Freedom Benefits University Freedom Benefits University

Evidence that health care spending declined at small companies since 2010

The Urban Institute Health Policy Center released a study this month (October 2012) that shows that spending on employer-sponsored coverage declined since passage of Affordable Care Act . The study titled "Implications of the Affordable Care Act for American Business" is quick to point out that the reduction is not attributable to cost-cutting measures in the law - these mostly affect Medicare - but rather to the accelerate cost shifting of financial burdens to employees. Cost shifting from employers and government to individual health care consumers is widely recognized as a core strategy of health care reform.

Perhaps the largest driver in the cost reduction, not covered in the report, is the massive effort by insurance agents to convert small businesses from defined benefit to defined contribution plans. This strategy preserves the agent's relationship and insulates the employer from future cost increases. Usually this involves adoption of a Health Reimbursement Arrangement (HRA) or Health Savings Account (HSA) combined with high deductible insurance.

The Urban Institute study also indicated that the proposed online insurance exchanges have not yet had any significant effect on the small business health market. The report does not comment on speculation that many small business employers who currently offer health coverage will cancel those plans and send employees to individual health insurance exchanges in 2014. The individual health insurance exchanges will offer premium subsidies for most individuals who apply through an exchange. Since small companies are not required to provide health coverage to employees, there is little risk and now a financial incentive to disband employer-provided health insurance in favor of an uninsured medical expense reimbursement plan or supplemental medical insurance.

The study also shows costs have not decreased for larger employers (over 1,000 employees). This is probably because these employers are less likely to be able to implement cost-shifting strategies used by smaller firms. Employers with 100 to 1,000 employees are predicted to see healthcare costs increase 4.3% this year.

Some industry reviews and public media coverage of the Urban Institute incorrectly attribute the cost reduction to the effects of PPACA despite the author's discussion of these points.

 

Schedule a free call with Tony Novak CPA, MBA, MT to ask how your firm can reduce costs and improve employee satisfaction with your benefit options. No fee for initial consultation.

FreedomBenefits.org web site is independently owned and operated by Tony Novak Certified Public Accountant operating under the trademarks "Freedom Benefits", "OnlineAdviser" and "OnlineNavigator". Opinions expressed are the sole responsibility of the author and do not represent the opinion of any other person, company or entity mentioned. Tony Novak is not an agent, broker, producer or navigator for any federal or state health insurance exchange but may provide uncompensated advice, reviews and referrals to these official resources. Novak is compensated as an accountant, adviser, affiliate, consultant, marketer, reviewer, endorser, producer, lead generator or referrer to some of the commercial companies listed on this site. Information is from sources believed to be reliable but cannot be guaranteed.