If you are feeling confused about health care reform, you are not alone. Last year brought many big changes for health and welfare plans as the Patient Protection and Affordable Care Act (PPACA) was passed and the implementation of health care reform began.
Significant provisions to this new legislation took effect in 2010, including tax credits for small businesses (based on specific parameters), the expansion of dependent coverage to age 26, the elimination of lifetime and annual plan limits, the elimination of exclusions for pre-existing conditions and limits on rescissions or the retroactive cancellation of health insurance policies.
“We will continue to see changes to existing and pending legislation into 2011 as the legislation evolves, beginning with Flexible Spending Account (FSA) plans eliminating reimbursement for over-the-counter medications — with the exception of insulin — unless prescribed by a doctor,” says Joanne Tegethoff, an account executive with JRG Advisors, the management company for ChamberChoice. “Another change will impact those who have a Health Savings Account (HSA) and withdraw funds for non-medical expenses — their penalty will be larger this year.”
As of 2011, the HSA money your employees spend for non-qualified expenses will be taxable income, plus a 20 percent fine.
Smart Business spoke with Tegethoff about health care reform and how companies can begin to understand how it will affect them and their employees.
How does health care reform look right now?
The PPACA, along with the Health Care and Education Reconciliation Act of 2010, make up the new health care reform law. This legislation creates a number of issues for employers that sponsor group health plans. The changes are intended to be implemented over the next several years, but employers need to be aware of some impending plan design issues for the upcoming plan year. These issues include:
- Extended dependent coverage for adult children up to age 26.
- Restrictions on annual benefit limits and elimination of lifetime limits.
- Elimination of pre-existing condition exclusions for children.
- Prohibitions on rescission of health care coverage.
- Limits on reimbursing over-the-counter medications.
- Compliance with nondiscrimination rules for fully insured plans.
Are there any other provisions companies should be aware of?
On November 22, 2010, the Department of Treasury, Labor and Health and Human Services jointly announced the Interim Final Regulation for the PPACA Medical Loss Ratio (MLR) provision. This provision states that beginning in 2011, insurers and HMOs must annually calculate their MLR and provide rebates to policyholders if their MLR (percent of premium revenue spent on claims/medical care) is less than 85 percent for large groups and 80 percent for small groups or individuals. MLR applies to insured plans only, regardless of grandfathered status.
Whether certain provisions of the health care reform law will apply to a group health plan depends on whether the plan is considered a ‘grandfathered plan.’ A grandfathered plan is one that was in existence on March 23, 2010, the day the main legislation was passed. Certain health care reform provisions do not apply to grandfathered plans, even if they renew the coverage or allow new employees or current participants’ family members to enroll. It is unclear what could cause an existing plan to lose its grandfathered status, but additional guidance is expected. Special rules apply to collectively bargained plans.
How does this affect insurers?
Insurance companies that are not meeting the MLR standard will be required to provide rebates to their customers. Insurers will be required to make the first round of rebates to consumers in 2012. Rebates must be paid by August 1st each year. Enrollees owed a rebate will see a reduction in their premiums, receive a rebate check, or, if the enrollee paid by credit card or debit card, a lump-sum reimbursement to the same account that the enrollee used to pay the premium. In some cases, the rebate may go to the employer that paid the premium on the enrollee’s behalf. Regardless of whether the rebate is provided to enrollees directly or indirectly through their employer, each enrollee must receive a rebate that is proportional to the premium amount paid by that enrollee.
Are more changes on the horizon?
Additional changes will continue through 2014 as a result of health care reform, none of which are optional and many of which will increase the cost of coverage. To go along with these changes, there will be requirements that everyone carry a minimum level of health insurance coverage or be subject to a fine (some may be exempt if they have very low income). Employers with more than 50 employees generally will be required to offer a minimum threshold of health insurance coverage or potentially be subject to one or more fines. Employers could also be subject to fines if their employees choose government subsidized coverage through the exchange.
A variety of taxes are scheduled to go into effect at different times between 2011 and 2014 that may increase tax liability for certain individuals or increase the cost of your health plan. Your insurance and employee benefits advisor can help you determine the most cost-effective options for your needs, as health care reform continues to evolve.
Joanne Tegethoff is an account executive with JRG Advisors, the management company for ChamberChoice. Reach her at (412) 456-7000 or email@example.com.
