Health insurance is difficult to understand for employers and for individuals. Most employers prefer to focus on their customers vs their health benefits, and often procrastinate making decisions about their annual plan changes.
But this year, with major potential changes in healthcare looming every night on the evening news, many employers have virtually shut down discussions on what to do with their employee health benefit plan. This is costing these employers much more than they realize.
Employers putting off making changes in their employee health benefits in 2009 are missing the boat because 2009 is the first year employers are finally allowed to implement reforms that were put in place several years ago by the federal and state governments. Moreover, while the changes now being discussed in Washington would not take effect until 2014-2015, all of the changes being discussed in Washington today would accelerate and support the new already-available reforms that employers are allowed to implement now in 2009.
These changes have already saved some employers up to 30% of the cost of their health benefits while getting most of their employees significantly improved health benefits.
The biggest change available in 2009 is the shift from "one-size-fits-all" employer group health plans that terminate with early retirement or unemployment, to portable, personal health insurance policies that are owned by employees themselves but paid for with pre-tax salary and/or employer tax-free funds.
Personal health policies are now offered by virtually every major health insurance carrier at 1/3 to 1/2 the cost (in 45 states) of group employer policies with similar benefits. This is because 45 states have amended their laws to allow carriers to freely choose which applicants they accept for personal policies, but once accepted, the carriers must allow renewals until age 65 without any premium increase based on claims history. Nationally about 83% of applicants for personal policies are accepted. No wonder the number of Americans with personal policies rose from 12 million in 2002, to 27 million in 2007, and is approximately 35 million today. In contrast, the number of people covered by employer group policies has fallen by 16 million employees since 2001.
Here are some of the changes that employers area are allowed to implement in 2009.
Starting in 2009, employees are allowed to use pre-tax salary to pay for their personal health insurance premiums. Not only does this immediately save employees up to 40% on the cost of their personal policy, 11 states have already passed laws requiring employers to offer this option to employees upon request.
Employers are allowed to cancel their group policies and give tax-free HRA allowances to employees so that they can purchase their own personal policies. Moreover, federal law now requires all states to give guaranteed-issue personal health policies to employees whose group health policy is terminated due to cancellation or new ineligibility.
Employers sticking with group plans in 2009 can immediately save 50% on their monthly premium by switching to a high deductible plan and then using a payroll-based HRA to reimburse employees for their under-deductible medical expenses. We explained how this works in an earlier post.
Employers waiting today for Washington are going to be waiting a long time, and wasting millions of dollars while denying their employees better coverage. This is because:
All of the various proposals now being discussed in the House and Senate don't begin to take effect until 2014-2015, and that's only if they are passed this year.
All of the various proposals now being discussed in Washington would dramatically improve and accelerate the shift already begun from group employer polices to personal, portable personal health insurance policies funded by employers and/or employee pre-tax salary reductions. Such proposals include employer mandates to give a minimum amount towards health benefits, guaranteed-issue personal policies regardless of preexisting conditions, and/or a government option guarantying a personal policy with minimum benefits for everyone.
There is the possibility, as we saw with recent reforms in Medicare prescription drug plans, that Congress forces employers with existing expensive group health plans to keep them in place until new reforms are implemented in 2014-2015. Employers today with expensive group plans could get a mandate to keep them in place for 4-5 years with no compensation.
There is simply no time better than today for employers to help their employees switch to affordable, permanent personal health policies that employees can keep after their employment.