PPACA’s Guaranteed Issue a Potential Remedy for Job Lock: But Some Dangers Lurk for Adverse Selection in Exchange Markets

 

JULY 15, 2013 – 9:28 AM

 

The provision in the Patient Protection and Affordable Care Act (PPACA) that requires insurance carriers to offer coverage to people with preexisting conditions has received a lot of attention from health insurers and consumer advocates. Most in the health industry caution that covering these individuals may raise premiums for everybody. Consumer advocates, however, claim “guaranteed issue” is a vital component of extending coverage to as many Americans as possible.What has not been discussed is the effect this mandated coverage will have on the labor force going forward.Image

“Job Lock” Among Older Workers

With the rising costs of health insurance, a large percentage of people with employer-sponsored coverage refuse to leave their jobs despite serious illness. Before PPACA took effect, Americans who had preexisting conditions would often be unable to purchase a policy upon leaving their jobs. This resulted in many people refusing to quit, even when the burden of going to work was physically too demanding. Advocates now say that sick Americans, particularly those in their 50s and early 60s, can leave their jobs for medical reasons without fear of being denied health insurance coverage.

While workers who quit for medical reasons are forced to purchase their own insurance, which may be quite expensive, they are guaranteed coverage under PPACA and may qualify for subsidies through the applicable state-based or federally-sponsored Exchange depending on their income. Few studies exist on the productivity of workers who stay at their jobs for the health insurance, but one can imagine how the quality of work and overall productivity could be compromised due to illness. Flexibility granted through the guaranteed issue of health insurance has the potential to help both employees and employers by creating a more mobile and productive labor force.

Freedom for Entrepreneurs

Guaranteed issue also provides more flexibility to individuals who want to start their own businesses. Currently, potential entrepreneurs may choose to stay at medium or large companies instead of launching their own firms because of the benefits they receive. In fact, health insurance has become such a large expense that its cost is often a substantial portion of an employee’s total compensation. Employees are often reluctant to surrender these benefits, knowing that they will be burdened with those costs once they leave their company.  

With the advent of guaranteed issue nationwide, people may feel less tied to their employers and may be more likely to start their own business. A recent study by the Urban Institute indicates PPACA will result in 1.5 million more self-employed Americans, which could have a significant impact on the future landscape of the U.S. labor force (click here to view the study).

Potential Issue

One potential impact for individuals who leave the workforce due to medical conditions is the possibility that those with preexisting conditions could flood into the individual insurance market. This adverse selection could result in significantly higher premiums for those seeking coverage in the Exchanges. To prevent this situation, federal officials are promoting Exchanges around the country in an attempt to enroll as many people to spread the insurance risk within Exchange markets. A large pool of enrollees would likely result in lower premiums in the Exchanges. The potential failure to enroll a large number of young, healthy members would have the opposite effect.

We will continue to monitor this issue and keep you informed of new developments as PPACA implementation continues. In the meantime, please continue to subscribe to our Blog to view past blogs and Legislative Alerts. Or, you may always contact us directly at Information@BeWellInsurance.com

The views expressed in this post do not necessarily reflect the official policy, position, or opinions of Be Well Insurance Solutions. This update is provided for informational purposes. Please consult with a licensed accountant or attorney regarding any legal and tax matters discussed herein.

Author: Michael Gomes

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