Is it feasible for employers to urge less-healthy employees to choose individual insurance?

[Peter Gulia]

The linked-to paper argues that health coverage reform sets up incentives for an employer to design its “self-insured” group health plan to motivate those who consume more medical care than others to prefer individual insurance over employment-based coverage.

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1651308

Do you think that the authors’ theory is realistic?

The authors suggest that one inducement for an employee (and his or her family) to leave an employment-based plan might be the employer’s cash-wages payment in an amount somewhat more (recognizing some tax differential) than what would have been the employer’s “contribution” to the employment-based health plan. [Pages 22-23 of the paper, pages 23-24 of the .pdf] Is this realistic?

If an employer were to offer such a cash-wages payment, would the choice run into constructive-receipt issues? Or would Section 125 protect those who chose the group health coverage as not having had constructive receipt of the available but not-taken cash payment?

[lvena]

I have not had time to review this article in much detail, but the idea that an employer can construct a self-funded plan and "direct" the high-cost employees towards another plan is not only possible, but has been done for years. There are many mechanisms available, but the most easily designed one is employee contribution. This can be done via a 125 plan or by having age banded rates.

What I don't know though, is what the consequences of this will be. My guess is that over time we will get a better picture.

[GBurns]

I have never seen, and I do not recall even hearing of, a plan being able to do this.

Age banding would not work simply because there is not a sufficient relationship between age and high cost diseases in the employer provided market.

The article does not say how an employer would get this personally identifiable private health information and then be able to use it against the individual without running into discrimination issues and ADA etc.

[lvena]

I have never seen, and I do not recall even hearing of, a plan being able to do this.

Age banding would not work simply because there is not a sufficient relationship between age and high cost diseases in the employer provided market.

The article does not say how an employer would get this personally identifiable private health information and then be able to use it against the individual without running into discrimination issues and ADA etc.

So sorry you have not seen it. All of this is currently permissable in the new reform environment and has been used by carriers/emloyers/self-funded groups for years. Getting identifiable private health information is not needed, rather, the self-funded group plan is designed (via benefits, contribution, rating structure, network etc.) to attract good risk and avoid high risk enrollment. Some high risk will get through, but if the employer really wants them out, it would not be that difficult.

[Peter Gulia]

Thank you for the responses.

It seems that an employer might use plan design (without using information identifiable to an individual) to help motivate higher-cost workers to get coverage outside the employer-sponsored plan.

During World War II wage controls, there was some efficiency value for an employer to provide some compensation in a form other than money wages. Perhaps the markets for health coverage might result in an efficiency in the opposite direction with some workers.

[GBurns]

How is the employer going to know whih employee is high cost or risk?

Since being a high cost employee is relative, How is an employee going to be able to make a decision that requires making comparisons, without knowing the costs incurred by others?

[lvena]

How is the employer going to know whih employee is high cost or risk?

Since being a high cost employee is relative, How is an employee going to be able to make a decision that requires making comparisons, without knowing the costs incurred by others?

It would be impossible to keep the self-funded plan completely void of high risk/high cost ee's, but it is not difficult at all making it less desireable for them, as I mentioned earlier. Knowing who is a high cost employee, and who may be a high cost employee, is not as difficult as you may think. With information (from such places as Health Risk Assessment or claims experience) the employer can begin to understand what types of expenses EE's are incurring, or potentially incur. The benefit design can be tweaked to accommodate. For example, if the data shows an increase in Alzhiemers drug use or diagnosis, they can changed their plan design/PBM to limit/exclude this condition.

Think of what a groups experience would be like if it were able to eliminate, or greatly reduce, just EE's with chronic conditions. If I design the benefits to have high hospital out-of-pockets the chronic EE's would likely see the private market as a better alternative. The employer did not need to ID them, nor encourage them to leave. Rather, the high risk EE compared the OOP hospital costs in the Employer plan to the better benefits in the Individual market, and leaves.

You may want to read the study again. Other than the Free Choice Voucher, all of what they authors have identified have been strategies used in the past. With the voucher it will make it much easier for employers to keep their private plan much cleaner and lower cost. I am already incorporating this into my discussions with groups right now.

Hope this helps.

[Don Levit]

On page 10, it states "PPACA also reinsures insurers in both the individual and small group markets against the risk that their medical costs will be greater than 103% of expectations."

It cites in the footnote section 1342.

Does that mean the government is the reinsurer over 103% of expected claims, and that premiums are paid by general revenues?

It seems like the government is going to subsidize insurers in the small and individual markets, but not the large group market.

I wonder why?

For those large employers who buy insurance, that seems to be a "bummer."

And, for those who self insure, thjey have to buy stop-loss, instead of having the government be their reinsurer.

Don Levit

[Guest Benefits Broker CO]

This may be a feasible solution in 2014, but in many states currently, "high risk" individuals cannot purchase individual policies as they are medically underwritten and it's likely these individuals would be declined for coverage. It gets them off the employer's plan, but unable to purchase individual coverage, unless the state where they live has a high risk pool available.