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EMPLOYER
BASED HEALTH CARE:
A VALUABLE BENEFIT
For over fifty
years, Ohio employers have sponsored and promoted health care benefits
for their employees. However, our successful, employer-based health
care system has recently become the focus of a highly-charged political
debate at both the federal and Ohio level. Politicians are calling for
extensive reform of health care benefit plans, threatening the existence
and structure of the current system. This is the employers' side of
the health care benefit story. Here, the financing and structures of
health care plans will be explained.
A majority of Ohioans receive their health insurance through their employer.
Businesses provide health insurance benefits as a way to help ensure
a healthy workforce and to retain and attract qualified workers. Health
insurance is a voluntary benefit provided by employers to their employees.
It is not mandated by any government. Employer-sponsored plans cover
a wide range of health care services and vary based on structure and
employer requirements. However, no plan covers every health care service
recommended by a physician. Since health care benefit costs make up
almost a third of total employee compensation, some small businesses
are unable to provide health insurance. They simply cannot afford it.
Current Regulation
Employer-based health care benefit plans offered by companies engaged
in interstate commerce are covered by the provisions of the federal
Employee Retirement and Income Security Act of 1974 (ERISA). ERISA requires
that employers offering employee benefits (including health care)
must comply with a complex set of rules, including the overriding fiduciary
principle that employee benefit plans be operated in the best interests
of all plan participants.
Although the requirements are strict, ERISA offers several advantages.
One is that a health care plan meeting ERISA requirements can be considered
"qualified" for tax purposes. A qualified plan's costs are
considered as a federal income tax deduction for the employer and the
value of the benefit is not added to the employee's federal taxable
income. A major advantage, especially for multi-state employers, is
that ERISA contains a broad preemption clause to ensure that employee
benefit plans are not required to comply with various state laws, allowing
uniform health care coverage across state lines.
The employee benefit plans of small businesses operating in one state,
churches and public employers are not subject to ERISA requirements.
However, they are subject to the state regulation of the business of
insurance.
Plan Financing
Essentially, health care benefit plans are financing mechanisms through
which employers pay for certain medical care and treatment provided
to employees and their families. Although there are many variations,
an employer has two basic financing options. The first is to contract
with a health insurance company or a health insuring corporation (HIC)
to provide the healthcare benefits in exchange for a premium (a "fully-insured"
plan). Alternatively, the employer can pay directly for health care
benefits through a "self-insured" plan. Regardless of the
financing structure, no health care benefit plan pays for all of the
medical care and treatment that could be provided to an individual covered
by the plan. It is typical for a plan to have benefit limitations, excluded
services, deductibles, copayments and employee cost-sharing mechanisms.
Fully-Insured Plans
Although these plans are typically utilized by small and mid-sized businesses,
they can also be offered by large employers. These health insurance
plans range in type from fee-for-service to highly structured HMO's
and are purchased through insurance brokers or directly from insurance
companies. It is called a fully-insured plan because there is a signed
contract under which the employer pays a fixed monthly premium to the
insurance company to cover their employees' current and expected medical
bills and all of the administrative costs of the plan. The insurance
company then accepts the risk that the premium will be sufficient to
cover all of these costs. If the costs are less than the premium paid,
the insurance company profits. If the costs are greater than the premium
paid, then the insurance company loses money. Plan results will impact
the premiums which are usually evaluated on a yearly basis.
Fully insured plans are subject to all state insurance regulations including
solvency requirements, taxes and mandated benefits. When states pass
health care mandates the fully insured plan must comply. The cost of
the mandates is not just the cost of a claim if a covered individual
incurs the mandated treatment. Instead, it is an actuarially determined
estimate of potential future cost, built into the premium rate and paid
by the employer regardless of whether a claim for that treatment is
ever incurred. The more regulations passed, the greater the premium
cost to the employer.
Self-Insured Plans
Employers that choose to "self-insure" are usually larger
businesses that are willing to accept the financial risk of paying the
plan costs from corporate assets instead of paying a set premium. Plan
costs include either internal administration or contracting with a third
party to administer the health care benefit plan. They can also purchase
catastrophic insurance coverage (stop-loss) to protect against unexpected,
extraordinary claim costs.
The ERISA preemption for qualified self-insured health care benefit
plans, has exempted these plans from the patchwork of state mandated
benefits and state tort law. As a result, employers can provide uniform
benefits and claims administration to all of their employees across
the country. This exemption has fostered innovation in the health plan
marketplace and has provided employers with great flexibility in tailoring
coverage to their employees' needs.
Conclusion
Ohioans rely on a successful, employer-based health care system to pay
for their health care needs. Instead of considering laws and regulations
which increase plan costs and reduce access to health care coverage,
state and federal representatives should be encouraged to assist employers
in finding ways to expand the availability of plans and reduce the number
of uninsured Ohioans.
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