Regrets of ending an employer health plan

This spring, Keith Pitzele ended his company’s health plan and sent his eight workers to the Obamacare exchange.

It was a bumpy experience he’s glad he won’t have to repeat next year.

“To say there were issues with the exchange plans would be an understatement,” said Pitzele, the president of RANAC Corp., which sells and supports medical billing and record systems to physician practices.

I wrote about Pitzele’s decision back in May, shortly after RANAC's previous group health plan had ended. Then I checked back in with him just before Thanksgiving to see how it had gone.

I thought Pitzele’s experience might shed light on a big question in health care right now: whether most smaller employers will end their group health plans, which have been causing them major financial pain for at least the past decade. Or whether most will keep them in place for fear of chasing away good employees—both now and in the future.

The answer could have profound impacts on competition and compensation for workers, on how hospitals and doctors attract patients and make sure they get paid, and on how the federal government forms and finances health care in the future.

RANAC saved significant money by opting for the exchanges—$1,000 per month, even after paying all its employees’ premiums on the Obamacare exchange.

But employees were frustrated by the narrow networks of providers offered on the exchange plans this year, Pitzele said.

Nearly all of his employees chose health plans sold by Anthem Blue Cross and Blue Shield. In central Indiana, those plans did not cover physicians or facilities that are part of the Franciscan St. Francis, Indiana University Health and St. Vincent hospital systems.

Anthem listed less than half as many physicians in the Indianapolis area in its exchange plan network as it listed this year for its small employer health plans.

For example, Pitzele’s administrative assistant no longer had insurance coverage for her kids’ pediatrician, and had to find a new one. Others found that their doctors, working in independent practices, had deliberately not signed up to participate in any exchange plan, for fear they would get stuck with unpaid bills.

That’s because health insurers can’t cancel a person’s exchange coverage until after they have failed to pay their monthly premiums three months in a row. Doctors feared that some patients’ coverage would lapse between the time they received treatment and the time the bill got to the insurance company, which would then reject it.

Pitzele said his employees often were asking their doctors to sign up for the Anthem exchange plan, so they could keep seeing them. Or else they simply found a different doctor.

“That happened pretty often,” Pitzele said. “I didn’t particularly like being on the exchange plans.”

In September, Pitzele sold RANAC to Ohio-based Healthcare Claims Solutions Inc. His employees will remain in Indianapolis doing the same work as before. But starting this month, their health benefits come from the group health plan offered by HCS.

Since the deal was announced in September, RANAC’s employees have been putting off health care needs, so they can be covered under the HCS group plan. Some employees had been delaying care even before they knew about the deal with HCS, Pitzele said, because they weren’t satisfied with the Anthem exchange plans.

“They were hoping they would get through 2014 and hopefully find a better plan in 2015,” he said.

Pitzele said exchange plans being offered for 2015 by Minnesota-based UnitedHealthcare are attractive because they offer the same broad network of hospitals and physicians as the insurers’ employer health plans do. Also, New York-based Assurant Inc. is offering a broad network of providers in its exchange plans.

If Pitzele hadn’t sold RANAC to HCS, he would have been forced to have his employees buy coverage on the exchange again. That’s because Obamacare’s coverage requirements and community rating rules would have made an employer-sponsored group plan far costlier than what RANAC had been paying before this year.

For that reason, Pitzele said, he still expects most employers to end their group health plans.

“I don’t think they’re going to have a whole lot of choice,” he said. “I think it’s going to happen.”

Many others agree. Obamacare offers generous tax subsidies for low-income workers and eventually will hit most employer-sponsored health plans with its Cadillac tax, which begins in 2018.

I’ve discussed this same issue several times with benefits consultant Andy Kaelin at Indianapolis-based KBIC. He thinks that Pitzele is correct in the short-term: Many small employers will exit the group benefits markets because they pay more and more each year for less and less value.

But long term, he added, the employer-sponsored group market will get better at smoothing out the risks of big health bills. And the enormous tax break that still exists for employer health insurance will actually cause enrollment in group health plans to grow.

As evidence, Kaelin cited the example of Masscahusetts, where the number of employers providing health insurance and the number of workers enrolling in it actually grew after Massachusetts passed its Obamacare-style health reform in 2006.

“Once the individual market works itself out and the CFOs and CPAs start to understand the landscape and how to run the numbers, small firms who pay their employees a ‘living wage’ will likely find that the tax haven that is group insurance is attractive again,” Kaelin wrote me in an email. “This is what happened under Romneycare.”