Most businesses are unaware of the real financial impact of the Affordable Healthcare Act… but they soon will.
Businesses that don’t comply with the ACA are going to get caught. Many employers will be shocked when filing their taxes to see the new IRS forms used to apply penalties. These fines include up to $3 million for not filing 1094 and 1095 forms, $2,000 per employee for not providing “Minimal Essential Coverage” (MEC) and a $3,000 penalty for employees who get a subsidy from the exchange. Make no mistake – a number of businesses will have to shut their doors.
The political reverberations will be significant. The ACA certainly expanded coverage to many more individuals, but in many cases, businesses took the brunt of the costs. And worse, the ACA did little to really reduce health care costs.
But, businesses do have a way to fight back.
We can reduce costs and businesses can get affordable care and comply. The answer will come from startup companies that will disrupt the health care status quo.
Let’s start with the problem:
Besides bankrupting businesses, healthcare costs are at 17% of GDP and estimated to grow to 23%. Most economists will tell you that is unsustainable. We are told we have a $3 trillion health care system in the U.S. Many studies say up to 30% is waste, fraud or abuse. In our experience, it’s closer to half. Some of this by design.
Consider this: Hospitals are buying up doctor’s offices en masse, causing doctor shortages, less efficiency and higher billing rates – all of which raises costs. However, the real shocker is that most studies point to hospitals losing from $150,000 to $300,000 for every doctor they hire! Why would a hospital do this? The answer is market share. When hospitals acquire practices, the doctors automatically refer their patients to that hospital, no questions asked.
Imagine the stress when a doctor tells you to check into a hospital. Patients rarely ask about the price. They trust the doctor. They don’t know about the financial relationship between the doctor and the hospital. They are not told the costs or their choices. For the hospitals, this can be lucrative. But, for the individuals and businesses that are paying the premium, it is a leading cause of runaway prices.
Why would insurance companies allow this to continue? Maybe, because the ACA requires insurance companies to spend at least 85% of the premium on health care costs, and to return premiums if they do not. This essentially rewards insurance companies for higher premiums and higher costs. Imagine an insurance CEO who reduced health care costs, only to find that he/she also dramatically reduced margins and stock values by doing this?
Now it might be easy to demonize hospital administrators and insurance company executives. I know many of them, and have found most to be honorable people. Yet the system they operate within promotes the wrong behavior.
So what is the answer?
- A free market: Market efficiencies, reduce costs, require consumers to make choices and understand those choices. Focus on transparency.
- Reduce friction: No industry is more regulated than health care. The ACA, ERISA, GINA, HIPAA, Stark law and the list goes on. Laws protect every group imaginable, except the ones paying the bill. Reduced regulations, streamlining process and making it easy for new companies to disrupt the status quo is the best role government could play. Our new Gov. Ducey has shown a real desire to not only be pro-business, but to help those new disruptive businesses that are necessary to make change.
- Take control of their costs. Most employers don’t realize they don’t have to have a fully insured plan to meet the requirements of the ACA. So what are the options?Provide the basic everyday health care most employees will need and use. This must include MEC, but also should provide for primary care and rehabilitation. The cost of providing such coverage should be under $100 per month. Meeting MEC will relieve the employers of most of the penalties, and the costs can be shared with the employee.
- To avoid the $3,000 penalty for employees who receive subsidies, businesses can 1) self-insure, 2) purchase stop-loss insurance, and 3) meet Minimum Value requirements. These include hospitalization and specialist care with a deductible and co-insurance. They should also hire the right company to manage and lower these costs.
- The real secret to lowering overall health care costs is to reduce hospital costs and help employees compare costs. It’s not uncommon for hospitals to charge five- to 20-times more than other providers or clinics for the same service or supply. Aside from truly emergent situations requiring hospital care, simply helping employees stay out of the hospital will drastically cut costs.
This disruptive concept isn’t possible without a free marketplace that supports consumers’ right to make their own healthcare decisions. However, the real key is for businesses to take control. Employers must know they have choices and demand lower costs – and still demand better health care.
— Paul Johnson, a former Phoenix City councilman and mayor, is the co-founder of Redirect Health, which provides entrepreneurial businesses with affordable healthcare plans that comply with the Affordable Care Act.