At the beginning of 2021, the US rescue plan (ARP) included provisions that increased premium tax credits for those enrolled in Affordable Care Act (ACA) market coverage. This allowed people in all income brackets to receive larger tax credits and extended eligibility to those whose incomes exceeded 400% of the poverty line for the first time.
Premium tax credits were designed to help uninsured people get coverage and help the economy recover from the pandemic. They were intended to artificially reduce the cost of health insurance while allowing people to choose a more affordable plan on the market. These premium tax credits do not actually reduce the cost of care or improve the quality of Health care in America, but it just saves tax dollars to make the cost look lower for qualified people.
The healthcare market saw an unprecedented surge in listings in January 2022. And while the increase in premium tax credits that prompted this listing is set to expire at the end of this year, originally enacted for years 2021 and 2022 tax credits alone, the effect of these increases on premium tax credits signaled that single-payer healthcare may be imminent.
Read more: What the Cut Inflation Act Means for Employer-Provided Health Care Plans
The design was successful. In some ways too successful.
Some companies have noticed the increased value of tax credits on higher premiums and have found that lowering their health care 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 itself from the equation of purchasing health insurance and allows employees to interact directly with the ACA market to secure health insurance coverage (with a forecast of the credit value of tax on the premiums they will receive).
As more businesses understand the financial value that exists for themselves as well as their employees, this trend may continue to grow. Once thousands or millions of Americans decoupled their health insurance purchase decision from their employer and gained access to premium tax credits, we now have a system where perceived value is produced by one party (the US government). In other words: a single payer.
Initially, we found that small businesses with less than 50 employees and non-profit organizations could particularly benefit from this arrangement. This is because there is no employer penalty to deal with for not offering coverage to their employees. Another reason is that the salaries of their employees are low enough that the increase in premium subsidies becomes a significant part of the equation. We’ve seen some employers save half of their budget using this approach.
Read more: Open Enrollment Checklist: The Pros and Cons of FSA, HSA, and HRA Pre-Tax Benefits
What if an employer could opt out of the process of offering health insurance coverage, save money, increase wages with the savings, and still have the ability for their employees to access affordable health coverage. ?
This is the incentive that is currently offered by the increased tax credits on premiums in the ACA market. It is tempting for employers to abandon their health plan and allow their employees to enter the individual market.
As brokers and advisers, we need to be aware that since the increase in premium tax credits has been extended to 2025 under the Cut Inflation Act, this insurance environment Single-payer illness could be a permanent change. Here are some key points to consider as the government continues to come in and influence the industry:
- Employees with employer coverage are not eligible for these subsidies. In an environment where employers find it difficult to offer health insurance, their employees would gladly accept a salary increase over the coverage provided by the employer. Such an approach would allow them to take advantage of subsidies and select the plans that best meet their needs.
- Many business leaders are exhausted by the way health insurance is delivered. They feel they have no control, and it’s a growing problem within their company. Unless brokers/advisors pursue these business leaders with cost containment options that improve quality of care for their employees and reduce costs for employers, expect major change. Giving up on offering health insurance will be the path these exhausted business leaders might take.
Read more: It’s time to update our healthcare communications to motivate and educate employees
- Limits exist for large groups considering canceling their employer-paid coverage due to the employer penalty they would receive. However, if the subsidies are extended or revised, the employer penalty is the only thing that stands between the major groups and simply nullifies their coverage to allow access to the ACA market with a tax credit on increased premiums. I believe the government would be happy to work towards removing the penalty for employers at that time.
- Large health insurance companies that exited the market years ago are coming back after seeing increased 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 be maintained. Increased premium tax credits could be scrapped, made permanent, modified, or become the next major political football that surfaces every few years in American politics.
These grants could be a signal of something much bigger.
Talking about this topic is disconcerting for benefits advisors and employers because it is a major threat to the way we do business. It also signals a seismic shift in our industry and the delivery of employer perceived value to their employees. However, truly successful business leaders and advisors know that with change comes great opportunity. We must therefore be aware of the stakes linked to these specific problems.
It’s hard to predict how this will all pan out, but the momentum of the current trend is building. I believe we are seeing signs of a bigger story happening right in front of us. The more companies and individuals take advantage of this nuance, the more difficult it will be to eliminate tax credits on premiums altogether. This will have made increasing ARP premium tax credits the Trojan horse in some version of a single-payer system.
As brokers and advisers, we have to be ready.