Much has been made about the RAND report on health insurance enrollment figures. But the key figure that appears to be a head scratcher for most health policy folks is the extremely high number of previously uninsured individuals who are now enrolled in employer sponsored insurance (ESI). Many other studies, as well as the CBO report, showed that ESI would remain flat for 2014 then be followed by relatively modest decreases in future years.
As an insurance professional working in the trenches with small and mid-size businesses I can share firsthand that this apparent outlier in some cases is true.
There are many reasons growth is occurring. First, we are definitely seeing an increase in labor needs at companies who offer benefits. Companies that were sitting on the sidelines are now beginning to hire again. While it isn’t robust growth, the steady flow of one or two new employees per year is having significant impact on the health insurance industry. Many of the middle class jobs that are being created are filled by primary bread winners who have been out of the labor force and due to economic constraints were forced to make choices on what are necessities versus wants. Many who have been unemployed simply chose not to purchase health insurance. This wasn’t as much a “can’t afford it” situation as it was that people value cable TV, cell phones, and are tied into debt payments that have been accumulated over several years. In their eyes paying for something that many don’t use made health insurance an unnecessary expense.
Another reason for the growth can be tied to the individual mandate tax. Most people don’t understand it or believe it to be “only $95”. The dominating demographic tied to this logic are typically healthy males earning over $30,000 per year. They’ve always forgone the insurance because they are invincible, don’t understand insurance, and would rather pocket the payroll deduction. Now that there is a tax for not having it many have simply added on to their employer’s plan. As shown in the Kaiser Employer Sponsored Benefits Survey from 2013, small employers foot a significant portion of the premium. In many cases the employee deduction is within a reasonable amount of the individual mandate tax.
Another key to the increase is based on the time frame the study captures. Fourth quarter and the first of the year are heavy open enrollment periods for small employer insurance renewals. Since President Obama’s false promise of “if you like your current plan” became such a key issue, the Administration was pushed to allow individuals and small businesses to keep their plans for another year. Because of this extension we recommended an early renewal strategy to small employers. The strategy was to get employers to renew in December which buys them an additional few months at lower premiums than PPACA compliant, community rated plans. Employers who enacted this strategy received special enrollment periods that allowed employees to open enroll. In one case I had a participation rate of 60% increase to 90%. The employees in this company pay $21 per month for insurance. The entire participation increase was due to nine single males electing insurance at open enrollment on December 1st.
Sticker shock was another reason that employees elect insurance through their employers. I have done a ton of educational meetings for employees. In every case I found out how little understanding people have about PPACA. There were cases where people thought they could sign up whenever they wanted. Others believed that they were eligible for subsidies or thought that they would see very low premiums and great benefits under the law. Defining who was eligible for a subsidy and explaining open enrollment were two questions that came up at every single event. Explaining they had to pay the full premium and weren’t eligible for a subsidy because their employer met the requirements of affordability and minimum coverage caused frustration for many. It also showed the value proposition of employer sponsored insurance.
CAUTION! Don’t get too excited about the uninsured rate decreasing due to ESI. In the next couple of years companies will be forced to PPACA compliant plans. As employers transition a significant majority of them will be seeing mind-boggling increases. This will lead to more costs being passed along to employees or in some cases employers simply dropping their plans. This will magnify in 2018 when the “Cadillac Tax” kicks in. If you think this trainwreck is bad now just wait until the engine is moving full steam ahead.