One week from today, state-run health exchanges as governed by the Patient Protection and Affordable Care Act are scheduled to open for business. With better pricing transparency and multiple health insurance options the thought process is that the consumer should be able to make smarter and more financially savvy decisions about their own health care options moving forward.
The employer mandate, on the other hand, isn't scheduled to be fully enforced for 15 more months; yet we're witnessing more activity on this spectrum of the PPACA, also known as Obamacare, than we are on the individual mandate aspects of the law.
The employer mandate -- the portion of the law that states that businesses with 50 or more full-time employees must provide health insurance options to their employees or face a fine of $2,000 to $3,000 per employee -- was pushed back in early July as a strategic way for regulators to assess how quickly individual members took to the exchanges as compared to those who chose to go without health insurance and pay the year-end penalty. If you ask me, it was also a way of regulators lightening the load on technology contractors who needed to work at a feverish pace just to get the cloud-based technology in sync with all branches of the government without having to worry about corporate governance aspects as well.
What we've been witnessing from the corporate level in recent weeks is a move squarely away from corporate-sponsored health care and toward privatized individual exchanges set up in such a way that companies can pay their retirees and part-time employees a stipend and allow them to search for health insurance on these private exchanges, or state-run health exchanges, on their own.
You don't have to go home, but you can't stay here
Now here's the interesting part. If you can get over the fact that the move itself appears rather callous -- sending your employees off with a lump sum of cash on annual basis to essentially fend for themselves on the health insurance market -- it's actually a big beneficiary for a majority of workers.
Shortly after taking a closer look at the slow demise of corporate-sponsored health insurance last week, Home Depot (NYSE:HD) announced that it would be ending health care coverage for 20,000 of its part-time workers as a direct result of Obamacare. According to Home Depot, the limited liability coverage those employees can purchase now won't meet the minimum requirements of the beefed up minimum benefits under Obamacare. So rather than boost these employees to full-time status, Home Depot will be giving them an annual cash stipend to find their own insurance on the state-run exchanges.
In similar fashion, IBM (NYSE:IBM) and Time Warner (NYSE:TWX.DL) both announced their intention three weeks ago to move retirees to a privatized health exchange while Walgreen (NASDAQ:WBA) followed suit last week by announcing the move of 120,000 employees to privatized corporate exchanges.
How workers will benefit
So how is being booted from their current plan a positive for the worker? First of all the minimum benefit requirements of Obamacare will ensure a higher level of coverage than most part-time employees previously had. In other words, part-time Home Depot employees that didn't have access to prescription benefits, for instance, may now have that access thanks to Obamacare.
Second, these "reshuffled" workers are, in many cases, going to be given more health plan options than they were offered under their corporate-sponsored plans. As I noted on Friday, Walgreen last year only offered its eligible employees two plans: one from WellPoint and one from UnitedHealth Group. Under the new privatized corporate health exchange, these 120,000 people will have five tiers of plans to choose from which have varying premium levels and should give employees of all age more options than they previously possessed.
Finally, for retirees under IBM and Time Warner's plan, there's a decent chance that Medicare and/or health plan subsidies could give these people more encompassing coverage, or reduce it enough that they can purchase supplemental health insurance (i.e., Medicare Advantage) with little or no extra money out of their own pocket to bridge the gap of what Medicare doesn't cover.
On paper it's a tough buy as it just looks like a callous act by businesses to save a buck, but this move could actually be beneficial to the American worker.
This company is going to benefit in a big way
Perhaps no company, though, stands to benefit in a bigger way than Aon (NYSE:AON), which operates the Aon Hewitt Corporate Health Exchange. As my Foolish colleague Keith Speights noted two weeks ago, Aon enrolled more than 100,000 employees on its corporate health exchange last fall, and varying surveys indicate that somewhere between 30% and 60% of employers are considering some form of shift in benefits for their retirees and/or current employees in the immediate future, leaving open the possibility of enormous additions yet to come.
According to the latest figures, Aon Hewitt has 18 corporate clients with at least 5,000 employees. It recently landed Walgreen with its 120,000 insured employees, and lays claim to Darden Restaurants (the owner of Red Lobster and The Olive Garden) and Sears Holdings.
What makes Aon Hewitt's corporate network so unique is that, like a state-run exchange, it's able to divide up its plan offerings into regions. This means that all 120,000-plus Walgreen employees aren't going to see the same group of plans across the U.S., but will see what's featured on a competitive basis within their region. By breaking into regions you have better price transparency and more competition between insurance which works to save the company and employee money.
Also, Aon Hewitt's network is set up in such a way that participating insurers are protected from the possibility of adverse selection. One very likely theory floating around now is that the sickest individuals that are most in need of care and that don't currently have insurance will likely be the first to sign up for insurance on the exchanges. Aon Hewitt's exchange requires participating insurers to pool money together to protect one or more of these privatized corporate health exchange insurers from being hit by adverse selection should it occur.
If I didn't know any better, I'd say Aon Hewitt could be revolutionizing the corporate health care industry!
But, this question still remains
I said it on Friday, and I'll say it again today: The question of whether company stipends will be able to keep up with insurance premium inflation still remains to be seen. Even if workers benefit with more health plan choices and Aon Hewitt sees monstrous growth in enrollments, companies themselves may find their savings are minimal if premium costs continue to rise.
Another concern here would be that the PPACA was predicated on employers, for the most part, continuing to take care of their employees. In the grand scheme of things we haven't seen millions of employees dumped onto the market or anything that drastic; however the breadth of corporate moves (120,000 from Walgreen, 113,000 from IBM, 20,000 from Home Depot, and so on) is starting to add up. If displaced workers keep winding up on individual health exchanges, or are pushed into part-time hours so an employer can avoid any chance of getting the employer mandate penalty in 2015 or after, there's a chance that the subsidy costs to insure these people could absolutely overwhelm what the U.S. government relative to what it brings in with regard to taxes on upper income earners and penalties for having no insurance.
The bottom line
The rise of privatized corporate exchanges is certainly a trend worth watching as it really has a lot of appeal from a corporate and employer-based perspective. Aon is starting to look like a mammoth beneficiary of this move, but the jury's still out on whether this move will be a net positive for corporations and John and Jane Q. Taxpayer as a whole.