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Reduction Act Guide
How Health Benefits Can be Leveraged for Employers Through The 2022 Inflation Reduction Act
What is the Inflation Reduction Act?
The Inflation Reduction Act was passed by Congress and signed by the President in August of 2022. Included in this bill are profound benefits for employers as they relate to lowering healthcare costs.
Specifically, the Inflation Reduction Act ensures the cost of individual health plans stays even more affordable than before, and employers should take advantage of this to lower expenses and improve coverage as a benefit to their employees.
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How Does the Inflation Reduction Act impact health insurance?
This legislation helps both individuals and employers.
There are a whole bunch of big things included inside of the latest budget reconciliation named the Inflation Reduction Act. This legislation addresses many large issues. From climate change to taxes to prescription drugs to electric cars and so many more items in between. It is difficult—if not seemingly impossible—for employers to make sense of it all. Let alone actually discover some of the most meaningful and impactful items to their own organization.
One of the most significant impacts, yet largely unnoticed, help Americans with one of the greatest issues they face: health insurance! The benefits from this legislation do not only help individuals, they also help employers. This guide to the Inflation Reduction Act for employers explores the opportunity, the problem, and the solution you can find to leverage the new law for their team, specifically around how they can improve coverage and save money on their employee health benefits.
quick history of individual health benefits.
Group health benefits have been around for almost 100 years.
Did you know that group health plans were only invented because of wage caps from World War II? If you didn’t, then it’s important to remember the Stabilization Act of 1942 which froze pay levels for all employees. This meant employers had to find other ways to attract and retain employees. Enter group health benefits.
This happened almost 100 years ago! So it should be no surprise to see that the economic model broke along the way, multiple decades ago. Today, group health plans are worse and more expensive than ever. And of course, costs go up over time—that is just economics. But the worst part is the overall percentage of median income that is being drained out of employee total compensation.
It shouldn’t surprise us that this traditional group health benefits model is broken. We don’t purchase one single product the same way we did a century ago. But for some reason, people are stuck in this old-fashioned, outdated system of delivering health benefits. So it’s no wonder that a newer, better, and cheaper opportunity was finally developed to replace it.
Let’s talk data: on the flip side of the health insurance spectrum, individual health plans have been winning for a long time. Since the passage of the Affordable Care Act in 2010, offering individual plans (instead of group health plans) have been increasingly beneficial for both individuals and employers. It’s no surprise, considering that traditional group health plans are 4X as expensive as they were just a decade ago.
Not only are group health plans more expensive, they aren’t working. How do we know this? Look at the results:
- Medical debt has nearly doubled since 2016.
- Nearly half of Americans with medical debt have <$10,000
- 2 out of 3 bankruptcies are because of medical bills
The data show that only a small percentage of Americans are actually uninsured—which means that most Americans are covered under one of those old group plans. Therefore, the results we have seen are directly connected to the broken model of group health plans. And with inflation being at an all time high, this is precisely why the government has invested resources where Americans are already winning.
Benefits have already changed like this before. Pension changed into 401(k) plans in the 1980s. There was plenty of pushback then, too. If you look at the historic data trend, anyone could have predicted being here with old group plans a long time ago. While it’s certainly been delayed, thankfully, we’ve finally arrived at better and cheaper health benefits options.
The Opportunity: Individual Health Benefits Are Cheaper And Better.
Individual health plans are cheaper.
Individual health plans are cheaper because its economic model works better. There are multiple factors at play, but two or three are worth mentioning.
The Law of Large Numbers simply means that as a group size increases, the impact of one negative event goes down for the whole group—which means that there are more healthy dollars going into the pool to cover the cost of the negative events by others. For example: 2.7 million people are enrolled in individual health plans in Florida. This is beyond comparison to even large employers with just 270 employees who are in their own self-funded risk pool.
Supply and demand simply shows that the more consumers there are for a particular product, companies have to lower their prices to draw the attention and incredible size of the consumer crowd.
2022 saw a record high enrollment in individual health plans, reaching 14.5 million total participants. Because of this, for the fifth year in a row, individual plans have dropped in costs and are 34% cheaper than their counterpart group health plan equivalent (which is, at a minimum, $4,570 more expensive per year).
