The mass cancellation of employer-sponsored group policies may be an “unintended consequence” of Health Care Reform. Or, it may have been an “intended consequence”. Regardless of your political point of view, health care reform is now the law and is causing employers, small and large, to drop their group employer-sponsored health insurance plan.
The best deal for most employees today is to buy their own personal policy using employer contributions and/or pre-tax salary
The Health Care Reform bill signed into law on March 23, 2010 is the death knell for employer-sponsored group health insurance. And that’s a good thing.
The best decision for most employers and their employees will be to eliminate their company-sponsored health insurance. That’s because, starting in 2010, employees no longer need employers to purchase quality health insurance, and, starting in 2014, employees earning less than 400% of the FPL ($88,200 for a family of four) per year who purchase a personal policy will receive a large federal subsidy on their premium if their company doesn’t offer a group plan.
Thanks to health care reform, most individuals will be able to purchase their own personal health insurance even if they have a preexisting medical condition, and people will be able to keep their personal insurance regardless of what happens to their job. The maximum price most people will pay for their personal health insurance policy will be federally capped at 2% to 9.5% of their family income.
Prior to health care reform, the biggest issues keeping employers from adopting personal policies for their employees have been:
1) The fear that certain employees with pre-existing medical conditions wouldn’t be eligible to receive affordable coverage, and
2) The concern that some employees would have to pay more because they had a dependent with a preexisting medical condition. These issues are now moot as the following provisions of the Health Care Reform phase in:
- Starting June 23rd 2010, there will be a new federal “risk pool” to guarantee affordable personal coverage to adults with preexisting medical conditions.
- Beginning September 23, 2010, all carriers offering personal health policies may not reject or charge more for children with preexisting conditions.
- Beginning January 1, 2014, insurance carriers must accept all applicants for personal policies at the same price regardless of their health status.
It gets better.
To top it all off, in 2014, if an employee’s employer doesn’t offer a qualified company-sponsored group health plan, the employee gets a federal subsidy automatically applied to the cost of their personal health policy. This subsidy caps the cost of an individual’s health insurance at 2% - 9.5% of their family income if their family income is less than 400% above ’s the federal poverty line (that’s $88,200 per year for a family of 4). Large employers are charged $3,000 per year for each employee who receives the subsidy, up to a maximum of $2,000 per year for all employees. Employers with less than 50 employees are not charged anything if their employees receive the federal subsidy.
Under the new rules, virtually every employer with less than 50 employees will switch from group coverage to simply giving employees tax-free allowances to purchase their own personal policy. And most large employers will follow suit once they realize how large of a subsidy their employees receive if the employer doesn’t offer group coverage.
Under the new rules, virtually every employer with less than 50 employees will switch from group coverage to simply giving employees tax-free allowances to purchase their own personal policy. And most large employers will follow suit once they realize how large of a subsidy their employees receive if the employer doesn’t offer group coverage.
Example
In New York State, which already has a law mandating the guaranteed issue of personal policies, health insurance costs about $5,000 per year per person. Under the new federal subsidy rules, an employee in New York with a family of four earning $35,000 a year would pay no more than 4.4% of their income for their personal health insurance—about $1,500 a year—for $20,000 worth of health insurance ($5,000 x 4 people). If the employee worked for a large employer, beginning 2014, their employer would be charged up to $3,000 a year because the employee received the federal subsidy—which was worth $18,500 a year ($20,000 less $1,500). And small employers aren’t charged anything if their employees receive the federal subsidy to purchase personal health insurance.
What large employer wouldn’t gladly pay a maximum of $2,000 per employee per year to see most employees receive the same or better coverage than their group plan for a fraction of the cost?
The mass cancellation of employer-sponsored group policies may be an “unintended consequence” of Health Care Reform. Or, it may have been an “intended consequence”. But, regardless of your political point of view, Health Care Reform is now the law and is causing employers, small and large, to drop their group employer-sponsored health insurance plan.
