To enroll or not to enroll? That is the question
by David Bottoms
March 03, 2014 12:03 AM | 5657 views | 0 0 comments | 9 9 recommendations | email to a friend | print
One of the central premises undergirding the passage of the Affordable Care Act was that the roughly 50 million Americans without health insurance wanted to have it and would enroll when provided the opportunity to do so. However, my personal observations, which are now reinforced by the Congressional Budget Office's projection that only 5 million Americans are expected to enroll in private individual health coverage in 2014, are beginning to draw the validity of that premise into question. 

The suggestion of a flawed premise within the foundation of the ACA may seem politically provocative; however, for employers, health insurance enrollment trends provide much more than political fodder. They provide critically important budgetary insight. 

Specifically, in 2015, large employers will be required to offer health coverage to all of their full-time employees. 

This means that many employers who previously extended coverage to only a small sub-set of employees will have to significantly increase access to the employer health plan. 

Accordingly, most employers have developed projections for the 2015 plan year assuming a high percentage of their newly eligible employees will choose to enroll in the employer health plan. This assumption brings with it the expectation that employer investment into health plans will have to increase as more employees avail themselves of the opportunity to enroll. 

If fewer newly eligible employees enroll in employer plans than was previously expected, the cost of compliance with the ACA will be significantly lower than most employers have projected.

In order to get a handle on what can be expected in the employer market in 2015, it is first important to gain an understanding of what is happening in the individual market in 2014. While the flawed rollout of the Federal Insurance Marketplace did not do much to help facilitate high enrollment in the exchanges, it is becoming increasingly obvious that the individual mandate penalty is doing very little, at least at its current level, to compel individuals to enroll in coverage. 

Rather, it appears that those enrolling in the individual market tend to be older, and presumably sicker, than many insurers had initially expected. In other words, those enrolling in coverage appear to be those who know they are going to use it. While there is a chance that there will be a flood of the "young invincibles" to balance the risk pool as the open enrollment deadline approaches on March 31, this is by no means certain as many of these citizens simply find the coverage available under the Affordable Care Act to be unaffordable both from a premium and plan design perspective.

Furthermore, and perhaps even more interesting is the fact that many employers made the decision to go ahead and roll-out coverage to all full-time employees effective 1/1/2014 and align their base plan designs and employee premiums with what will be required by the ACA in 2015.

The enrollment results have been surprising. By and large, employees with moderate to high incomes maintained their enrollment in the plans; whereas, the newly eligible, generally lower-income workers have been waiving coverage in large numbers. 

There are many potential reasons for this enrollment behavior. Perhaps some of the most obvious reasons are that moderate to high income earners recognize a personal need for insurance protection and value the enhanced benefits and pricing within the employer market, especially when the pre-tax nature of premiums within the employer framework is considered. These people have, by and large, had coverage previously and they want to keep it.

Conversely, the almost universal feedback I have received during enrollment meetings from employees who are being offered coverage for the first time, the vast majority of whom are on the lower end of the income scale, is that they simply cannot afford to pay 9.5 percent of their income for an insurance plan that will leave them on the hook for up to $6,250 of annual out-of-pocket costs. 

Based on enrollment meeting commentary, the small percentage of newly eligible employees choosing to enroll are validating their decision to do so on the fact that they know they have major health expenses on the horizon and, as such, it is in their best interest to purchase insurance to offset the costs of their known expenses. 

However, the vast majority of newly eligible individuals are simply waiving coverage. Absent an awareness of imminent health concerns, they reason that they have not had coverage in the past and they are content to remain uninsured. 

If hindsight confirms these observations to have been accurate representations of national enrollment behavior, ACA's ability to reduce the ranks of the uninsured are anything but guaranteed. However, for employers who are losing sleep over fears that expanded health plan eligibility will significantly cut into their ability to make a profit, the lackluster plan enrollment for these newly eligible employees may be cause for relief. 

David Bottoms is senior vice president of The Bottoms Group and a principal of TBX Benefit Partners.

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