Workforce.com

2014: A Health Care Odyssey

September 1, 2011
It has been 18 months since the passage of the Patient Protection and Affordable Care Act—better known as health care reform—and most businesses have made few, if any, changes in the delivery of their health care benefits.
However, major provisions such as penalties for not covering full-time employees and the creation of public and private health insurance exchanges to broker coverage will take effect in 2014. So employers and benefits managers will soon need to make strategic decisions including whether to offer health care at all.
"Most employers are confused right now and need more time to understand how this legislation will affect their businesses long-term," says Dorothy Miraglia, vice president of strategic benefit solutions for human resources outsourcing provider AlphaStaff Inc. in Fort Lauderdale, Florida. "There's no single answer, because offering coverage after 2014 depends on many factors, and as a general rule, companies want to remain competitive and attract the best talent."
Miraglia says that although employers are never happy about increased legislation, they understand there's a cost to doing business. "We're advising clients to look at a number of "what if" scenarios to determine where they want to be in three to five years. Right now, there are still so many unknowns with the legislation. However, we do know that in some industries with high workforce turnover, such as retail or hospitality, offering health care coverage may not be feasible in the long term."
According to a survey of 368 large companies by Towers Watson & Co., about 45 percent will rethink their long-term health care strategy during 2012, and many are uncertain how they will respond to the looming impact of state-based insurance exchanges in 2014.
Consumer-driven plans
Some employers, such as Columbus, Ohio-based consulting firm Sequent Inc., are leaning toward consumer-driven plans. They allow employees to use personal health savings accounts, or HSAs, or other medical payment products to pay for routine expenses, while a high-deductible health insurance policy protects them from catastrophic costs. Sequent CEO Bill Hutter believes health insurance costs will increase dramatically as a result of the legislation, which will force businesses to shift the way they deliver coverage.
The Bandages Come Off 2
"We all need to realize that we have two generations of employees who grew up with the idea of paying a copay and never seeing the true cost of their health care," Hutter says. "Most have no idea what health care really costs, and I believe consumer-driven plans, which give responsibility back to the consumer, are the logical choice for the future."
According to a 2011 Towers Watson/National Business Group on Health study, 54 percent of employers now offer consumer-driven health plans to at least a portion of their workforce.
"Ninety-two percent of our clients told us they wanted a new way of delivering health care, but when we tried to roll out consumer-driven plans for 2011, only 52 percent responded to them positively," Hutter says. "They just aren't ready to make dramatic changes at this point."
One small employer welcomes health care reform, but is struggling to understand how it will affect its plans and revenue.
"We see flaws in the health care system daily as a provider of cancer treatment," says Glenn Balasky, executive director for the Zangmeister Center in Columbus, Ohio. "We understand the legislation. However, our expertise is in delivering patient care, not health care benefits, so we will make sure we work with partners who can help us make the necessary transitions to contain costs."
Balasky chose a PPO and a high-deductibe health plan with a health savings account for plan year 2011 and implemented a wellness program for his 140 employees in June "to engage them more in how they spend their health care dollars." Balasky declined to speculate on his organization's intent to offer health care coverage after 2014.
A number of surveys and studies indicate that some employers do plan to drop coverage altogether beginning in 2014. But the results are all over the map.
A McKinsey & Co. survey released in June, which drew fire earlier this year from government and industry experts for its methodology (the consultancy later defended its research as sound), found that 30 percent of employers definitely or probably will stop offering coverage after 2014, when key provisions of the health care reform legislation take effect. And a Towers Watson study shows that 54 percent of employers who offer health care coverage plan to discontinue benefits plans for both pre- and post-65 retirees.
Mercer produced a similar report with less-dramatic figures. The New York City-based consultant found that 6 percent of employers with at least 500 employees, and 20 percent of employers with 10 to 499 employees, said they would likely drop coverage in 2014.
According to Lockton Benefit Group's May 2011 survey, 18 percent of employers say they will consider terminating group coverage, and 80 percent say they are "concerned" or "very concerned" about the potential impact of health care reform.
However, the survey also shows that the majority of respondents plan to retain employee health plans for attraction and retention (86 percent), to protect employees against the higher cost of purchasing insurance through an exchange (30 percent) and to avoid paying a penalty (26 percent).
Keeping Costs Down
A Congressional Budget Office study estimates that only about 7 percent of employees currently covered by employer-sponsored insurance will have to switch to subsidized exchange policies in 2014. Another national study, Health Care Reform 360 Degrees, indicates a possible net 10 percent reduction in access to employer-sponsored benefits in 2014.
