Robert Johannessen
Corporate Communications Director, eQHealth Solutions
With the looming requirement that more than 30 million Americans who are currently uninsured get health care insurance coverage by 2014, this could signal the beginning of the end of employer-sponsored health plans, as well as TPAs, if employers send their currently insured employees to the new health care exchanges.
But, this scenario might be premature. This follows an analysis of the impact of the Affordable Care Act on employer-sponsored health plans and TPAs conducted by the investment banking firm, Duff & Phelps.
Duff & Phelps reviewed several studies conducted by large compensation consultants and research organizations. The conclusion of these studies is the majority of employers will continue to offer health care benefits to their employees in the years to come.
In their report, Third Party Administrator Insights, Jan. 2012, the firm says the concern of businesses having a healthy and productive workforce is a mission critical component of an organization’s viability.
“Health care benefits are a powerful tool in recruiting and retaining talent,” the report states. “Even if it becomes more expensive to do so, most employers will still want to provide this (health care) benefit.”
The authors also note there is a countervailing argument – because the full impact of health insurance exchanges won’t begin to be felt for another two years, many employers are not yet focusing on the issue or its potential consequences. This perspective is fueled by a study conducted by McKinsey & Co. in 2011 that found:
- Between 50% and 60% of employers with the highest understanding of the ACA would drop employer-sponsored coverage after 2014.
- There is a significant number of employees who would want to negotiate a swap of their health coverage for an increase in salary or other benefits, then purchase their health coverage via an exchange.
Self-interest will be the guiding motivator
Duff & Phelps write that there are still some unknowns, but the key factor is that employees and their employers will not act with economic irrationality.
“Because of economic rationality, we expect that the employees of small businesses, many of whom have no coverage today, will be the most likely to participate in exchanges,” the report states. “Larger employers will look to the medium and long-term implications of continuing or dispensing with employer-sponsored coverage.”
The report says if exchanges represent a better value proposition for businesses by attracting and retaining a productive workforce, employer-sponsored coverage will be at risk. There does not appear to be such value for companies that employ highly-paid white collar workers or those who are bound by collective bargaining agreements.
Still, Duff & Phelps conclude the ultimate decision whether or not to keep health care coverage as an employee benefit will be a decision driven by an economic calculus that considers these three factors:
- The hard cost of the health coverage benefit,
- The “make whole” costs needed to boost salaries to compensate for lost coverage, and
- The costs related to recruiting and retaining a highly productive workforce.
Opportunity for TPAs
For TPAs, there can be opportunity for success. The report suggests that TPAs that can combine a cost-effective billing and claims-adjudication infrastructure where smart plan design and services could thrive. TPAs that can succeed here will be especially attractive for employers who opt for the exchange solution, but quickly find this to be a daunting challenge.
“Where will (these) employers turn for administrative assistance,” the report asks? A nimble TPA just might be the answer.
Duff & Phelps full report can be found at this link, http://www.duffandphelps.com/SiteCollectionDocuments/Reports/Industry%20Insights/TPA_Q1_2012.pdf
