June 16, 2011

One Reason Companies May Drop Health Care

by: Emily Chasan, Senior Editor

A report earlier this week that 30% of companies would be likely to stop offering health insurance under the Obama administration’s new legislation raised some eyebrows, and some objections from administration officials.

But some executives say it’s natural that companies will seek to avoid getting locked into escalating health-care costs. “The employers know that their costs will only continue to increase at the same unsustainable rate,” said Bryce Williams, President and CEO of Extend Health, which runs a national Medicare exchange used by corporations for retiree health care. “This is a function of health-care inflation that employers have been forced to take on over the past few decades. The reform bill for the first time gives employers an interesting outlet.”

Under the Obama administration’s legislation, companies could be fined up to $3,000 per employee for not providing adequate health insurance for their employees.

For some companies, paying the a fixed cost of a penalty may be more palatable than facing rapidly rising premiums from insurance companies, that may rise even higher, if insurers and hospitals need to pass along higher costs. Some companies may worry that in a more government-driven insurance market, insurance carriers and medical providers may have nowhere else to turn but to them to make up for shortfalls in funding.

“They are the only ones that can afford it,” Williams said. “All the other places a carrier can go to find money don’t have the same dollars that the large employer group market has.”

Joyce Kramzer, senior vice president of business operations at Blue Cross and Blue Shield of Florida, says that such cost shifting can already be seen in Medicare and Medicaid today, where reimbursements from government programs are not keeping up with the cost of medical inflation

According to a 2008 study from consulting and actuarial firm Milliman, an estimated $88.8 billion in costs is shifted from Medicare and Medicaid shortfalls to commercial payers annually in the United States.

“If you talk to most providers today and they talk about what they get from Medicare and Medicaid as reimbursement, they will tell you that it significantly lags medical inflation,” Kramzer said recently.

“They come to us as a private sector to say you have to pay us more to make up for the shortfall,” Kramzer added, saying that the issue is getting exacerbated in the run up to the bulk of the Patient Protection and Affordable Care Act taking effect in 2014.