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The cost of switching to an insurance exchange

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In the debate over health reform, that’s a lot of crystal ball gazing over whether employees will continue to offer health insurance, or send their employees to the new health insurance marketplaces where many could purchase subsidized coverage. While employers would get fined for not providing coverage, those fees would pale in comparison to the cost of paying for employee health benefits.

What doesn’t get much attention is how this change could impact employees. The assumption is they’ll have coverage one way or another, either through their employer or through the exchange. But that glazes over some pretty big questions. For example, for those who receive health benefits now, how much would it cost to move from their employer’s plan to one subsidized by the government?

A lot, it turns out. I spent this morning meeting with executives from Lockton, a Kansas City-based company that consults with mid-sized companies on health insurance benefits. They brought along some interesting charts that show not only how much a company would save, but also how much more employees would end up paying if firms decide to drop insurance coverage.

Here’s a chart that runs through how they expect various provisions of the health reform law to impact the cost of health care in the manufacturing industry. The line to focus on is the last, blue one that shows the cost of “playing,” and providing insurance, or “paying” the fines and not offering coverage, leaving employees to go to the exchange:

For the employer, dropping coverage is a pretty decent deal: A company would see its health care costs reduced by over 40 percent. They don’t drop to zero, however, since the employer would still be on the hook for the fines that come along with not offering coverage.

But for the employee, it’s a pretty lousy deal. Lockton ran the numbers, using data on how much employers pay for health insurance now and how much health insurance on the exchanges is projected to cost.They found that employers foot a significantly larger chunk of the insurance bill than the federal government would, even with the new subsidies they’d receive. The firm predicts their premiums would increase anywhere from 79 to 125 percent if they lose employer coverage and have to go to the exchange. There’s such a big variation because exchange subsidies vary by income: Those who earn less are eligible for a larger subsidy.

That doesn’t mean companies won’t necessarily do it; there certainly is a lot for them to save. It does, however, add another wrinkle to the discussion, where employers would need to explain why their workers’ premiums would see massive increases.

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