By now, employers know the basics of what's in PPACA and likely have a sketchy idea of how the law will affect their company and employees. EBN spoke to several health care experts to get their take on how employers should be preparing for the immediate and long-term future.
"Unfortunately, in the benefits world there's not a lot of lead time. You really need to start redesigning your plans now [in mid-April, when this article was written]. Many times, third -party administrators are administering the benefits, and the new plan design needs to be communicated to the TPAs.
There is usually a six-month lead time to put in these types of changes," says Susan Nash, partner, McDermott Will & Emery, who spoke on the subject at Employee Benefit News' Compliance Summit in April.
Some thought-leaders suggested that trying to absorb health care reform all at once may give employers a headache, but if benefits professionals look at it piecemeal, it's much more manageable.
The immediate future
Starting in plan years on or after Sept. 23, 2010, adult children up to the age of 26 will be allowed to stay on their parents' plan, plans also will not be able to impose lifetime limits, and may only impose restricted (though this term is not yet defined) annual limits.
"Many employers have already implemented some of the newly mandated benefit requirements. For example, many employers dropped pre-existing condition exclusions years ago due to HIPAA reforms, and a lot of employers already have first-dollar coverage for preventive care benefits," says Nash. "I think where you will see changes that need to be made are in the areas of dependent eligibility rules, and the annual and lifetime limits, because I don't think a lot of employers have done away with those."
In terms of the dependent eligibility expansion, Nash suggests "it's going to cost a lot more if an employer is self-insured in terms of the claims that can be incurred under the plan, because it's widening the eligibility group. It's also taking away some limits that they've placed on treatments, and on top of that, the Mental Health Parity and Addiction Equity Act took away some financial restraints that employers could put on mental health and substance abuse benefits," he continues.
"Given all of these reforms, plans may incur increased claim costs. Similarly, if the plan is fully insured, premiums will probably go up because there's a bigger pool of people covered now, and you don't have the ability to place as many limits on what's covered."
Also available this year is the tax credit for small employers providing health benefits. Those with less than 25 full-time equivalent employees whose average annual wage is less than $50,000 receive tax credit equal to a percentage of employer contributions that must be at least 50% of the premium for the qualified health plan.
The credit maximum is 35% for small businesses with 10 or less full-time equivalent employees and average annual wages less than $25,000. In 2014, the credit increase to 50%.
"A lot of [small] businesses will be able to continue providing the same level, or perhaps even greater, health coverage because of [the tax credits]," says Daniel T. Sulton, partner with Ford & Harrison LLP.
However, provisions such as the elimination of lifetime and annual limits effective in plan years beginning on or after Sept. 23, will increase health costs for some plans that insurers will pass on to the small business in the form of rate increases, as will the elimination of the copays and coinsurance relating to preventive care, which will force some health insurers to rate the plans differently. "As a result, in the immediate future, it's likely that we'll also see some small businesses decide that they can't afford it," he says.
In 2013
Retiree health is the big PPACA component that employers will have to address in 2013, as the 28% retiree medical subsidy that under previous law was deductible will no longer be deductible.
"The fact that it is taxable is dramatic," says Helen Darling, president of the National Business Group on Health. In fact, Caterpillar estimates that this new tax will cost them $100 million.
"This is a big deal because the accounting rules require employers to carry the liability coverage on their books and when there's a change in that liability they have to recognize that change in liability in the quarter in which the liability changes, which means they have to recognize it as soon as this bill was signed into law," explains Ken Sperling, global health care practice leader at Hewitt Associates.
On the other end, the act sets up a reinsurance program for early retiree claims (ages 55 to 64), in which the Health and Human Services Department will reimburse health plans 80% of approved annual claims for expenses related to an early retiree's medical expenses between $15,000 and $90,000.
The effective date is set no later than June 21 and expires in 2014 or when the allocated $5 billion in funding expires, so "get it while it lasts," Sperling urges.
Additionally, companies with Medicare Advantage plans should prepare for a volatile marketplace over the next several years, with $130 billion coming out of the program. Over time, premiums will go up and benefits will go down.
In 2014
2014 likely will be dominated by the "e- word": Exchanges.
Small employers may enter this competitive marketplace in 2014 if they offer coverage to all full-time employees. A small employer is defined as one with 100 or fewer employees, but states may limit to 50 or fewer until 2016.
Exchange coverage offered by an employer may be paid through a cafeteria plan; otherwise Exchange coverage cannot be paid through the cafeteria plan.
Experts surmise that the creation of state exchanges will bring more competitive pricing, particularly to small employers. And large employers theoretically should experience similar competitive savings when states may allow them to enter exchanges in 2017.
The second major change that year will be the Free Rider Assessment, better known as the year employers will have to "pay or play." Employers with more than 50 full-time employees that do not offer health insurance coverage will be fined $2,000 per employee per year.
There is also an incentive to provide affordable coverage: Employers that pay more than 9.5% of income and opt out into the Exchange are assessed $3,000 per employee per year.
