Healthcare Laws Prevent Paying High-Cost Employees to Use Exchange

Many business are self-insured, meaning that they provide healthcare plans for their employees. However, because of the high costs associated with this practice, some companies have been paying employees with significant health issues to opt out of company medical plans and get coverage on the insurance exchange market. Recently, a number of federal agencies have said that this practice is illegal under current healthcare laws.

From a business perspective, it is easy to understand why companies may encourage this practice.  An employee with major health care issues, such as a chronic disease, can accrue hundreds of thousands of dollars in medical costs each year.  If that same employee uses the Affordable Care Act’s health insurance exchange program, their total healthcare costs would only be about $10,000.  The reason for this is that the cost of coverage through the exchange is set at $10,000 regardless of pre-existing conditions.  Therefore, employers are often tempted to pay an employee around $10,000 to enter an exchange, rather than expend (potentially) significantly more than that through a company health plan.

The problem is that when companies pay their employees with high healthcare costs to go through the exchange, this shifts the high costs to taxpayers and other insured individuals. The Department of Labor, backed by the Department of Health and Human Services and the Treasury Department, have said that such shifting also violates current healthcare laws, including the Health Insurance Portability and Accountability Act and the Public Health Service Act because the practice unlawfully discriminates against employees based on their health status.