Have you ever wondered why the largest companies almost never criticize the Affordable Care Act? That may be because they are getting a deal that the rest of us aren’t getting.
The mandate to provide health insurance to employees kicks in for large employers on January 1st and applies to smaller companies the following year. Surprisingly, firms that are large enough to self-insure (and pay employees’ medical expenses directly) can satisfy the mandate without covering hospitalization. They can also avoid paying for mental health care, the services of specialist doctors and even emergency room visits.
In a nutshell, the largest firms can offer the skimpiest plans.
Perhaps aware of the embarrassing implications of these loopholes, the Obama administration made an election eve announcement that there would be limits on the ability of firms to exploit them going forward. On Election Day, a Treasury Department notice alerted employers that any health plans not already finalized will have to cover hospitalization and doctor services – but not other benefits that are required of small employer plans and plans purchased by individuals.
The timing of these announcements suggest that the administration wanted absolutely no media attention for them. Who is going to pore over changes to Obamacare technicalities when exciting election results are coming in? There are two issues here that the administration doesn’t want discussed: Why does the law have a huge gaping loop hole for the largest companies? And how is the Obama administration able (once again) to re-write the law without any act of Congress?
If you work for a self-insured company and have an above-average income, you probably don’t have much to worry about. Employers are going to provide higher-income employees reasonably good health insurance in the future, just as they have in the past. But if your income is below-average, you could end up with worse coverage than you had before.
In general, employers will be required to provide health insurance that covers ten “essential health benefits.” These include hospitalization, ER visits, etc. However, (and the law is clear on this) self-insured companies can avoid offering these benefits so long as they meet a “minimum actuarial value” test. That means the employer plan must cover at least 60 percent of expected health care costs.
One way for employers to make sure they are meeting that requirement is to get a passing score on the Department of Health and Human Services’ “minimum-value” calculator, an online tool. At the site, the visitor is invited to check boxes indicating whether certain benefits are included in the employer plan. Further, the employer can actually meet this test without including hospitalization. Mental health care, MRI and CT scans, ER visits and specialist services are other “essential health benefits” that do not have to be included.
There is one more surprise. Once the employer offers compliant insurance, the employee is ineligible for subsidized insurance that does cover these services in the (Obamacare) health insurance exchange.
There are some other loopholes employers are exploiting:
Whether or not they are self-insured, all employers can charge the employee a premium equal to 9.5 percent of annual wages for the employee’s coverage and 100 percent of the cost of dependent coverage.
Employees earning $30,000 a year, for example, can be required to pay $2,850 for their own coverage. If a family plan costs $15,000, the employee can be asked to pay $12,150 in premiums (more than one-third of the employee’s income).
Under the law, these plans are considered “affordable.” If the employees turn down the offer, they and their families are ineligible for subsidized insurance in the health insurance exchange. Had they never received the employer offer, a $30,000-a-year family would be entitled to insurance more than 90 percent subsidized by the federal government.
In general, employers who fail to offer affordable insurance to their employees will face a $2,000 fine for each employee. However, self-insured employers have another option. As long as they offer insurance with minimum essential coverage (which mainly means preventive care with no cost sharing and no lifetime caps), they can escape the $2,000 fine. The remaining benefits can be quite skimpy. However since such a plan does not meet the minimum value test, the employer will be liable for a $3,000 fine if any employee goes to the exchange and gets subsidized health insurance.
Paying the fine may actually be to the employer’s advantage, however. Any employee who goes to the exchange to buy more generous coverage is likely to be an employee with a serious health problem. The $3,000 fine may be a bargain compared to the cost of treating the illness.
One way to escape all fines and minimize costs is to offer employees a skimpy (non-compliant) plan, but give them the opportunity to upgrade to a fully compliant plan in return for a premium that equals 9.5 percent of their income for individual coverage and 100 percent of the cost of dependent coverage. Low-income employees are highly likely to turn this offer down – especially if they are healthy. And having turned it down, they forfeit the right to get subsidized insurance in the exchange.
In all these cases, what’s good for the employer is bad for the employee and vice versa.
John C. Goodman is Senior Fellow at the Independent Institute and author of Priceless: Curing the Healthcare Crisis and Healthcare Solutions for Post-Obamacare America (both from the Independent Institute).