Individual plans also have subsidies, which make their costs even lower. These “subsidies” are actually just tax credits, which have been a very normal—and bipartisan—mechanism of helping Americans. Tax credits go as far back as 1975 with the Earned Income Tax Credit and 1997 with the Child Tax Credit. The particular subsidy that helps with individual health insurance plans is called the Advanced Premium Tax Credit.
These premium tax credits are on a sliding scale depending on the key details of the household. The data show that 79.5% of Americans actually qualify for some level of discount, and the total monthly premium for coverage averages just $376 per month. (Compare that to $562 per month for a group plan.)
Subsidies were made permanent in 2010 with the start of the Affordable Care Act. And when we say permanent, we are referencing that the ACA was passed the same way that the Social Security Act was passed. As much as you can expect those checks to arrive for people 65 years and older, we can expect that subsidies will also be here to help Americans with their health benefits.
Subsidies were originally enhanced during the pandemic with the Covid-19 relief bill called the American Rescue Plan Act of 2021. The ultimate goal of enhancing the subsidies was simply to help Americans avoid losing healthcare coverage in the middle of a public health crisis. But what happened was even better than originally intended; these enhanced subsidies caused enrollment rates on individual plans to skyrocket! As a result, prices dropped further, and more people found cheaper and better healthcare options.
These same subsidy enhancements were then sustained by the Inflation Reduction Act of 2022 as the government saw record-high enrollment on the individual marketplace. And if we recall the Law of Large Numbers, higher enrollment means lowered costs and lower risk! It just makes more sense than old group health plan models.
Individual health plans are better.
Better is a subjective term. What is important to one person is not always as important to another. Which is why we need to define what is actually better when it comes to health benefits for employees. And not just what is better as a product to deliver to employees, but what is better in terms of recruiting and retaining the top talent.
Better means less risk. Do you recall the data above about medical debt and bankruptcy? This is the biggest issue we have to address for employees. Better means they have what they need. But they don’t have what they need because they still get medical bills even though they have health insurance.
Remember that even when you have health insurance, you still have medical bills that come with it! Deductibles have grown by 68% very quickly. So any solution that employers can find to lower the net-risk of their employees’ medical risk is certainly the way to build better.
Better means help with medical bills. Which is why paying less on the actual premium and unlocking tons of cash moves beyond just the monthly payments, but instead toward the actual care of employees.
If you could save $7,000 this next year on your employee’s monthly plan cost, what if you turned some—let’s say $3,500 of it—into just reimbursing actual used healthcare. Meaning, what if you allocated half of that savings toward helping your employee when they actually need it?
First, you’d still save money either way. Second, your employee has it if they’d need it. Third, you would only payout that reimbursement if it was actually used. Not everyone needs help every year. But by having that failsafe in place, you have immediately made your plan more attractive—better—than all the other options out there for your team. They have dollars for medical bills when they need them, and you’ve still saved money that you can put back into the budget.
Are There any potential problems with the iRA?
Complying with the rules is the most important factor.
It is obvious that there is an incredible opportunity available to leverage the Inflation Reduction Act for employers and begin to help their employees access individual health plans. This model is simply more beneficial in cost and coverage, which means it’s certainly worth the time of any organization of any size to begin evaluating. But just because there is a viable opportunity doesn’t mean there aren’t potential problems along the way.
Complying with the rules is one of the most important factors to take into consideration for any employer, of any size, at any time, no matter what they’re working on. Employers can face lots of problems when they fail to follow the protocols provided to them by the governing authorities. Not just from a regulatory standpoint, but even at the civil level, employees have significant protection when it comes to their benefits.
IRS guidance has been provided since 2015 for employers of any size to leverage individual plans. Everything from pre-tax to post-tax solutions have been provided from both Republican and Democrat administrations. But as any good leader of an organization would know, for anything to do with taxes and the IRS, it would be extremely unwise to alone. After all, that is literally why an entire industry has been developed—from CPAs to TurboTax and everything in between. The only way to know for certain that you’re not at risk of the problem of noncompliance is securing the right help.
