More Money For Health Insurance Exchanges

Avik Roy notes yesterday that the administration has raised the budget request by $111b for the insurance exchanges needed in the ACA to provide premium subsidies. You will remember that last summer when the McKinsey report came out predicting that more employers would dump their health insurance plans than assumed in the original budget proposals that the administration attacked this prediction. This additional budget request for the insurance exchanges would seem to give more credence to that expectation.

What might be the drivers for employees dropping health insurance plans leading to increased demand in the exchanges? They come from the ACA itself.

Benefit Requirements in the ACA will Raise Premiums

In order to meet minimum benefit requirements for credit as a qualifying health plan, many small employers will need to purchase  a more expensive health plan than they do now.

Loss of Agent’s Compensation in the MLR

In deciding what was included in the medical loss ratio targets for health plans, agent compensation was not included. This means that agent compensation will begin the decline, leading to less service per client than now from those agents that stay in business. The role of the agent, especially for small businesses, as an unofficial HR consultant has been overlooked by many commentators. In house insurance company service providers cannot provide the level of service that the agent provided to the employer. This will cause the employer to have to deal with with more insurance related problems on a day to day basis.

In the end, the small employer will realize that it is much easier to simply write the penalty check for not offering health insurance than to deal with the inevitable bureaucracy, the higher cost, and the non-business related problems.

As more employers drop their plans, any stigma associated with not offering a health insurance plan to potential employees will fade away.