Get Out Of The Health Insurance Business

I have many years experience in the health insurance industry. Now that we have Obamacare, I thought I should share what I recommend to my clients: GET OUT OF THE HEALTH INSURANCE BUSINESS!

The new health insurance reform bill mandates that employers offer coverage to all employees beginning in 3 years, if they employ more than 50 employees. That’s a straw man. Most employers over 50 employees already offer health insurance.

Health insurance reforms passed in 1996 mandated that insurers guarantee issuance coverage to any employee of groups with less than 50 employees, no matter the employee’s or dependent’s health conditions. That is what has caused the massive increase in premiums for small employers. It is technically called a “death spiral” by the actuaries. But, the practical impact is that 15 years ago, group health insurance cost 30% less than individual health insurance. Today, small group health insurance costs 30% to 50% more than individual policies, for the same coverage, because the insurance carriers must cover prior medical conditions.

Obamacare mandates that individuals purchase health insurance beginning in 2014. The same death spiral will occur in individual policies. But, between now and then, individual coverage will remain substantially cheaper than group. Example: I have one client that is planning to drop its health insurance coverage for their 13 employees and provide an agent to assist the employees in buying individual policies from any insurance company they choose. My client will contribute $100 per month for single employees, and $300 per month for employees with family coverage. The employees will need to pay the rest. In this case, and not atypical, the employee contribution for individual coverage will be lower than their current 30% share of their group premium. And my client will save between $40,000 and $50,000 per year on their cost of the insurance.

The employees will turn in their health insurance premium invoice, and my client will reimburse up to $300 per month. The reimbursements are tax exempt to the employee, just like the group coverage, and they are deductible by my client, just like the group coverage. The only caveat is that the employee does not have the option of taking cash, they must show an insurance bill. By the way, reimbursements done in this fashion are FICA exempt as well, just like group health.

The one problem is employees or dependents with medical conditions might not qualify for individual health insurance coverage, since pre existing conditions will still be excluded, at least until Obamacare takes full effect. Most states already have high risk pools for the purpose of providing coverage to those who do not qualify in the private market (Indiana, where I live has such a pool). Obamacare is implementing a federal/state high risk pool right away for those states that do not. The premiums in these plans can be higher than the private market, even though they are subsidized, but the employer can increase wages to compensate.

The rate spiral that has tripled the cost of small employer health insurance will simply continue, probably accelerate. Individual policies are dramatically less expensive, at least for now. We will see how it plays out after 2014. But for now, small employers that stop offering group health insurance can save thousands (per employee!), the employee can save on their own portion of the premiums, and the employer is forever out of the health insurance business, at least until they have 50 employees (which is a good problem to solve another day).

GET OUT OF THE HEALTH INSURANCE BUSINESS!