The question is: Will employers provide affordable insurance or will they instead pay the penalty?
"It's still attractive for employers to provide comprehensive benefits for the recruitment and retention of employees. But it looks like the penalty for not providing coverage is considerably less than what coverage would cost," says Darling.
2014 also is the year the individual mandate becomes effective, so many employees who previously opted out of coverage may come back to the company plan. On the flipside, the tax credits for small businesses and their ability to participate in the Exchange may absorb some of those employees and their spouses.
Nash predicts that smaller companies may decide to drop their plans and pay rather than play, but many larger employers will maintain their benefit plans and try to be more creative within their plan design and implementation of wellness programs in order to maintain benefits for their employees.
"For most large companies, offering medical benefits is a very good retention and recruitment tool, and I'm sure they'll find ways within the plan design to achieve cost-savings, which is probably going to be through things like wellness programs to try to get people healthier on the front end," she explains.
The "Cadillac" tax
The "Cadillac" tax, set to roll off the assembly line in 2018 under the Reconciliation Act, imposes a 40% excise tax on the value of coverage in excess of $10,200 for individual coverage and $27,500 for family coverage ($11,800 and $30,950, respectively, for retirees and employees in high-risk jobs), indexed annually.
Sheldon Blumling, a partner at Fisher & Phillips LLP, believes that employers are going to scale back their plans instead of paying the Cadillac tax. However, it may not even get to that point if the Cadillac tax is significantly modified or even eliminated before it becomes effective.
"The excise taxes were basically thrown out there as something that can easily be taken out" because the effect on the deficit is nominal," says Sperling. He advises employers: "Focus on keeping your trend down, rather than preparing for an excise tax."
Hidden gems for wellness, prevention
In the vein of tamping down trend, employers publicly admit that workers' unhealthy behavior is the No. 1 driver of health care costs. So, why aren't more employers thrilled about PPACA, which represents the nation's largest monetary commitment to preventive care and wellness funding?
For example, the legislation establishes a public health and prevention fund that provide $15 billon over 10 years on preventive-care initiatives aimed at the country's homes, schools and workplaces.
Right now, employers are focusing on the transactional and compliance aspects of the law, but they should keep in mind that the law includes measures that echo their messaging and rhetoric on wellness and prevention, says Andrew Webber, president and CEO of the National Business Coalition on Health.
But, as the Rolling Stones' sang, "You can't always get what you want. But if you try sometimes, you just might find you get what you need."
Webber believes the legislation will accelerate employer-sponsored health promotion and wellness initiatives, citing the provision to grant small employers with funds to establish wellness programs.
Employers also can embrace the fact that the legislation calls for more "investment in comparative effectiveness research and quality measurement, so that individuals and employers will have better information on health care value," Webber says. The law also increases transparency of provider prices and quality.
Further, PPACA requires the Centers for Disease Control and Prevention to provide employers with technical assistance, consultation and tools in evaluating wellness programs and building evaluation capacity among workplace staff.
The question remains, however, whether employers will eventually come around to appreciate the preventive care and health promotion aspects of the law.
Nearly 58% of employers report that the lack of employee engagement is the key culprit to getting workers engaged in their health, while 31% said it was lackluster financial incentives, and 30% believe it was insufficient funds for health promotion programs, according to a survey by Towers Watson and the National Business Group on Health.
Still, the increased financial incentives for enrollment in wellness programs - from 20% allowable under HIPAA to 30% under PPACA - will not serve as a game changer for employer-sponsored wellness programs, says LuAnn Heinen, vice president of the National Business Group on Health and director of its institute on innovation in workforce well-being. "Few large employers are bumping up against the 20% HIPAA cap. Overall, they are not using that significant of incentives," she explains.
Heinen worries that the administrative compliance of the health reform law will sap administrative resources for health promotion programs at a time when the recession and a sluggish economic recovery have already put a dent in some employers' capabilities to manage their wellness programs. "I am concerned that health promotion programs may take a back seat," she says.
In addition, the law doesn't include a tax credit for employers that offer health promotion programs, which would have been nice, says David Anderson, senior vice president and chief health officer, at StayWell Health Management.
"Such a tax credit would have been a net plus because it would give employers a direct incentive to create and sustain health promotion programs," explains Anderson, who believes the law will still have a positive impact on workplace wellness programs.
Despite not getting all the provisions they would have liked, Dr. Ronald Loeppke, vice chairman of U.S. Preventive Medicine, national provider of clinical prevention services, says "the reform law builds a strong foundation for prevention in this country and employers are probably thankful to see the government finally make such a move."
'Address the fear factor'
And as if employers didn't have enough of a challenge understanding the law themselves, now benefits managers likely are facing questions from workers about PPACA.
"Employers are getting barraged with questions. There are so many pieces to this legislation, and employers aren't sure how deep to go," says Jackie Cuthbert, consultant in Mercer's workforce communication and change practice. "Our advice on that is to tell them [employees] what you really know, what's going to affect them immediately, and to allay their fears about anything that isn't going to happen immediately."
