Benefits managers are becoming increasingly concerned as they learn more about the components of the newly passed federal health reform legislation that will affect group plans.
Among provisions generating the greatest concern are extending coverage to employees’ adult children until age 26 and to part-time employees who work at least 30 hours per week; eliminating annual or lifetime benefit limits and providing 100 percent coverage for certain wellness and preventive health care services; a cap on contributions to flexible spending accounts and a ban on the use of those funds to pay for over-the-counter drugs; reducing the value of federal subsidies paid to employers that provide prescription drug coverage to Medicare-eligible retirees; and the fact that neither H.R. 3590, the Patient Protection and Affordable Care Act, nor H.R. 4872, the Health Care and Education Affordability Reconciliation Act of 2010, goes far enough to reduce the cost of the health care delivery system.
However, some members of the employer community are relieved that the bill was amended to delay to 2018 from 2014 implementation of a 40 percent excise tax on “Cadillac” health care plans, for which the cost threshold triggering the tax also was increased to $27,500 from $23,000 in previous legislation for families and $10,200 from $8,500 for individuals.
Some benefits experts also are hopeful that provisions aimed at transforming the health care delivery system and emphasizing wellness and prevention could pay dividends for employers.
“NBCH likes all of the health care delivery reform and value-based purchasing provisions,” which “could have a moderating effect on health care costs,” said Andrew Webber, president and CEO of the National Business Coalition on Health in Washington.
In particular, Webber cited provisions that would encourage provider performance measurement and reporting and pay for performance, as well as an increase in the value of rewards employers are permitted to offer employees for participation in wellness and disease management to 30 percent of the cost of single coverage from 20 percent, which is the current limit set by the Health Insurance Portability and Accountability Act.
Helen Darling, president of the National Business Group on Health, a Washington-based consortium of some of the nation’s largest employers, said the final bill was less onerous for employers than its predecessors.
“We can’t just say that we don’t like some things about it so that we shouldn’t reform the insurance market,” Darling said. “The biggest changes [to the legislation] are provisions affecting the individual market, which doesn’t affect employers at all.”
Still, “some of the changes we’re not thrilled with, like extending coverage to adult children until age 26,” Darling said. “We also don’t like the cap on FSA contributions. The ones who use this are those who have health problems. You want them to be able to set aside more.”
Although backers of the legislation insist that extending coverage to more individuals will reduce the amount of uncompensated care, a cost that providers now shift to those in insured plans, most employers remain skeptical that will happen.
Michael Vittoria, vice president of human resources at protective equipment manufacturer Sperian Protection in Smithfield, Rhode Island, cited a June 2009 study by Princeton, New Jersey-based Mathematica Policy Research Inc. that found the 140,000 uninsured Rhode Island residents consume just $2,304 worth of health care per person per year, compared with the $5,340 that fully insured Rhode Islanders use annually.
“Once these uninsured become insured, their health care consumption will begin to look like everyone else’s, and the additional cost to Rhode Island will be about $138 million per year,” he said. “So, as you can see, simply pumping more people into the current system is a recipe for fiscal disaster. We must reform the health care payment system while we are covering more people if we want to make health care reform cost-effective.”
Larry Boress, president and CEO of the Midwest Business Group on Health, an employer coalition based in Chicago, said he was “truly concerned about the future of employer-sponsored retiree benefits” now that Congress has removed the tax break for employers that offer prescription drug coverage equal to Medicare Part D and receive a subsidy from the federal government.
“With the increasing administrative burden on these employers plus the tax on their subsidies, I see the percent of employer-sponsored retiree [health benefit] programs diminishing at a faster rate,” Boress said.
Just last week, Caterpillar Inc. and Deere & Co., two Illinois-based heavy equipment manufacturers that provide retiree health care benefits, announced they will take hefty one-time charges against earnings as a result of the curbing of the tax break.
Scott Clark, risk and benefits officer for Miami-Dade County Public Schools, said that because medical providers are likely to have more insured patients as a result of health care reform, it may be more difficult for self-insured employers to negotiate strategic pricing arrangements.
Gary Watson, employee benefits program manager at the Tennessee Valley Authority in Knoxville, Tennessee, said, “The Cadillac plan tax could make many private plans eliminate choices, which is contrary to our push for more consumerism in selecting medical plans.”
Watson also raised concerns about Medicare cuts. “Any reductions in Medicare payments to providers will be passed along to private plans, therefore increasing our trends over time,” he said.
Kathy Dupree, benefits manager at Core Laboratories Inc., a Houston-based company that serves the petroleum industry, anticipates that the removal of annual and lifetime benefit caps will affect the cost of stop-loss coverage for Core, which buys aggregate and specific stop-loss coverage to pay claims exceeding $250,000.
“The stop-loss carriers are going to pick up that unknown cost,” she said, and undoubtedly will charge self-insured employers higher premiums to cover it.
Similarly, she also expects to see the fees insurers charge to administer self-insured plans to increase as a result of the new tax that will be placed on insurers based on their market share.
Dupree also is concerned about the additional expense Core will incur as a result of the requirement that certain “essential benefit services,” such as wellness and preventive care, be covered at 100 percent.
“Right now we have a $700 annual benefit for wellness, but we pay 100 percent of colonoscopies. So we’ll probably bump it up a little each year so that when 2014 comes it won’t be a complete shock to the system,” she said.
The 2014 requirement that employers extend coverage to any employee who works at least 30 hours per week or pay a fee to the government also is a major issue for Core, according to Dupree.
“Our plan eligibility starts at 40 hours. This will require plan amendments,” she said.
Like many of her employer colleagues, Dupree said she doesn’t think the legislation adequately addresses the major cost drivers of the health care system such as the fee-for-service payment system, which encourages overutilization; lack of tort reform to discourage the practice of defensive medicine; and the high cost of prescription drugs as compared with that paid by other countries.
“My initial hope was that they would start where health care starts, not where it ends up. It ends up with the insurance company adjudicating claims,” she said.
Sperian’s Vittoria expressed similar sentiments.
“The greatest potential benefit for employers of all sizes will only come if we can reform the payment system that currently results in the overutilization of health care services by Americans of all ages. Unfortunately, the current bill did little to address this part of the problem,” he said.