Can an employer pay chronically ill workers to leave the company health plan and get insurance somewhere else? That’s a question some business owners are asking, now that no one can be turned away from individual health plans under Obamacare.
The potential loophole in the Affordable Care Act could threaten the viability of Obamacare marketplaces if they get the most expensive-to-insure workers while companies keep healthier employees on their own plans. Some mid-sized companies that self-insure—that is, they pay the cost of employees’ medical claims directly—are at least talking about the idea.
“A handful of our clients, mostly in the 100- to 1,000-employee self-insurance market, have independently inquired about this and sought out legal counsel on the question,” says Richard E. Twietmeyer, executive vice president in charge of employee benefits at M3, a Madison (Wisc.)-based insurance brokerage. “It’s not something I’m suggesting.”
One possible roadblock: Such a practice may be illegal, and it might leave business owners open to employment discrimination claims, says John L. Barlament, an attorney at the law firm of Quarles & Brady in Milwaukee. Nevertheless, he says he has had “multiple conversations” with business owners and insurance brokers interested in pursuing this option.
The Affordable Care Act prompted predictions that many employers would drop coverage entirely and send all their workers to the exchanges. That hasn’t happened yet. If companies shift only their sickest employees into marketplace coverage, the practice could damage the marketplaces, which depend on premiums from younger, healthier participants to help cover the costs of older, sicker members. “I don’t believe the architects of the ACA set out for this to happen,” Twietmeyer says. “If employer groups have the opportunity to carve out high-cost claimants, that would accelerate the death spiral of the exchanges, because they won’t be able to balance the risk.”
There were “anti-dumping” provisions in the Affordable Care Act that prohibited employers from pushing sick employees into high-risk insurance pools that were created to cover individuals with preexisting health conditions until exchange coverage became available this year. But those provisions were not carried through into the rules governing exchange coverage. “It’s almost like they forgot to include that clause on the exchange side of the equation,” Barlament says.
A spokesman for the Centers for Medicare and Medicaid Services, which is running the federal marketplace, pointed to an existing law that governs employer health-care and pension benefits, the Employee Retirement Income Security Act. While that law does bar employers from discriminating in how they offer workers benefits, it doesn’t address a situation in which an employee and an employer come to an agreement that the worker voluntarily decline coverage in favor of a better deal on the exchanges, subsidized with a cash benefit from the employer.
The fact that companies are even savvy enough to ask about this possibility reflects how much executives have grappled with the rising costs of medical insurance over the past decade, Twietmeyer says.
Many of his clients are family-owned manufacturing companies in the Midwest whose employee benefit costs are now second only to salaries as the biggest expense. Because it can be cheaper, about 65 percent of them opt to self-insure. This means they set aside funds to pay their employees’ medical costs directly, rather than buy a group policy from a large insurance company.
The detailed data on employee health claims that they get by self-insuring has prompted many of them to adopt wellness policies and take additional steps to drive down costs, Twietmeyer says. “When you’re self-insured, you get a look at a thorough spectrum of what is driving the cost factors for your business,” he says.
Employees with chronic conditions such as hemophilia, or those who develop serious illnesses like cancer, can cost a self-insured company a great deal annually and make them less attractive when they are shopping for “stop-loss” policies, he says. Those policies are typically used to backstop self-insured businesses; they pay the employer if workers’ health costs hit a certain level.
Darrell Moon, chief executive of Orriant, a Salt Lake City-based business that advises companies on how to cut their health-care costs, says clients haven’t asked him about shifting their most costly employees to the exchanges. “To say you would pay them to not even get their insurance through you—that’s kind of scary because it smacks of discrimination,” Moon says. “You’d have to have a pretty good attorney to pull that off.”
It is not clear that any businesses have done this yet, but Barlament says he has advised clients who are willing to take the risk that they should make sure their employees will receive better coverage on the marketplaces than they would on the job.
The idea would be to offer employees incentives for declining company coverage, not to force them off the company plan or penalize them for staying on it, both actions that would violate established law. He says he “wouldn’t be shocked at all” if some employers try it next year. “Once [the Obamacare marketplaces] really get rolling, I could definitely see this happening in 2015.”