Decline and Fall of Employer Sponsored Healthcare

Posted by on Jun 1, 2016 in News | 0 comments

In a recent blog post on the importance of choosing your pension actuary wisely, John Lowell provided a succinct history of congressional actions that have led to the current sorry state of private pension plans in America. See https://johnhlowell.blogspot.com/2016/05/the-truth-about-actuarial-valuations-of.html

Employer sponsored health plans may well be on a similar, but much more rapid, path of decline. As John points out, the Employee Retirement Income Security Act of 1974 (ERISA) was the signature legislation that established minimum standards for private pension plans. What may be less well known is that ERISA also laid out rules for self-insured health plans, which exempted them from state regulation. This was largely responsible for the massive expansion of self-insured health plans for large employers that occurred in the late 1970s and 1980s. And, Congress saw that it was good … for quite a while.

Government impacts on employer sponsored health plans

There was some significant federal legislation along the way that impacted employer sponsored health plans, such as COBRA in 1985 and the ill-fated Section 89 in the Tax Reform Act of 1986 (which was subsequently repealed at the end of 1989). But nothing that seriously compromised the value proposition for employer sponsored health coverage, from employers’ perspectives. (Had Section 89 survived, that might not necessarily have been the case.)

Then along came PPACA in 2010. And, Congress saw that it was good … until implementation of the substantive components started in 2014. Most of the angst to date has involved individual and small group plans, on and off the exchanges. But lately there has been a lot of fuss over the excise tax on high cost (not necessarily high value) employer sponsored plans, originally scheduled to take effect in 2018. So much so that it has been postponed to 2020, and both party’s presumptive presidential nominees have said they will “fix” it. There are a number of other PPACA related issues for self-insured plans that will have to be addressed – such as actually defining what constitutes Minimum Essential Coverage.

The future of healthcare plans

Barring outright repeal of PPACA, it is likely that Treasury, CMS, and/or Congress will make rules that make it more and more difficult to operate a self-insured plan – or any employer sponsored health plan for that matter. Which could well lead to a similar decline in employers willing to maintain such plans.

Unlike pension plans, there is little to no pre-funding of healthcare plans. Thus, it is much easier to unwind a healthcare plan and the slope of decline will be much greater than we’ve seen for pensions.

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