The Boring Truth on Health Reform

Provisions in the Affordable Care Act, commonly known as Obamacare, will give small businesses the option to purchase health insurance for their employees beginning in January through the California Health Benefit Exchange, also known as the SHOP Exchange or Covered California. In theory, Covered California is supposed to make it easier for small businesses and their employees to compare plans and buy affordable health insurance. Critics fear the opposite, that ObamaCare will prompt companies to drop coverage and force currently covered employees to buy coverage on their own. My experience as a health insurance agent for the past 14 years leads me to believe that the reality will be much different: companies will not drop coverage en masse but neither will Covered California be an effectual tool for businesses seeking to buy health insurance. Currently, businesses with two to 50 employees can purchase health insurance for their employees under AB1672, a state law that governs small business health insurance. Employers have certain protections including guaranteed approval, renewals and rate protections. As long as the employer operates as a company, an insurance carrier cannot cancel them for any reason except nonpayment of premiums. In the small business market, employers can choose among nine carriers that, combined, offer more than 500 health plans, including HMOs and PPOs. For example, Anthem Blue Cross, the largest carrier in the small group market, offers 34 PPO plans and 28 HMO plans among three provider networks. Employers can offer as many plans as they choose for their employees. Clearly, companies and their employees already have a wide choice of carriers, plans and coverage levels. The Exchange is intended to support consumer choice by making comprehensive information about health plans available in an objective, easy-to-understand format, and to enable employers and employees to have a choice of carriers and coverage levels. It will offer four basic plans: Bronze, Silver, Gold and Platinum. And each carrier in the Exchange will offer the same four plans with the same exact benefits, both in the Exchange and through traditional channels outside of the Exchange. The only differentiators are price and the size of the provider networks. Employers can choose a base plan, which is Gold, for example. Their employees then can choose only the Gold plan, but from any carrier in the Exchange. Under this system, a small company working within the Exchange will have only four plans from which to choose. In addition, insurance carriers will offer these four plans as well as a greater breadth of plans outside the Exchange, just like they do now. This makes more choices available for those companies choosing not to work within the Exchange. So why would a business go to the Exchange to buy health insurance? It doesn’t make sense for employers to go to the Exchange. There are many more reasons for small employers to buy health insurance outside the Exchange including lower pricing, more choices and a marketplace that already operates efficiently. According to the California Health Care Foundation, 70 percent of employers with fewer than 50 employees provide health insurance for their employees. Opponents of Obamacare believe that these small employers will drop their health insurance plans and force their employees to go to the individual market or the Individual Exchange, to purchase health insurance. I don’t believe this will happen. Employers offer health insurance for a number of reasons, including recruitment and retention of employees and competition from other employers in their industry. Since competitive benefits are important to employees, I don’t believe that businesses will drop their coverage. If they do, they will have very unhappy employees and a whole set of other issues to deal with. According to a recent survey by Deloitte, only one in 10 companies are thinking about dropping health insurance. The exception may be companies with fewer than five employees that may be inclined to drop group insurance due to cost considerations. Covered California will regulate the four plans and approve pricing both within and outside of the Exchange; however, it will not control other plans outside of the Exchange, where carriers can continue to provide options with different networks at different price points. Given this, I do not believe that Covered California will be able attract employers, nor do I believe employers will drop coverage in large numbers. We only have to look at PacAdvantage, which operated as a quasi-exchange from 1993 until 2006 and faced a similar challenge. It no longer exists. Could this be a harbinger of the Covered California’s future? Based on the history of PacAdvantage and my experience working with 300 companies and their 8,000 employees, the private market will most likely continue to provide most of the health insurance for employers and their employees. Barry Cohn is chief executive of RGEB Employee Benefits in Canoga Park.