Despite the “shellacking” — to borrow a turn of phrase from President Obama — the Democrats took in the midterm congressional elections in November and the divided government those election results will bring, 2011 still promises to be a year fraught with challenges for employers both within California and across the nation. From new legal mandates contained in obscure provisions of health care reform to new enforcement initiatives undertaken by various government agencies and the continued increase of wage and hour claims, business owners will have to remain vigilant to ensure compliance with the various legal and administrative changes coming in 2011.
Smart Business spoke with M. Alim Malik and Jonathan M. Werner of Jackson DeMarco Tidus Peckenpaugh about what labor and employment law developments are on the horizon for business owners in 2011.
How will the recent congressional elections impact employers in 2011?
From an immediate standpoint, a divided political landscape will mean that business owners should not have to worry about any new significant legislation impacting the workplace coming out of Congress in 2011. However, while Congress may be deadlocked, the Obama administration will remain busy implementing the various laws that were passed in the most recently adjourned Congress and initiating new enforcement initiatives to achieve the administration’s political objectives by executive fiat. Several areas of particular concern warrant discussion.
What is the discussion surrounding employers’ use of credit checks?
On Dec. 21, 2010, the U.S. Equal Employment Opportunity Commission announced that it was suing Kaplan Higher Education Corp. for refusing to hire a class of job applicants based on their credit history. While refusing to hire applicants with poor credit does not in and of itself constitute unlawful discrimination, such a practice can be illegal if it has a ‘disparate impact’ on a protected category of individuals, and if an employer cannot show that the practice is job-related and justified by ‘business necessity.’
Having just emerged from the deepest economic slump since the Great Depression, and with unemployment still hovering above 10 percent, it stands to reason that a significant percentage of applicants for any job are going to have poor credit. Moreover, it is not always clear what relevance an applicant’s credit history has in making a hiring decision for most categories of jobs. Given its negligible utility in the hiring process, and the EEOC’s renewed interest in its use by employers, business owners should refrain from using the results of credit checks to justify hiring or promotion decisions in most contexts. Such information should only be used when employers can show a strong ‘business necessity’ for applicants to possess good credit (for example, in jobs where employees handle large amounts of cash or other financially sensitive positions).
Why is the Department of Labor encouraging hourly employees to keep a separate record of hours worked?
Wage and hour law is one of the most active areas of labor and employment law nationwide. Perhaps because of this, the U.S. Department of Labor is actively encouraging hourly employees of private businesses to keep a separate, daily log of the hours they work and the breaks they take in order to ensure that business owners’ timekeeping methods are fully recording all employee work time. The Department has even created a free, downloadable ‘Work Hours Calendar’ for employees to use to track their own time. In view of this, business owners should take the time to audit their timekeeping practices to ensure that they are accurately and completely recording all hours worked by their employees.
What new accommodations do employers need to make in light of health care reform?
Congress included a provision in the Patient Protection and Affordable Care Act requiring employers to provide a reasonable amount of break time to employees to express breast milk as frequently as needed by the nursing mother. Additionally, employers must provide a separate, private space (restrooms don’t qualify) for these employees that is free from intrusion by fellow employees or the public.
While California has had a similar law on the books for several years, employers should nevertheless take this opportunity to review their internal procedures for accommodating nursing mothers.
How is businesses’ use of interns changing?
Both the Obama administration and the state of California are cracking down on business owners’ use of unpaid interns. Generally speaking, under federal law, unpaid interns are only permissible in situations where the internship is similar to the training given in a vocational school or academic institution, the intern does not displace regular paid workers and the employer derives no immediate advantage from the intern’s activities. Business owners considering internships should seek competent legal counsel.
What new provisions in wage and hour law should employers look for?
In California, 2011 should see the resolution by the California Supreme Court of perhaps the most significant wage and hour issue since Gov. Gray Davis signed legislation restoring daily overtime in 1999.
In recent years, hundreds of class-action lawsuits have been filed over the issue of whether business owners must ‘ensure’ that employees take their mandated meal and rest breaks or merely make such breaks ‘available’ to employees. The California Labor Code provision on this issue is ambiguous, and parties on both sides are eagerly awaiting the court’s ruling in a landmark case currently before it.
Regardless of what the court decides, prudent business owners in 2011 should review their meal and rest break policies to ensure that employees are taking the breaks afforded them under California law.
