50 or more full-time equivalent workers (FTEs), companies have been a critical factor in Americans’ health care coverage.

Companies with 50 or more FTEs still have a choice to provide health insurance or pay a fine, just as individuals do. Some companies, like individuals, elect to pay the fine because the penalty is less than the cost of health insurance. The decision often comes down to cost. However, as fines increase, this is subject to change.

Some recent articles show some employers that have always provided health insurance are considering opting out of health insurance and directing employees to a private exchange to purchase insurance. In doing so, they would provide a defined contribution compared to a defined benefit, as is current the normal case.  The ACA’s combination of tax subsidies and a new non-group insurance have made privately purchased a better deal for some employees. For some employers, dropping health insurance and increasing wages to a degree is preferable to paying hard-to-manage health insurance costs. Employers are considering using premium reimbursement plans, such as Section 105 Health Reimbursement Plans, to cover the cost of employees’ individual health insurance. This approach is a cost-effective way to offer employee health benefits. Experts predict that 60 percent of small businesses will adopt individual health insurance and premium reimbursement solutions by 2017.

Getting good people to come to work for a company is always a challenge, especially with a low unemployment rate. Therefore, my hunch is employer-sponsored plans will be with us for a long time because the company that creates the least hassle in getting health insurance for its employees will have an advantage in the labor market.

Written by: Brent Magers, CEO