What Can Be Done to Lower Health Insurance Costs

What Can Be Done to Lower Health Insurance Costs

When it comes to health insurance, even the name of the law can be confusing. Is it the Patient Protection and Affordable Care Act, or the Affordable Care Act (ACA)? Is it any different from Obamacare? (According to one survey, 35 percent of Americans either think the ACA and Obamacare are different or don’t know that they are the same.) What changes are in store for employers, and what can they do to stay in compliance?

It is no secret that in the United States, medical bills are a leading cause of personal bankruptcy. According to one study, for example, “Using a conservative definition, 62.1% of all bankruptcies in 2007 were medical.” The study surveyed bankruptcy filings and found that many people filing for bankruptcy “lost significant income due to illness or mortgaged a home to pay medical bills. Most medical debtors were well educated, owned homes, and had middle-class occupations. Three quarters had health insurance.” Employers also face continuing financial pressure over
increasing health care insurance costs. One report offers the unsurprising news that employer health care costs will be going up 5 percent again in 2019, as they have in previous years. The average yearly cost per employee for health insurance benefits is approaching $15,000.

Health insurance costs are not the only worry for employers. Another is noncompliance with the ACA. Which employers are affected by the ACA’s requirements? The IRS offers this rule of thumb:

Applicable large employers are generally those with 50 or more full-time employees or full-time equivalent employees. Under the employer shared responsibility provision, ALEs are required to offer their full-time employees and dependents affordable coverage that provides minimum value. Employers with fewer than 50 full-time or full-time equivalent employees are not applicable large employers.

Employers with fewer than 50 employees may use the Small Business Health Options Program (SHOP) to obtain insurance. Tax credits are available to small employers if they:

  • Cover at least 50 percent of employees’ premium costs,
  • Have fewer than 25 full-time equivalent employees with average annual wages of less than $50,000, and
  • Purchase their coverage through the Small Business Health Options Program.

Employers of the equivalent of more than 100 employees are required to offer a health care plan to employees.

The complications of the ACA do not end with a headcount, however. There is also the “affordability threshold,” which concerns whether the employee’s contribution to their health care plan exceeds a little under 10 percent of the employee’s yearly household income. In 2019, the percentage will be 9.86. There’s also the question of whether a plan provides a “minimum value” to the employee by meeting an average of 60 percent of their yearly medical expenses.

Employers may wonder how they can be expected to know what their employees’ annual average expenses are, but fortunately the IRS offers some guidance. Employers may calculate employee expenses based on W-2 wages, hourly wage rate, or where the employee stands in relation to the federal poverty level. The IRS may impose a shared-responsibility penalty on employers that are required to provide health care insurance but do not provide insurance that meets the minimum-value requirement. Additional thresholds include the employee’s maximum “out-of-pocket” expenses, for example deductibles and copays. If the employer’s plan does not meet the affordability threshold or provide minimum value to the employee, the employee is eligible to shop for insurance on the open market. The ACA also comes with significant reporting requirements for the employer.

Providing health care insurance coverage as an employee benefit may be costly, and confirming compliance daunting, but businesses have little choice but to provide coverage to employees whose skills are in demand.

With all this in mind, what can employers do to reduce health care insurance costs?

Virtual Care

Many employers are selecting plans that include virtual care. Virtual care plans use the internet or telephone for such matters as routine doctor and therapist visits.

HDHPs or CDHPs

Many employers are offering high-deductible health plans (HDHPs), also known as consumer-directed health plans (CDHPs). Under these plans, employees can make tax-deductible contributions to health savings account to help meet the cost of the higher deductibles. The amount that can be put aside is fairly limited, however. In 2019, the deduction limit for self-only coverage under a HDHP will be $3,500. For family coverage, the limit is $7,000.

Direct Contracting

For larger employers, another method of reducing costs is to eliminate the go-between and contract directly with health care providers. Health care providers are also jumping on this bandwagon, offering their services directly to employers as accountable care organizations (ACOs). This practice may soon benefit smaller employers as well.

Direct Involvement in Managing Costs

Two key factors driving health care costs are drug prices and some expensive conditions (for example, mental health). Employers are signing on to plans that more aggressively bargain with providers and monitor these costs, including by encouraging employees to stay compliant with their health care treatment plans. For example, employees may be offered incentives to stay up-to-date with their treatments and prescriptions in order to reduce emergency services.

Another way to reduce health care costs is to encourage healthy behaviors in all employees, for example with campaigns and incentives to reduce smoking, increase exercise, and practice stress reduction with meditation or yoga. Employers can offer classes and group activities to bolster healthy practices.

Another part of more direct involvement can entail directly negotiating the costs of various treatments. Call it good, old-fashioned haggling, whether conducted by employers alone or employers and employees.

AHPs

One of Donald Trump’s campaign pledges was to replace the ACA with something better. As Secretary of Labor Alexander Acosta put it: “President Trump is expanding affordable health coverage options for America’s small businesses and their employees. Many of our laws make healthcare coverage more expensive for small businesses than large companies. Association Health Plans are about more choice, more access, and more coverage.”

These plans would relax some of the ACA’s rules requiring comprehensive coverage. By doing so, small employers may be able to pay lower premiums for plans that offer less coverage. This may be acceptable to younger and healthier employees, but for employees seeking, for example, maternity, pre-existing condition, or mental health coverage, AHPs are not likely to be so attractive.

Conclusion

Health care costs continue to rise along with the headaches of compliance. For employers, this means the struggle to find ways to reduce costs, regardless of the status of the ACA, has yet to end. This is resulting in some creative solutions that offer various ways of reducing the high cost of employee health care.

About The Author

Eric Howard is a legal editor who lives in Los Angeles.

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