Turning a Competitive Advantage into an Entitlement

The Affordable Care Act is here to stay. Although Republicans have voted to repeal Obamacare dozens of times, the “debate” over its implementation has taken on a sense of theatre. The Federal behemoth continues to chug along. Cancelled policies, the Healthcare.gov website disaster and increasing premiums for private coverage are all just hiccups in a process that appears to be unstoppable.

One facet that has received little attention is the effect of “universal” care on the employer/employee relationship. I know many small business owners who take great pride in their decision to fund health insurance for employees. They see it as a differentiator, especially in industries where employer-provided coverage isn’t the norm. If everyone has insurance, what will take its place in the quest to attract good workers?

The full impact of ACA will take years to be felt by individuals. The Internal Revenue Service does not currently have the capacity (or the mandate) to follow up on those who are uninsured. Technically, they have to pay a penalty and sign up for one of the exchanges, but enforcement has been postponed, and will require a much larger IRS and a massive database before it can really happen. For those workers who do seek out coverage, subsidies will ameliorate the pain of actual premiums, at least for the first few years.

Employers who have traditionally provided health insurance are accustomed to it being an expensive but underappreciated benefit. Healthy employees generally ignore the thousands of premium dollars being spent on their behalf. Those who need care are more appreciative, but copays and deductibles give them the impression that they are carrying a large part of the burden themselves.

The rapid inflation in US health care spending is in part due to this disconnect between the consumer and the payer. Physicians treat patients, but bill insurance companies. Those companies in turn submit their costs and coverage models to government agencies who approve their rates. Since those rates are expected to carry a profit margin, higher costs often lead to greater profit dollars. Attempts to control expenses are perceived by both the provider and the consumer to be indicative of the greed of the carrier, so most have given up on strict controls.

Insurers pass on the higher costs to employers, who hold the actual checkbook in the final analysis, but have little say in the rates, the coverage or the usage of the product.

The decision to cover employees is becoming a Hobson’s choice among unpalatable options. A small business can pay the employee’s premium (say $300 a month), and face questions as to why they can’t just add that sum to the worker’s paycheck, since the worker could purchase subsidized individual insurance for much less. They can share the pain of premium increases up to the limit of the law (9.5% of the employee’s gross salary) and force their workers out into the subsidized government market. In the employee’s eyes, that makes the boss both stingy and uncaring. Finally, they can offer no insurance and stop thinking of themselves as a “better” employer.

Regardless of the option chosen, the halo effect of paying for employee coverage is going to lessen. It isn’t a differentiator if everyone has it.

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