The Bronze Trap

By Bill Hill

While we wait on the Supreme Court to decide the final outcome of Obamacare, everyone would do well to remember how and why we got into the healthcare financing problem in the first place.  There are no solutions that can fix the problem when the reimbursement or provider payment process provides incentive for utilization. The current healthcare delivery system is basically an open credit line for providers. 

All of the parties involved in any medical care transaction have no interest in limiting the amounts paid out to providers.  Insurance companies make money on cash flow, not risk.  The more money flowing through their books, the more money they make.  Providers limit their practices to the specialties that make the most money per event and hope to offset low payments from government paid plans.  Policyholders are uninformed about the cost of care and have no incentive to manage the utilization.  Employers are the most abused in this social contract as they are forced to fund the system and administer it for free.

The above is just a partial list of reasons why inflation on medical insurance premiums has reached a crescendo in employer budgets.  Medical insurance decisions now come at the expense of someone’s job.  If any vestiges of the Obamacare’s mandated plan designs survive, every employer will find themselves eventually subject to the substantial fines from the government. 

Of the four plan designs allowed under Obamacare, the minimum plan design that can be offered by an employer is the Bronze Plan. This plan can offer a maximum deductible of $2000 and a 50% coinsurance. The Bronze Plan will also have an “actuarial value” of 60% which is going to be determined by some little understood calculation yet to be determined.  The maximum potential expense will also be subject to the poverty guidelines that determine whether an employee qualifies for assistance.

With over twenty years of experience, I can tell you that the most predictable decision for any employer managing a group health plan is to increase the deductible and coinsurance when the premiums become financially unbearable.  Under Obamacare, the employer is left with no recourse other than to maintain the Bronze level of benefits despite the cost.  Once an employer plan exceeds the minimum out of pocket for the employees or breeches the “actuarial value”, the government will impose a monthly penalty for every employee that applies and receives assistance.  So not only will the employer be forced to pay the increased cost of the plan but also pay the $3,000 fine per employee that receives assistance!

Many employers are still under some illusion that they are going to continue to offer their current group medical insurance plans after Obamacare is fully implemented. Unfortunately, it has not occurred to most that insurance companies can only make profit on 15% of group medical premiums and 20% on individual products.  The one question that employers should be asking themselves is: Will insurance companies make more profit on a $400 per month premium or a $1,000 per month premium?

Plan accordingly, dump your group health plan and implement a Defined Contribution Plan before you are forced to do it later when it cost you more.