The impact of Obama’s healthcare revolution on private medical insurance

The US president’s proposed reforms could have big consequences for employer-provided medical insurance, says Nicola Sullivan

If you read nothing else, read this..

  • President Obama’s health reforms are still proposals, but they will impact employers.
  • Employers could be fined for each employee they fail to insure. Organisations with 25 or fewer staff would receive tax credits to help cover the cost of insurance.
  • Insurers would not be able to refuse cover because of medical history, or water it down for people who are seriously ill.
  • There are concerns that government-run public healthcare could force employers to drop private provision.

President Barack Obama won a key victory in achieving universal healthcare reform in the US last month after the Senate’s finance committee backed his $829bn healthcare bill by 14 votes to nine.

Under the proposed reforms, insurers would be prohibited from refusing any person cover because of their previous medical history, and prevented from watering down cover for people who are seriously ill.

As the US healthcare reforms stand, uninsured individuals who fail to buy a policy would face a financial penalty of $750 to $1,500 a year. The maximum fine would be set at $3,800 a year per household.

American employers, meanwhile, could be liable to pay up to $400 a year for each employee they fail to insure. It is proposed that smaller organisations with 25 or fewer staff would receive tax credits to help them cover the cost of employees’ insurance.

Reduce the cost

Supporters of the reforms say they are needed to reduce the cost of healthcare in the US, which was estimated at er-sponsored health insurance premiums are estimated to have doubled in the past nine years. A report published by Hewitt Associates in September this year, Healthcare reform: the perils of inaction and the promise of effective action, said: “The cumulative effect of years of explosive healthcare cost increases now threatens the employer-based system. Rising costs are hampering the ability of American companies to compete in the global economy.”

But there are doubts over how quickly the reforms would deliver cost savings on healthcare. Mike Blake, compliance director at PMI Health Group, says: “The plans of the Obama administration to toughen regulations and impose conditions on health insurers, ensuring that people with pre-existing conditions cannot be refused cover and preventing insurers from dropping people’s coverage when they get ill, are laudable but will increase the likelihood of rising health insurance costs, at least in the short term.”

European schemes

US employers can get a feel of how statemandated healthcare insurance operates by looking at similar schemes in Europe. For example, systems in Germany and The Netherlands impact on the treatment of health insurance policies for expatriates based outside those countries, who may end up with two sets of health insurance.

Tim Slee, sales director at Bupa International, says: “The Netherlands has a mandated basic [health] insurance that everybody has to buy. If an employee has a social security number and is drawing a pension, wherever they are in the world, they still have to buy that basic insurance.”

In the US, debate continues over whether a government-run public healthcare plan is the best solution. The government-regulated option on the table has been heralded for its large-scale purchasing efficiencies and for offering standardised and easy-to-understand benefits, but there are fears it could force employers to stop providing private healthcare benefits.

In his paper Point of view, levelling the healthcare playing field, published in July this year, Ken Sperling, global health management leader of Hewitt Associates, says:

“If the government lets employees opt out of their employer’s plan and take their company subsidy with them, employers will still be writing big cheques but have no say in how this money gets spent. “If you are an insurance company, you have got another competitor that does not have to play by the same rules. It can set its reimbursements (and corresponding price to consumers) at 30% less for comparable benefits. That could undercut private insurance plans by thousands of dollars a year.”

Too expensive

So, over time, employers might drop coverage because there would not be enough staff in a healthcare plan, making it too expensive to justify, says Sperling.

Instead, he advocates a system whereby the US government sets a single set of rates that everyone pays to Medicaid, an existing means-tested healthcare programme partly funded by the federal government. This would protect the insurance market and “create a true level playing field for both public and private plans”.

With a long process before the bill becomes law, only time will tell if the reforms, as they currently stand, come to fruition.

Click here for more articles on healthcare and wellbeing