The Patient Protection and Affordable Care Act is sweeping legislation covering 2,572 pages. It’s taken more than two years for experts to analyze the law and described what it really does. The law has the potential to create profound changes in the fire service on how cities and counties will provide health care benefits to firefighters. The traditional employer-provided health insurance could be at great risk.
Let’s take a quick review of the four major legs of PPACA: The major expansion of Medicaid (for the poor), changes in Medicare (for the elderly and firefighter retirees), the implementation of new “health insurance exchanges”, and changes to the private employer-provided health insurance.
Employer-provided health insurance has been a staple of employee benefit packages for more than 70 years. For the most part, labor has negotiated relatively high-quality health insurance plans for their firefighters, and in many cases for retiree’s also, with the city and counties paying a large portion of the premiums.
The new kid on the block that puts this traditional arrangement for health coverage at risk is the health insurance exchanges. Under the PPACA, each state is required to open an exchange by Jan. 1, 2014. If a state refuses, and about half the states have refused to do so, the federal government will establish one for them. The exchanges will be highly regulated, government designed, insurance packages offered by private insurance companies. There are four different plans available from the exchanges — platinum will cover 90% of medical expenses and the lower bronze plan will cover 60% of expenses. The goal of the exchanges is to allow competition with private and employer-provided insurers within the individual states to reduce the cost of premiums. The law does not allow a “national” exchange system.
It is the generous government subsidies in the exchanges that essentially create unfair competition, which in turn, creates the risk of loss of our private employer-provided health insurance. The health exchange insurance begins coverage where Medicaid ends as related to annual income. For example, a family of four with an annual income above $29,327 will be eligible to enroll in an exchange plan. At this base income level the insurance will be highly subsidized resulting in a monthly premium of $49. The amount of subsidy decreases on a sliding scale as household income rises. At the top end, the subsidy ends at a household income of $88,200 and the premium would be $698. Nearly all our firefighters fall within the above income range. The exchanges also offer additional assistance in the form of out-of-pocket limitations on medical expenses before their insurance plan begins to cover medical expenses that further makes it difficult for private employer-provided insurance to compete.
Any American can enroll in an exchange plan even if their income exceeds the $88,200. However, they would not be eligible for a subsidy.
(It should be noted that the figures described above are based in 2010 data. The published income level for 2013 for subsidized health exchange eligibility starts at $31,322 and ends at $94,200. The government has not yet released with monthly premium fees.)
The PPACA creates two risks to the traditional employer-based health insurance benefit for all Americans, as well as the fire service. First, there is risk of losing employer-provided health insurance altogether. This is because the “subsidized” health insurance exchanges are projected to cost less than what can be obtained from the open market and through employers. Revenue strapped cities and counties (and there are more than a few in this country – some facing bankruptcy) may find that the exchanges offer an attractive bargain and choose to drop the employee health insurance. Some experts are predicting between 35 and 50 million Americans will lose their employer-provided health insurance because of the cost difference.
Could this happen to the fire service? Possibly. The law mandates employers with more than 50 full-time employees provide “qualified” health insurance or face a $2,000 fine. The law recognizes the government entity (i.e., city or county) as the “employer” and counts all their employees. Therefore, a small city with 20 firefighters likely would have a pool of other employees that would exceed the 50 employee limit. A small fire district, on the other hand, with only 20 firefighters and a few civilian employees would be exempt from the fine.
Today, the annual cost of employer-provided health insurance easily exceeds the fine, so employers may choose to simply drop the coverage and pay the fine. Even a small fire district, where there would be no fine, may the recognize cost savings of exchanges and choose to drop their employer-provided health insurance. This may leave firefighters to pursue insurance from a health insurance exchange on their own. Or, the employer may drop the insurance and increase wages to offset the cost of insurance obtained from the exchange and still save considerable money. Ultimately, cities and counties could aggressively negotiate a labor contract that moves health coverage to a lesser quality health plan from an exchange in order to save money. These options are a direct challenge to labor negotiated health benefits.
The next risk to employer-provided health insurance from private insurers will also occur in 2014. Today, just over half the private insurance plans sold on the market do not meet the “qualified plan” criteria of the PPACA. To achieve approval, insurance companies must provide additional coverage called “essential benefits” (such as free birth control), often described as a one-size-fits-all plans, that will add significantly to the already rising cost of health insurance. When this happens, all city and counties will be faced with the question of how to pay the additional cost of insurance and the exchanges will become even more attractive.
Then, in 2018, a 40% tax will be placed on “Cadillac” private and employer-provided health insurance plan. This tax was originally scheduled to be implemented in 2014, but national labor organizations strongly objected to any tax at all on these plans. The tax remains but the implementation was pushed back to 2018. Many health insurance plans offered to firefighters today could easily fall under the “Cadillac” category. That tax will be absorbed into the premium and passed on to the purchaser. Many city and counties will not be able to absorb the additional cost, placing such plans in jeopardy.
During the debate over the new law, President Obama declared that if the act was passed Americans would see an annual savings of $2,500 on the health insurance premiums. Today, most Americans have seen the opposite occur with their premiums rising more than $2,500. Some experts predict that by the time all elements of the PPACA are implemented in 2018 premiums may double in costs. Communities offering employer-provided insurance to firefighters will be hard pressed to continue the benefit with the combined rising cost of insurance and the competition from subsidized, lower cost, health insurance available from the health insurance exchanges.
What can we do? First, we must understand that the PPACA law is lengthy, complicated and, in some cases, contradictory. I still is being analyzed by experts. Additionally, the law gives the Department of Health and Human Services very broad regulatory authority — with more than 17, 000 pages of new regulation already written; much of which the public has yet to review. These regulations will affect our health care and costs and could further put employer-provided health insurance in jeopardy.
Since the law was passed, the Department of Health and Human Services has issued a number of temporary waivers to companies to allow them time to comply with the law. The waivers expire in 2014. For the administration to provide some form of waiver to labor to prevent the loss of employer-provided health insurance is unlikely. The subject is too politically toxic today considering the increasing negative views of voters towards labor unions. Further, any waiver issued would risk being rescinded by another administration. The letter of the law does not exempt anyone.
Fire chiefs and union leaders should to team up and join with their agency benefits administrator to closely monitor this evolving situation. Direct contact with their health insurance provider can also bring in an additional level of expertise which can help prepare the department for the future as Obamacare continues to be implemented. The take away lesson is this: Highly subsidized health insurance exchanges, offering lower-cost insurance, will make it difficult for private insurance companies that provide our employer-provided health insurance today to match the lower cost that will be available from the exchanges in the future.