Calculating the right contributions and costs, along with any applicable taxes is even more daunting than the compliance features. Ensuring that your team has access to the right amount of money—and that your benefit design does not preclude them to the continued enhancements of the Advanced Premium Tax Credits—is perhaps the most complex part of all. Why is this? Because individual plans have individual prices based on individual people. Thankfully, there are safe harbors by which employers can very much calculate the numbers accurately and successfully ensure access to those better and cheaper plans. However, it does not come easy. If you’re not a computer programmer or algebra professor, you’d probably feel pretty out of your league for the thousands of rows on the provided calculation spreadsheets.
Group health plans kill tax credits for health insurance. This concept of managed individual plans cannot be considered a mere bolt-on solution for a select number of your employees. This is a replacement of the old and an installation of the future (that’s already been happening the last decade, of course). Remember how we mentioned above that 70%~ of Americans qualify for the Advanced Premium Tax Credits subsidies to discount the cost of their individual health insurance plan? Well, if the employer is still stuck in that old fashioned method of delivering health benefits to their employees, then that group health plan removes all eligibility for any extra assistance on lowering the cost of the plan.
Consulting for your employees is extremely important, too. If you thought compliance and calculating the right numbers for each and every employee was hard enough, the scope of options to employees is equally as problematic without the right help. This is because the average American has access to a minimum of 5 insurance companies and 53 different plans to choose from! If you thought you were confused at your last open enrollment with minimum old group plan choices, think of how this could feel without support. Finding the right plan for the right price seems like an ideal solution, but it doesn’t come without the need to solve the big problem of the lack of insurance literacy for most Americans. 96% of us don’t even know the difference between copay and coinsurance.
Coordinating payments for employees is the final problem. Even if you can stay compliant, calculate the right contributions, and get teams the consultations that they need to find the right plan and actually get on that plan, there are other issues to consider. How in the world do you coordinate the monthly premiums actually being paid, let alone ensuring those dollars actually get to those employees and funelled toward their new individual health plan? The risk of an employee missing their payment—or sadly perhaps skipping one month out of need—is a large liability. You have to make sure your team is protected, supported, and assisted—especially with their insurance premiums.
With great problems come great possibilities—and these great possibilities bring forth amazing solutions!
The Solution available to employers & families.
There is software that helps you solve these problems.
We have worked through a lot of history, details, opportunities, and complexities on the suggestion that group plans have effectively been replaced by individual plans managed together. We have also worked through the problems that you would face if you did not have the right tools to accomplish everything that’s possible.
You are the hero of your organization—you are the person who looks for the right tool to solve the big problem.
Remodel Health is your tool—software that helps you solve each of these problems and unlocks the full potential of the opportunity ahead of you: 30-50% of savings off your toppline costs toward health benefits. And from there, you have the solution to build better health benefits than your team has ever experienced. You will attract and retain top talent using health benefits. Ironically, similarly to what was promised all the way back 100 years ago when group health plans promised this—the same is now actually true again.
How does it work? The best tools are specifically designed to solve specific problems. Our software has been designed over the last 6 years to address each opportunity and present itself as the premium offering for employers of any size to leverage each next improvement to health benefits. Here are the top features:
Design & Compare — discover equivalent coverage compared to your old group plan, review exact prices and design budget strategies across multiple options for lowering risk to your team and saving on topline cost
Tax Calculations — ensure all tax situations, for both individuals and the employer, are evaluated through our proprietary algorithm; payroll taxes, large employer shared responsibility payments, and more are all handled.
Shopping & Enrollment — enjoy a curated shopping experience that guides each employee to the exact plan that fits their specific needs best.
Autopay & Group Bill — monthly premiums are handled automatically by payroll deduct and one group bill, so you unlock all of the power of individual plans with all the convenience of being organized as a group.
Online Portal — plan documents, training videos, contact details, digital insurance cards, all digitally available.
Year-Round Support — you no longer have to answer every question from your staff and their families, but instead provide them with licensed personal support to get them answers for their plans when they need it.
Next step is to run a no-risk analysis of your current group health plan against managed individual plans. Don’t self-select out—you don’t know what you don’t know. Where you are right now is a direct result of the tool you’ve currently been using to solve your big problem. All the while, right now here in front of you is the greatest opportunity you’ve had to protect your team better than ever. We’d love to help you take that first step of learning and getting all of your questions answered within the context of your own team’s data. Reach out to us and get scheduled today for a free consultation to review the real opportunity before you to save $5,000 to $7,000 per employee annually this next year ahead of you.
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