As previously published on In Business Madison November 27, 2012 issue
With the 2012 elections behind us, the near-term fate of health care reform just became much clearer. With the re-election of President Obama and continued Democratic control of the Senate, the prospects of the law being repealed are virtually nil. And with the Obama administration now responsible for implementing its signature piece of legislation, it’s a safe bet that the major components of the law will go into effect in 2014 as scheduled.
We have been encouraging employers to begin their health care reform strategic planning for some time, but many employers have understandably been reluctant to do so given the ongoing uncertainty over the law. Now that we know that the law will largely be implemented as written, that strategic planning takes on a new sense of urgency. Employers must start making concrete decisions about what changes are needed for their health plans (and potentially their workforce and business models) to minimize the impact and take advantage of the opportunities under the law.
Of course, there are still many details that need to be worked out in the form of yet-to-be-issued regulations, as well as in the creation of much of the infrastructure – most significantly, the state health insurance exchanges – contemplated by the law. There is also the question of how the health insurance, health care, and employment marketplaces will respond. Employers should brace themselves for a flood of information as government regulators, market players, and other employers start making final decisions in anticipation of the new landscape.
Following are some key issues that employers will need to consider:
- Maintain the group health plan or drop coverage? There has a been a fair amount of speculation about whether employers will simply drop their health plans and send employees to the new health insurance exchanges come 2014. What many may not realize, though, is that this approach carries a number of hidden costs – including potential “play or pay” penalties (see below), lost tax breaks, and the loss of competitive advantage in attracting and retaining top talent – and is often not as cost effective as it would first seem. Employers need to carefully weigh the costs of such a strategy before blindly heading down that road.
- Minimizing “play or pay” penalties. Large employers (50 or more full-time employees) will potentially be subject to so-called “play or pay” penalties if they do not offer affordable health coverage to their full-time employees (defined as employees who average 30+ hours per week). These employers will need to consider appropriate strategies to respond to these penalties, for example:
- Employers will likely need to expand coverage to all employees who work at least 30 hours per week and/or reduce the hours of relevant employees to less than 30 hours per week.
- The existing guidelines for determining who counts as a 30-hour-per-week employee are complex and may require significant new administrative processes if the employer wants to minimize the number of employees who will count as full time.
- Employers may need to increase the amount they contribute toward the cost of health insurance so the coverage is deemed affordable – although in some cases, that cost may outweigh the potential penalties and the employer will be better off just paying the penalties.
- A health plan with higher out-of-pocket costs (e.g., deductible, co-pays, co-insurance, etc.) will generally have lower premiums and may provide an alternate route to providing affordable coverage.
- Community rating. Employers in the small group market (currently fewer than 50 employees but eventually rising to those with fewer than 100 employees) are faced with the prospect of community rating. Starting in 2014, premiums for these groups will no longer be based on the individual employer’s claims experience, but rather by pooling the experience of all small employers in a given geographic region. This is likely to have a significant, but as yet unknown, impact on premiums.
- Plan Design Changes. Several new mandates kick in starting in 2014, including:
- A cap on the maximum out-of-pocket expenses participants may be required to pay.
- A cap on the deductible for small group market employers, which will be particularly significant for employers who offer a Health Savings Account.
- Waiting periods will be capped at 90 days.
- Employers who offer standards-based wellness plans (where employees can earn incentives based on such measurements as body mass index, cholesterol levels, blood pressure, etc.) can increase the amount of the incentive from 20% of premium costs to 30%.
- Cadillac Tax. A little further down the road, in 2018, health plans that are deemed “too rich” as measured by total premium will be subject to the so-called Cadillac Tax. Preliminary analysis shows that a surprising number of employer plans are likely to be subject to the Cadillac Tax, which means employers need to be thinking about steps to help reduce those premiums now (e.g., increasing cost-sharing, introducing wellness programs, reducing or eliminating benefit-rich plans, etc.)
Navigating this new landscape and ultimately making the right decision for their businesses will be a challenging task for most employers. However, with proper planning and guidance, companies can formulate a sound strategy that fits the needs of their employees and organization.