Tip of the Iceberg
Most Americans get their health insurance from employer sponsored coverage. But this coverage has been eroding over the last twenty years. The Clinton health reform discussions realized that it was impractical and fiscally impossible to remove employer contributions from the financing of American health care coverage. And in subsequent health reform efforts, there have been a number of programs to shore up employer coverage including the Retiree Drug Subsidy and the Early Retiree Reinsurance programs which subsidized employers who continued to offer retiree medical and drug coverage. These subsidies didn’t stop the troubled auto industry from shifting retirees from defined benefit plans to defined contribution plans and sending their retirees to an early version of a private exchange where they could choose among a number of insurance products. Now with the Affordable Care Act (ACA) health insurance Marketplaces coming on line this October, we are seeing a number of troubled public sector employers seeing an opportunity to unload their retiree health burden. Detroit and Chicago have announced plans to end employer coverage and send their under age 65 retirees to the new Marketplaces to buy health coverage. The savings are substantial, e.g. Detroit could reduce its health care expenditures from $185 million to under $40 million. The new Marketplaces not only provide an opportunity for retirees to easily find replacement coverage, but also avoid a penalty under the individual mandate since they would no longer have employer coverage that qualified as minimal essential coverage. These cities would not face a penalty under the ACA’s employer mandate since the penalty applies to employee coverage and not retiree coverage. Other troubled municipalities and state and local governments are expected to follow suit since they would not only realize huge annual savings but also have an opportunity to offload GASB liabilities and improve bond ratings.
It is hard to predict the impact on the Marketplace risk pools. These retirees are older and may have more health problems on one hand, but on the other hand they have had excellent health care coverage throughout their public sector careers. In addition, the plans offered in the Marketplaces are age rated. But it is one more reason why the young invincibles need to be encouraged to sign up for Marketplace coverage.
Resources
Read Gorman Health Group’s recap of the 2013 GHG Forum, which includes details regarding preparing for the health insurance exchanges. This free download is available on the Point.
Jean LeMasurier provides an overview of key takeaways from CMS’ proposed rule CMS-9957- P-Patient Protection and Affordable Care Act; Program Integrity; Exchange, SHOP, Premium Stabilization Programs, and Market Standards.
The Exchanges will create a large risk pool that will allow risk to be managed more effectively with reduced administrative costs. The final regulation discussed in this white paper references estimates from the Congressional Budget Office (CBO) and more.