Many experts believe that the days of group or employer-sponsored health insurance are numbered. Whether it was an intended or unintended consequence, some of the provisions in the bill could certainly lead you to that conclusion. I think most people have come to grip with the fact that you can't keep your promise of, "If you like your plan, you can keep it." So what will happen to the employer-based system that provides 150 million Americans with their health insurance?

Looking to the past to understand the future

To understand where we're going, we need to review what we have and where it came from. Our current employer-based system came about not because it was the best way to buy health insurance, but as an unintended consequence of post-World War II wage and price controls. As a way around government regulations that threatened to stifle a company's ability to attract and retain good employees, employers asked insurance carriers to give them a deal if they purchased benefits for their employees. At the time, health insurance helped with catastrophic expenses – not routine doctor's visits or prescription drugs. Groups were also much healthier in the 1940s. To be eligible for the plan, you had to be fit enough to work. Over time, this became an expectation – a good job should come with good health insurance.

As time went by, several things began driving up premiums more quickly than workers' earnings and inflation, leading us to the mess we're currently in. Those factors include technological innovations, the creation of new drugs, and an increase in obesity and chronic illnesses. Because of our technological and medical advances, we are now surviving many of the events or conditions that were once fatal. While this is obviously a great thing, it is also more expensive.

Premiums really started to skyrocket over the last 20 years, as 45 states allowed "individual" or "personal" health insurance policies to be underwritten. This has led to greater and greater adverse selection as healthy individuals leave the group for more affordable personal policies, leaving fewer and fewer young and healthy people in the risk pool.

The state and federal mandates are also much more overbearing and costly for employer-sponsored plans. Cafeteria plan regulations have recently codified a decision to allow the same tax advantages previously reserved for employer-sponsored plans to also be extended to personal health plans through payroll deduction of employee funds or employer contributions through premium reimbursement accounts or HRAs.

Where we stand

This takes us to today, and the passage of the PPACA. There are several sections of the bill that will encourage employers to change from their current model. Most are not fully implemented until 2014, but they include:

  • Greater restrictions on plan design for employer-sponsored plans. The maximum annual exposure an employer can place on an employee is $2,000 for single and $4,000 for family.
  • Must offer "affordable" coverage. The definition of "affordable" will be on a sliding scale based on income. For example: A family of four making $40,000 a year cannot be asked to pay any more than 4.4 percent of their income, or approximately $1,500. Considering the average family policy is projected to be around $18,000 annually, that would mean the employer would have to pay $18,500 of that premium. That certainly makes the $2,000 penalty seem a lot more attractive – and that's only for groups with more than 50 employees. There is no penalty for those with less.
  • Subsidies to purchase coverage through the exchange. The same affordability calculation will be made for those purchasing insurance through the exchange, with the government picking up the difference. What employer would not drop the group plan and allow the government to take the hit?

These massive changes just may push most employers into a new arrangement. Groups with a healthy, young, or large enough population may choose to be self-insured, allowing them to benefit from their employees' low utilization. Most will choose to drop group coverage and use pre-tax defined contribution plans, or just a raise in post-tax salary to help with any premiums the government's subsidies fails to pick up. Agents have many opportunities to help make the transitions smooth for employers. It may be time consuming to keep up with all the changes, but the producers who can design, implement, and communicate these new platforms will be the big winners.

Josh Hilgers is the president of Health Partners America. He can be reached at josh@healthpartnersamerica.com.

For more employee benefits coverage, visit ASJ's Employee Benefits Resource Center

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