According to a global workforce study from Towers Watson, which surveyed 22,000 employees in the U.S., 67% of employees said they thought their costs were going to increase because of health care reform. Just over half (53%) felt it was going to worsen the quality of care they would receive, while 54% said it would reduce the availability of their benefits.
As an employer, "you really have to address the fear factor," says Gus Bentivegna, consultant with Towers Watson.
"The first thing we're recommending is to send something out to employees in the short term to calm the waters, something that outlines your benefits philosophy. Talk about how you're committed to providing employees with benefits and that you don't know enough right now but that you are looking at the impact of the legislation on your plan, both in the short term and the long term. Tell employees you'll get back to them as soon as you can. If nothing else, do that. If you're silent, conversations are going to happen without you."
At the same time, employers must be careful if they decide to refer employees to other sources of information, such as Web sites.
"It's always helpful to give as much information as you can, but I would be careful doing some of that unless you're using a trusted source," cautions Dean Hatfield, senior vice president and national health practice leader with Sibson Consulting. "Our attorneys have reviewed many [communications] and have been surprised at the errors in interpretations. Some sites have been too cavalier in making assumptions and you can't really assume anything."
As employers hold open enrollment planning sessions in the coming months, here are the key points that will need to be communicated to employees at open enrollment this fall, assuming your plan follows a calendar year:
* Dependent eligibility. This is the provision employees have most often been asking about, say consultants, with many wanting to know if they can add dependents under age 26 right away.
There are still lots of questions on who qualifies as a dependent, notes Hatfield. "Do they have to live at home? Do they have to be on your tax filing? Does it include stepchildren? Foster children?" he says. "There are so many other questions behind it that we don't have answers to. But at the very least you can say you're referring to your legal team to interpret the law and you'll be forwarding information [to employees] as you learn it."
* Pre-existing conditions. Group plans can no longer impose a pre-existing condition limitation on children younger than 19. Starting in 2014, all pre-existing condition exclusions will have to be eliminated.
* Rescinding coverage. Group health plans can no longer rescind health coverage once someone's already become covered as a participant unless they've committed fraud or made some sort of intentional misrepresentation. This "impacts dependent-eligibility verification audits, which are quite common among large employer-sponsored plans right now," says Nash.
"If you discovered someone was ineligible as a dependent under the plan, the question would be was it an intentional misrepresentation or was it just accidental? We're still waiting for guidance on that as well, whether you can just drop someone from coverage," she adds.
* Over-the-counter drugs. Currently, over-ther-counter drugs are eligible for reimbursement through a flexible spending account. Starting in January, OTC drugs will need a prescription in order to be reimbursed under a FSA. "It's a relatively small change that could really cause a lot of noise for an employer next year if people don't realize that," says Beth Boden, consultant with Hewitt.
* Lifetime and annual limits. Group health plans can no longer impose lifetime limits on what's called "essential health benefits" and, starting in 2014, plans cannot place annual limits on the dollar value of coverage.
A list of essential health benefits will be defined by the Department of Health and Human Services in forthcoming regulations, but "we don't really have guidance as to what this is at the current moment," says Nash. "It's not a huge issue because there aren't many employees who bump up against those limits because they tend to be quite large."
And while there may be hesitation on the part of employers to communicate some of these changes before having all the final regulations in place, "they're going to have to make some good-faith efforts to comply and, in turn, that will impact what they're going to need to do in good faith as they communicate with their employees and retirees," says Ruth Hunt, communications principal and health care consumerism thought-leader with Buck Consultants.
One step at a time
Overall, some experts worry about the effect of all these provisions on the quality of health care benefits.
"During the last 10 years, there has been a lot of development in the consumer health care area. Employers have gotten used to freedom in plan design, and health care reform is going to eliminate a lot of that freedom and force most group health plans into a box that has some variation and parameters, but I think it's going to take away a lot of the freedom that employers have enjoyed in designing their plans to meet the needs of their workforce," says Blumling.
Only time will tell how employers will position themselves to comply with the law while providing their employees with the best quality and most affordable health care benefits they can offer. One thing seems to be certain: According to the experts, a lot can change between now and next year, not to mention 2018.
Says Sperling: "Even though this bill was 2,100 pages, and the reconciliation bill was another 153, and the manager's amendment was another 300, we're just starting. There are going to be reams of regulatory guidance around how to comply with this legislation. This is just the beginning."
Looking to the future, employers will need a lot of guidance and information regarding reform, especially since it may prove to be a constantly changing landscape. Experts suggest nonpartisan Web sites, as well as those of law firms, trade associations and federal agencies.
"This is the largest piece of social legislation that we've seen since Medicare in 1965, so naturally there are going to be a lot of questions and the answers are not all obvious right now," says Sperling. "Keep your eyes and ears open, and remember we'll be right along with you for this wild roller-coaster ride."