"Six out of 10 employers hope health care reform will be repealed, and 7 in 10 disagree that it will reduce their health care cost burden," says Susan McIntyre, senior vice president for Market Strategies International in Livonia, Michigan, which conducted the study. "However, 7 in 10 believe some parts of health care reform should stay in place, and 58 percent believe reform was long overdue."
McIntyre said that employers least likely to offer health benefits after 2014 tend to be more familiar with the law. The study showed that familiarity was highest among larger employers, those currently offering benefits, and those planning to drop or not offer coverage after 2014.
According to the study, provisions of the law that employers are most familiar with include: the dependent child to age 26 extension, which took effect Sept. 10, 2010; elimination of pre-existing condition clauses; the employer mandate to provide coverage; and the elimination of lifetime dollar maximums.
"There is uncertainty, but overall employers are taking a proactive approach in preparing for health care reform," says Ilyse Schuman, a shareholder with law firm Littler Mendelson in Washington, D.C. "We all are obviously waiting to see more guidance on various provisions, and there are no absolutes. Employers have to decide: Are we going to keep our coverage, and if we are, then how are we going to change it to remain competitive and cost effective?"
If employers eliminate health care benefits, employees will rally for a resurgence in unionization, says one human resources consultant.
"Employees see benefits as entitlements, and I don't know how employers escape that," says Greg Dresh, president of Emeritus Human Resources in Dallas. "If we give vouchers to employees to buy health insurance on their own, I believe we will see a mass exodus as they find jobs with companies who still offer coverage."
Yet the McKinsey study found that more than 85 percent of employees would remain at their jobs even if their employer stopped offering health coverage, though 60 percent of workers would then expect increased compensation.
Staying the course
One employer determined to continue offering health care coverage is Mike Neundorfer, president of Neundorfer Inc., a Willowby, Ohio-based pollution-reduction company that pays premium costs for its approximately 40 full-time employees.
"We are trying to attract the best people, so we'll find a way to offer our employees affordable coverage," Neundorfer says. "I'm hoping more emphasis will be placed on health maintenance and prevention under health care reform. However, we won't walk away just because there's a federal program."
Nashville, Tennessee-based Healthways, a provider of well-being improvement programs, also is committed to continuing health care coverage for its workforce of 3,000, according to Erick Shrauger, senior partner of colleague benefits.
"We are trying to meet the requirements under health care reform today and for the future," he says. "Our biggest focus is on prevention, because 70 percent of health care costs are driven by lifestyle choices and the environment."
Shrauger says Healthways and its clients are also paying close attention to health care reform's 2018 excise tax that requires employers to meet certain plan design and cost guidelines.
"Companies are looking at wellness programs and other solutions to help them meet these requirements and contain costs," he says.
According to some experts, ongoing changes and volatility associated with the legislation make it difficult to plan for 2014, much less 2018.
"It would be one thing if we had a black-and-white road map, but instead we have a framework with a lot of intricacies subject to change," says Ed Bray, director of compliance for Burnham Benefits in Irvine, California. "Employers know they will have additional administration requirements involving departments other than human resources after 2014, but I don't think they are preparing for these complexities."
Bray says most employers don't fully understand what the legislation means to them.
"Human resources departments are stripped down as a result of the economy and are just trying to do what needs to be done now," he says. "There's a lot of uncertainty right now, and most of the attention is going to cost containment within existing health plans.
"I think we'll see core plans that conform to health care legislation, with buy-up opportunities where an employee pays more for a lower copay or better coinsurance. Smaller employers may get out of the game altogether in 2014 when employees can buy their own insurance through an exchange."
According to statehealthfacts.org, as of mid-July, 18 states had enacted legislation to establish exchanges, not including Utah and Massachusetts, which already had systems in place. Three states and the District of Columbia have pending legislation, and 27 states have yet to move forward. Under the legislation, states are allowed to proceed on their own, with the caveat that the federal government will run a state's exchange if it isn't operational by 2014.
Employers planning to drop existing coverage or not offer coverage will have to advise their workers by March 2013 of the availability of those exchanges and how federal assistance will work for some employees.
Tom Loker, chief operating officer of Oakland, California-based benefits management company Ramsell Holding Corp. and author of The History and Evolution of Health Care in America, believes large employers are proactively looking at health care reform legislation.
"Then there's everyone else and a lot of them are ignoring it; it's not on their immediate radar screen," Loker says. "I would venture to say that a lot of small businesses don't know what's going to happen, except to know that at some point they will have to make decisions based on it."
Workforce Management, September 2011, pgs. 18-20, 22 -- Subscribe Now!