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January 10, 2013 at 09:33 AM
In this, the third and final in a series of blogs, we’ll take a deep dive into the third of three big issues for advisors in 2013. In the first posting, we looked at the key regulatory issues, focusing on fiduciary and an SRO for RIA. In the second blog, we considered the booming popularity of mobile devices among both advisors and clients, especially tablets.
In this posting, we look at what may well be the biggest issue of all, despite its low profile among advisors: implementation of Obamacare’s health insurance exchanges.
The Rise of the Health Insurance Exchange
Somewhat surprisingly, I suspect that the issue we will look back upon by year-end as having the most impact is the one that almost no financial planner has on their radar screen right now: the rise of the health insurance exchange.
For those who aren’t familiar, the health insurance exchange is where all Americans will be able to buy guaranteed issue health insurance beginning in 2014. More precisely, all Americans will be required to do so, or pay a penalty, under the requirements of the Patient Protection and Affordable Care Act of 2010 (the PPACA, or Obamacare, legislation). After its constitutionality was upheld last year by the Supreme Court, the mandatory health insurance requirement and the associated health insurance exchanges where that coverage will be purchased are coming. By late 2013, clients will be asking a lot of questions about how this new method of purchasing coverage is going to work, especially since most will not want to pay a penalty for failing to comply!
You might be thinking that the issue won’t be a big deal for most of your clients, for the simple reason that most of your clients already have health insurance through an employer. In theory, employers are incentivized to keep offering coverage. After all, if the company doesn’t offer affordable insurance options to employees, the firm will also have to pay a penalty.
The caveat to this is that in many (most?) situations, employers (at least the large companies subject to the rule) will likely find it far cheaper to simply pay the penalty, rather than to subsidize the amount of health insurance premiums for employees that would be necessary to avoid the penalty. In other words, if it costs your business $8,000 per employee to provide enough health insurance premium assistance to avoid the penalty, but only $2,000 per employee to just pay the penalty, the business may just decide to pay the $2,000 penalty, offer a few thousand dollars raise to each of the employees, and tell them to go buy their own health insurance coverage from the exchange.
This hasn’t been an option for employers in the past, because the reality has been that offering health insurance is a required employee benefit to attract good talent, as few skilled workers want to be left on their own to apply for health insurance for which they might be declined. In a world where the health insurance exchanges guarantee that employees—or anyone else—can always get coverage, regardless of health conditions, it changes the issue for the employer: instead of being a required benefit, it simply becomes a matter of cost and total compensation.
