How to combat rising costs when implementing the new health care reform rules Featured

8:00pm EDT October 26, 2010

Nearly seven months after the Patient Protection and Affordable Care Act (PPACA) was passed into law, most businesses haven’t come much closer to understanding how health care reform will impact their costs.

“With an estimated 35 million additional people becoming eligible for services in an already overextended health delivery system, it’s not logical to think that costs will decrease,” says Robert DiCosola, executive vice president of human resources/training and development, Old Second National Bank, Aurora, Ill.

DiCosola says that employers can expect to carry a heavier cost burden in order to provide health insurance to employees.

“The good news is that all employers are in the same boat of uncertainty,” DiCosola says. “Employers will have to closely monitor what their competition is as the health care legislation unwinds.”

Smart Business spoke with DiCosola about strategies businesses can begin to implement now to combat rising costs.

How can employers begin to prepare now for the upcoming changes?

There are three critically important considerations. First, human resources practitioners and business owners don’t have to be experts on this behemoth. However, they do need to stay close to the experts. Solicit, rely on and act upon the consultation and advice of your insurance brokers and other providers.

Second, make sure your employees and senior management know you are on top of the reform issue by communicating via the intranet, information sessions and the company newsletter. Share the timeline of critical PPACA mileposts with senior management and let them know how you have the organization in compliance.

Finally, don’t panic. There is still time to make sure that your organization is in compliance with each critical incident milepost. And parts of this legislation could look very different by 2014, when major parts of the reform plan become effective.

What are some strategies to alleviate the burden of rising health care costs?

For years, employers with fully insured plans could consider a number of options in an attempt to keep health care expenses from going through the roof, including raising deductibles, co-pays or other employee out-of-pocket expenses; putting the health care insurance contract out to bid; and restructuring the drug delivery system to steer employees toward less expensive generic drugs.

The PPACA could dilute these options for employers who ‘grandfather’ their health care plan from certain new mandates. If an employer grandfathers its health insurance plan, the plan is exempt from certain mandates, such as limiting employee cost-sharing for things including out-of-network emergency room visits and preventive-care procedures.

However, grandfathering could come with costs that make offering the plan unsustainable. An employer can make only minimal increases to employees’ cost-sharing provisions, such as deductible limits and out-of-pocket maximums, and zero increases to employee coinsurance percentages. Such restrictions could result in employers rethinking the cost benefit of offering insurance.

How can a wellness program help reduce costs?

Healthier employees translate to lower use of medical services, with an accompanying decrease in health-insurance-related costs. But quantifying that correlation is tricky.

We began our wellness program in 2004. It includes annual blood draws to screen vital indicators such as cholesterol levels, and the completion of an annual risk assessment. Each employee receives an assessment from a third-party administrator, along with annual goals that must be met to receive a wellness program discount. For the first year or two, there was a slight increase in employee use, as employees went to their personal physicians for consultations and treatment of conditions uncovered by screenings. But results were amazing: A number of screenings uncovered potentially serious conditions that were caught early and treated. The success of the program hit a high point in 2008 when the health plan experienced an unheard-of premium equivalent increase of 0 percent due to the favorable claims experience.

A decrease in health insurance expenses is one way to quantify success. Another is gains in employee productivity, potentially measured by decreases in unscheduled days off due to illness. No matter how you measure it, employees’ well being is definitely a byproduct of a wellness initiative.

The PPACA allows for premium discounts up to 30 percent that employers can offer for successfully participating in a wellness program. The current limit on discounted premiums as set forth under HIPAA is 20 percent. Another potential impact of PPACA is the award of grants to small employers that implement comprehensive workplace wellness programs post-enactment of the legislation.

How can a business determine if offering an employer-sponsored health insurance program is a smart option?

It boils down to two issues: Can the company afford it, and what is the competition doing? This is one of the most important cost/benefit analyses a company will take part in over the next couple of years. Under the PPACA, beginning in 2014, employers will have to determine whether to provide employees with health insurance or pay the government-imposed penalty. If a company is in growth mode, stock price is high and it is flush with cash, it might be more inclined to keep providing coverage. But if a company is struggling, that difference in cost outlay for one benefit might be a deal-breaker. There are other issues that come into play, for example, what are other local companies in your industry doing? The fact is, offering health insurance coverage may no longer be the recruitment and retention carrot it once was if health care becomes much more widely accessible.

Robert DiCosola is executive vice president of human resources/training and development at Old Second National Bank, Aurora, Ill. Reach him at (630) 906-5546 or