For the average American, health care reform - a debate that dominated headlines and nightly news for much of last fall - for the most part has dropped from view, as the Gulf environmental disaster has taken center stage.

But for employers, health care reform remains the day's top story, as companies have begun taking proactive measures to define and interpret the potential fallout the significant overhaul may deliver.

Looking at the self-insured market specifically, the longer term implications of the Patient Protection and Affordable Care Act still are unknown, leaving many to take a wait-and-see approach about what to do next.

"It's hard to put it in a nutshell because it's such a complicated piece of legislation," says Chris Byrd, executive vice president at Evolution Benefits. "There are more questions than answers right now. Nobody seems to understand this thing."

From grandfather clause clarification to dependent coverage to exchanges in the open market, there is a substantial list of issues that could impact the bottom line of self-insured employers. However, early interpretations of PPACA do not necessarily signal a significant short-term impact.

"I think in general there is not going to be a huge effect on self-funded plans," notes Andy Mechavich, senior manager for consulting firm LECG Smart. "But I do think employees will see their costs rise. A lot of the employer-sponsored plans continue to increase in prices. Initially, in this year and next year, people will digest the changes and adjust their plans to accommodate the reform."

Steve Wojcik, vice president of public policy at the National Business Group on Health, agrees: "In the short term, there will be no major impact. Things are in limbo until regulation for the various provisions under the plans comes out In the long term, as more changes take effect, there may be some longer-term risks and decisions made about coverage."

NOT YOUR GRANDFATHER'S HEALTH CARE

One of the major unknowns in the legislation is the definition of which plans will fall under grandfather status, thus being exempt from some provisions that could lead to higher costs.

"I think one thing employers are waiting for, particularly for self-funded plans, is what the government is going to say about what plan changes would be permitted under grandfathered status," Wojcik says.

There is indeed heightened interest about when and how Washington will issue guidance on what constitutes a grandfathered plan. The struggle for employers is in developing their 2011 benefit strategy with this issue hanging over their heads, contemplating whether one tweak or another may jeopardize a grandfather status.

One-fourth of companies responding to a Mercer survey indicate they expect health care costs to rise by an average of 3% in 2011. Nonetheless, employers are forging ahead with developing and instituting their plans for 2011. The calendar is forcing their hand.

"A lot of companies are making tweaks to 2011 plans," observes Michael Fry, senior vice president of Symetra's group division. "Companies are being very proactive about adjusting their plans because the reform is certainly not going to lower costs for employers as they try to deliver benefits as efficiently and economically as possible."

Mechavich notes that some of his clients are moving forward with changes to deductibles, copays and dependent eligibility audits as part of their 2011 benefit design.

EXCHANGE FACTOR

Under PPACA, one issue reverberating through the health care industry is the requirement that by 2014 companies with at least 50 workers must provide health insurance or pay a penalty of $2,000 per employee. If they forgo offering insurance, employees would be left to fend for themselves, purchasing their health care coverage through an exchange marketplace.

Companies will be keeping close eye on each other when this provision goes into effect. "Any prudent employer is going to be watching what their competitors do in looking at how successful these exchanges are going to be," Wojcik says.

Experts are divided on whether any domino effect will take place with respect to the exchanges becoming a viable and realistic option for companies trying to attract, recruit and retain top talent.

"Employers are beginning to do analysis to determine whether they should get out of insurance altogether," notes Byrd. "The worst case for employers is that health care costs will continue to spiral out of control. But it's a pretty radical thing to say you are getting out of the insurance business because you are competing for talent."

Self-insured employers are among some of this nation's largest organizations. Competition for a top-performing workforce could keep the traditional benefit offerings in place. But if one giant opts out of coverage, it is not out of the question for others to follow suit.

"There is the potential people would pay the penalties in the short term. But in 2018, the penalties will rise and that will change behavior," Fry says. "There are millions of employer-sponsored health plans. I would think it very hard to believe there is going to be a domino effect among employers from that coverage.

CADILLAC TAX AND COMMUNICATION

The Mercer survey found that among the 800 companies surveyed, the top concern about PPACA is the Cadillac tax that will take effect in 2018 on high-cost plans. (For a related story on the Cadillac tax, check out "Employers begin 'crash-testing' plans to avoid Cadillac tax, other PPACA cost increases," on EBN's blog at ebn.benefitnews.com/blog/daily_diversion.)

"Looking further, the Cadillac tax is heightening; employers are going to do whatever they can to avoid paying the 40% excise tax," Wojcik says.

One thing employers can't avoid, though, is effectively communicating significant aspects of PPACA to their workers. For one, the law places a $2,500 cap on the amount that employees can be defer to flexible spending accounts, beginning in 2013.

In addition, lifetime benefits under FSAs will be eliminated, and employees also need to be informed that over-the-counter medications will no longer be allowed to be reimbursed to tax-free accounts.

"There are a lot of changes, and the fact of the matter is that is going to be best combated by communication and education," Wojcik indicates.

Having a detailed communication strategy in place will help to curb some confusion among workforces and alleviate any tension regarding the many facets of this legislation.

"Communication, without a doubt, is really going to be key," Fry says. "Employers are reacting quickly so they don't get behind the eight ball. The winners are going to be those companies that can adapt and support the changes."

FUTURE OF SELF-FUNDED PLANS

Some remain confident that the benefits of self-insured plans will continue to be appealing to employers and employees alike, even under the overhaul of health care.

"There is a lot that remains to be seen here. There is going to be additional legislation that has to be passed to clarify the act," Fry says. "Based on our understanding up to this point, we have always felt and continue to feel that self-funding is the most efficient model to deliver benefits to employees.

"One of thing things the act was supposed to do was to get a hold on health care costs. Since that is not the case, I think that with the cost of self-funded plans and stop-loss benefits, it's going to appeal to employers trying to control costs."

Companies will continue to look for guidance to determine how to move forward with the reform and how the legislation is interpreted and incorporated.

"This legislation is a couple months old already," Byrd says. "Benefits experts and lawyers are only starting to study the legislation. Regulated by [the Department of Health and Human Services], employers will be looking to the Treasury for guidance. The future will get clearer as we get closer to the end of the year."

For employers - self-funded and fully insured alike - that clearer picture can not come soon enough. "As employers lose the ability to have the tools to invest the value of their dollars in health care, it will restrict their ability to make changes," Wojcik says. "The clock is starting to tick."

Kevin Sweeney, a former EBN associate editor, is a freelance writer based in Frederick, MD.

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