Hidden inside this Wall Street Journal editorial there’s a neat explanation of how most “employer-provided” insurance plans are actually paid and administered, at least in the case of large companies:
In an aside in a Federal Register document filed this month, the Administration previewed its forthcoming regulation: “We also intend to propose in future rulemaking to exempt certain self-insured, self-administered plans from the requirement to make reinsurance contributions for the 2015 and 2016 benefit years.”
Allow us to translate. “Self-insured” means that a business pays for the medical expenses of its workers directly and hires an insurer as a third-party administrator to process claims, manage care and the like. Most unions as well as big corporations use this arrangement.
But the kicker here is “self-administered.” That term refers to self-insured plans that don’t contract with the Aetnas and Blue Shields of the world and instead act as their own in-house benefits manager.
Almost no business in the real world still follows this old-fashioned practice as both medicine and medical billing have become more complex. The major exception is a certain type of collectively bargained insurance trust known as Taft-Hartley plans. Such insurance covers about 20 million union members, and four out of five Taft-Hartley trusts are self-administered.
There’s no conceivable rationale—other than politics—for releasing union-only plans from a tax that is defined as universal in the Affordable Care Act statute. Like so many other ObamaCare waivers, this labor dispensation will probably turn out to be illegal.
More than half of all employer-provided healthcare insurance is self-insurance and very, very few companies actually administer the claims themselves. However, unions do. If you add up all of the employers who self-insure plus unions and grandfather their plans, there isn’t a whole lot in employer-supported healthcare insurance left except for what’s been characterized as “substandard plans”, as circular a term as I’ve ever heard.
Right now we’re hearing about cancellations of plans in the individual insurance market but next year the big news will be the cancellation of small group plans.
I’m reviving this old Washington Post piece describing the aftermath of the February 2010 Blair House Healthcare Summit held prior to the PPACA being signed into law by President Obama. The strident and divisive atmosphere surrounding the construction of this legislation is very apparent in this piece — something that has not faded over time. In fact the law is even more unpopular and unseemly today, in it’s IT glitches, winners/losers scenario, and how it is gutting and negatively transforming people’s insurance options — more than anyone could have imagined.
I watched a major portion of that streamed conference, and was struck by how contrived it appeared, reminding me of council meetings I’ve attended, where council member minds were already made up. However, they had to allow public input, feigning interest in the concerns voiced by citizens, although most knew it was nothing more than a government dog-and-pony show, to appease the community. So, it seemed in this 7-hour summit, where the President’s main thrust was “I won. Live with it.”
A comment, though, was made by Lamar Alexander that I have always remembered. He felt big pieces of legislation, such as health care or immigration reform, were better served in smaller bills, rather than bulky, complex comprehensive ones that would be difficult to manage or even understand. His words, IMO, have proved to be prescient, especially given the initial turmoil seen in the PPACA roll-out, with only endless flaws and problems seen on the horizon.
For example, the effect it’s had on the smaller individual HC market is only the beginning of a much larger one, when business plans come into play. Then there are implications brewing, regarding a worsening of risk profiles for 2014 than expected — meaning more sick people being insured raising the costs for insurers and increasing the possibility of a need for a government ‘insurance fix,’ much like what is annually done with it’s ‘doc fix,’ to keep medicare physician payments viable. In other words, the numbers exceed the projections, so they have to be crunched with a ‘fix,’ moving the cost curve quietly upwards.
The PPACA is simply riddled with gimmicks and demographic/cost allusions that make it unworkable except in the eyes of it’s beholder — the social progressives.
Lesson Is Seen in Failure of Law on Medicare in 1989
Deja vu.
That “self-administered” insert is rather disturbing. It’ll be interesting to see how many plans get cancelled around this time next year.
As I pointed out in a comment about a week ago, the small group cancellations have actually started. We (our firm) got our notice. Of course, as I noted, it wasn’t because of a “bad apple” or “swiss cheese” plan, but rather because its a “Cadillac plan,” for which we pay through the nose.
Aside from exposing the lie of “bad apple” plans, it should strike people as odd that a huge premium payer should be forced to drop under ObamaCare given the premium increases for others. It should also strike people as odd that an insurance company (“evil” and “greedy” as they are) would want to cancel the policy of a big premium payer.
If I was a cynic I might think this is really not about sound actuarial science, economics or betterment of the system, but government coercion for political purposes. If, that is, I was a cynic.
Did anyone see Nancy Pelosi over the weekend? I thought only men used “deny, deny, deny.”
Drew, the Cadillac plans are being phased out, but my understanding is that the definition of a Cadillac plan becomes broader over time, until over half of all insurance plans are Cadillac plans in several years. (I’m not sure what the technique is, but I suspect the defined actuarial value is constant, while medical inflation continues)
I personally think Cadillac plans are used at least partly as a tax-dodge by people with high marginal tax rates, so I don’t have too much of a problem with this. McCain proposed taxing employer-provided healthcare insurance in 2008, for which Obama ridiculed him in the debates.
I’m not sure why the ACA operates this way though. Instead of capping the income tax exemption, it imposes an excise tax. Instead of keeping it at a steady position, it will consume over half of all employer insurance at some point. Arguably, employer insurance can avoid the tax by offering less benefits, but reducing benefits seems to contradict what we’re told is happening.
“I personally think Cadillac plans are used at least partly as a tax-dodge by people with high marginal tax rates, so I don’t have too much of a problem with this.”
PD – All I can relay is my personal experience. My personal health care insurance is a “draw” under the LLC, and is taxable at my marginal rate. Further, we provide these “Cadillac plans” to our employees as a straight expense and reduction in draw potential. The truth is we get financially killed here. But its a conscious decision wrt employees, and the law on personal draw.
Of course, as sam has informed us, all us private equity guys are tax scammers. I guess we only decide to run scams when the issue is carried interest, but not scam when we get taxed for health benefits. Schitzo, I guess………
BTW –
My partner and I are exactly the type who will end up with lower premiums, although a lesser plan, and lower expenses I pay for the employees. They have younger kids. And further, I can have an element of “self insurance,” if you wish.
I’m better off, my guys less well off.
This whole thing is so bizzaro you can’t make this shixt up.
@Drew, I am not making a personal claim about you or your firm’s motivations. I can make the claim about myself:
I’ve always purchased dental insurance for myself, considering my history made me a high risk for dental problems, but not for the rest of my family. A few years ago, I handwrote a spreadsheet to compare my dental expenses the previous year without insurance, and what they would have been with insurance for the entire family, including tax incidents. It was actually a no-brainer, and I would save money regardless of the tax benefit, but my plan was to consider them.
Maybe I hate taxes more than most people, but I doubt it, I’ve voted in favor of every tax hike referendum. I will optimize under existing rules though.
Steve and others have discounted the mere 5% of individual HC plans effected by insurance cancellations, citing the greater good of HC reform, and continuing to commend the party who took a “political risk” in it’s introduction. However, as Obamacare plays out, more and more is revealed including the fact that the 5% number is a con job by the administration.
A photo journal of Obamacare.