“Dumping Sick Employees” – it’s legal but is it right?
A minor but potentially significant omission from the voluminous ACA regulations may result in a material adverse impact on the risk mix and rate stability of the individuals signing up for health insurance under state and federal exchanges. As written, the ACA regulators will allow an employer who can identify their sickest chronic employees to potentially incent those members to drop their group coverage and sign up for the local state exchange. Nothing in the federal regulations today prohibits an employee from waiving their group health care and buying individual coverage on the exchange – an omission that may prove costly for the government exchanges.
It works like this: an employer has a medical plan where a handful of employees are identified with upcoming or ongoing claims in excess of a threshold, say $75,000 a year. These employees traditionally drive 70%-80% of the overall plan cost and contribute to a high rate renewal and the inability of the employer to shop for a different more affordable plan. The employer approaches those employees and offers them a deal. They’re offered an opt out bonus, (maybe a pay raise) and an agreement to pay the premium for the medical exchange plan, which may have a better plan design than their group plan. So, for under $20,000 in incentives, raises and premium payments, the employer successfully off-loads high cost claimants who in turn get great guaranteed coverage from the local exchange for around $6,000 a year. Now the exchange carrier is on the hook for the $75,000+ a year in claims. Not a sustainable strategy for the exchange risk pool.
While the ACA doesn’t explicitly prohibit this “employer dumping” strategy, doing so shifts healthcare costs onto the public. This is likely to lead to higher premiums for exchange customers and higher subsidy expenses for taxpayers. And while shifting high risk workers out of employer plans is prohibited for other kinds of taxpayer-supported insurance like Medicare, the exchange plan strategy is legal, since exchange marketplace plans are required to accept all applicants at a fixed price during enrollment periods. Further, those employers would not face ACA penalties as long as they “offer” an affordable company-wide plan with minimum coverage.
The reality of this happening has precedent. In 2008, under Massachusetts health reform, some consulting firms helped a handful of employers guide high cost employees into the state Connector plan, which had no pre-ex clauses, a 15 day waiting period, and no open enrollment window. In fact those employees could sign up by the month, receive their high cost procedure, and move back to the group plan. A year later, the Mass law was changed to add wording that individuals could only join the Connector plans, if no coverage was offered by their employer. That wording was omitted from federal ACA.
The dumping strategy could be tricky, discriminatory and illegal if executed improperly. The strategy has raised concerns about discrimination and has caused resentment among employees who are not offered the exchange plan option. The strategy is starting to be discussed and tested across the country. Stay tuned.
About the Author
Christopher Nadeau is a Principal at William Gallagher Associates and head of the Employee Benefits Group. Mr. Nadeau counsels his department to develop and redesign employee benefits programs to match the corporate philosophy, long-term needs and objectives of their clients. He is also an industry leader on Healthcare reform and the cost impact and administrative burden on employers.