By Ben Conner August 31, 2022
In early 2021, the American Rescue Plan (ARP) included provisions that increased premium tax credits for individuals enrolled in Affordable Care Act (ACA) marketplace coverage. This allowed people of all income brackets to receive larger tax credits and extended eligibility to those with incomes above 400% of the poverty line for the first time.
The premium tax credits were designed to help uninsured people gain coverage and help the economy recover from the pandemic. They were meant to artificially reduce the cost for health insurance while allowing people to elect a plan that was more affordable through the marketplace. These premium tax credits don’t actually reduce the cost of care or improve the quality of healthcare in America, but it simply allows for taxpayer dollars to make the cost appear lower for qualified individuals.
The healthcare marketplace saw an unprecedented increase in enrollment in January 2022. And although the increased premium tax credits that drove this enrollment are set to expire at the end of this year, originally passed for tax years 2021 and 2022 only, the effect of these increased premium tax credits have signaled that single-payer healthcare could be right around the corner.
The design was successful. In some ways, too successful.
Some businesses have noticed the increased value of higher premium tax credits and discovered that dropping their healthcare plans and allowing employees to purchase health insurance coverage through the exchange has added financial value to their employees as well as their organizations. In this approach, the employer removes themselves from the health insurance purchasing equation and allows the employees to interact directly with the ACA marketplace to secure health insurance coverage (with a forecast of the value of the premium tax credit they will receive).
As more businesses understand the financial value that exists for themselves as well as their employees, this trend could keep growing. Once thousands or millions of Americans decouple their health insurance buying decision from their employer and have access to premium tax credits, we now have a system where the perceived value is being produced from one party (the American government). In other words: a single payer.
Initially, we have found that small businesses under 50 employees and nonprofit organizations could especially benefit from this arrangement. That’s because there is either no employer penalty to manage for not offering coverage to their employees. Another reason is their employee wages are low enough where the increased premium subsidies become a meaningful part of the equation. We have seen some employers save half their budget using this approach.
What if an employer could remove themselves from the process of offering health insurance coverage, save money, raise wages with the savings and still have the ability for their employees to have access to affordable healthcare coverage?
This is the incentive that is currently being offered through increased premium tax credits in the ACA marketplace. It is tempting employers to drop their health plan and allow their employees to enter the individual marketplace.
As brokers and advisers, we need to be aware that since the increased premium tax credits were extended until 2025 under the Inflation Reduction Act, this single-payer health insurance environment could be a permanent change. Here are some key points to consider as the government continues to enter and influence the industry:
- Employees who are offered employer coverage do not qualify for these subsidies. In an environment where employers struggle to offer health insurance, their employees would happily take a wage increase over employer-provided coverage. Such a move would allow them to take advantage of the subsidies and select plans that best suit their needs.
- Many business leaders are becoming worn out with the way health insurance is delivered. They feel they have no control, and it is a problem that is continuing to grow inside their business. If brokers/advisers aren’t pursuing these business leaders with cost-containment options that improve the quality of care for their employees and lower the cost for employers, then expect major changes. Giving up offering a health insurance plan will be the route these exhausted business leaders may take.
- Limitations do exist for large groups considering canceling their employer-paid coverage because of the employer penalty they would receive. However, if subsidies are extended or revised, the employer penalty is the only thing standing between large groups and simply canceling their coverage to allow access to the ACA marketplace with an increased premium tax credit. I believe the government would be happy to work on removing the employer penalty at that point.
- Large health insurance companies that left the marketplace years ago are re-entering after seeing stronger enrollment and a more stable environment. This signals a more permanent position.
- A decision will be made soon if these increased premium tax credits will remain. The increased premium tax credits could either be removed, made permanent, changed or become the next major political football that surfaces every few years in American politics.
These subsidies could be a signal of something much bigger.
Talking about this topic is unnerving for benefits advisers and employers to consider and think about because it is a major threat to the way we do business. It also signals seismic change in our industry and the delivery of perceived employer value to their employees. However, truly successful business leaders and advisers know that with change comes great opportunity, so we better be aware of what the stakes are with these specific issues.
How all of this will play out is difficult to predict, but the momentum of the current trend is building. I believe we are seeing signals to a greater story that is happening right in front of us. The more businesses and individuals who take advantage of this nuance, the harder it will be for the premium tax credits to be outright removed. This will have made the increased premium tax credits in the ARP to be the Trojan Horse into a version of a single-payer system.
As brokers and advisers, we need to be ready.
President And CEO, Conner Insurance