M. ALIM MALIK is a shareholder with Jackson DeMarco Tidus Peckenpaugh and chair of the Employment and Litigation Groups. Reach him at (949) 851-7458 or firstname.lastname@example.org.
JONATHAN M. WERNER is a senior counsel with Jackson DeMarco Tidus Peckenpaugh. Reach him at (949) 851-7422 or email@example.com.
Legislators were undoubtedly well-intentioned when they set out to reform the nation’s health care system, but the lawmaking process often creates collateral damage, and this time the silent casualties may include your company’s absence and disability programs. The bill mandates specific provisions that weaken an employer’s ability to manage employee health, and ultimately their attendance and productivity. Because HR professionals are focused on revising the company’s current health plan and mitigating the upcoming cost increases, there is little time and focus remaining to manage absence and productivity.
“Employers can take some simple steps now to protect productivity while their attention is diverted between now and when the law takes full effect in 2014,” says Skip Simonds, practice leader for Absence and Disability Management for the Western Region at Towers Watson.
Smart Business spoke with Simonds about the impact of health care reform on employer absence and disability programs and the action steps that will help keep employee productivity intact.
How does health care reform weaken existing absence and disability programs?
The primary goal of health care reform was to provide benefits to a broader segment of the U.S. population and control costs, but it’s created additional administrative burdens for employers, and limits their ability to manage employee health by allowing employees to opt out of the company plan or purchase coverage in state-run pools. Employers have been able to drive substantial gains in productivity, because they’ve designed plans that influence and reward specific employee behaviors. And data shows that taking a holistic approach and creating complementary health, wellness, absence, workers’ compensation and disability programs is the best way to control costs while limiting abuses and absenteeism. If you remove a few pieces of the puzzle, you diminish the efficacy of the entire program. To make matters worse, the changes come on the heels of recession-induced staff reductions, so HR has limited resources to deal with the problem.
How should employers adapt current programs to drive productivity?
Switch to a paid time off (PTO) plan instead of allotting specific time for sick leave or vacation. PTO plans shift the burden and cost of managing incidental absences onto employees and boost productivity by reducing the use of unplanned sick days for questionable reasons. Studies show that employees are more likely to work through marginal illnesses and avoid taking ‘mental health’ days so they can save their time off for vacations. If you don’t switch to PTO, consider boosting the effectiveness of your current program by offering a bodacious prize for perfect attendance. One company increased perfect attendance from 10 percent to 50 percent of the employee population by entering the names of perfect attendees into an annual drawing for a new car. The car cost $40,000, but the incentive reduced lost time expenses by $450,000.
What other changes should employers consider?
Create an economic incentive for employees to return to work by reducing the short-term disability benefits from 100 percent to 60 percent or 66 percent of income. Simultaneously if supervisors are resistant to providing transitional work, charge the costs of that light duty to their cost center regardless of who provides it. The best way to reduce absenteeism and disability costs is by making sure that everyone has some skin in the game.
How can employers focus on this problem with limited HR staff?
Outsource the management of FMLA to an insurance company or third-party provider. Engaging a knowledgeable partner is like getting a free staff member, and an outsider has the freedom to quiz medical providers and find alternate treatments that reduce the need for missed time. Outsourcing also allows HR to focus on more important issues, and our experience shows that it increases compliance with a very cumbersome law that allows employees to take time off intermittently. This is especially true in California with its myriad of mandated leaves. A recent three-year study showed that intermittent benefits accounted for 19 percent of all FMLA taken, and employers with integrated FMLA/disability administration had lower costs than employers without integration that included 22 percent fewer lost work days and 36 percent fewer repeat users.
How can employers use data to boost the effectiveness of absence and disability programs?
Outsourced providers generally offer robust data collection, which illustrates the close link between employees’ utilization of sick time, short-term disability and workers’ compensation. Review the data on a quarterly basis to spot trends and hold vendors accountable to provide recommendations that will improve your program and results. Only 11 percent of employees that file medical claims also file lost time claims, but those employees drive 53 percent of medical and disability benefit dollars; so a decrease in disability costs can yield an even larger decrease in health care costs. But what’s most troubling is that 96 percent of CFOs say they understand the connection between employee health, lost time and productivity, but 78 percent don’t receive any meaningful data to help them analyze or manage the situation. Suffice to say that employers stand to reap tangible savings by simply collecting data and reviewing it on a regular basis.
Skip Simonds is the practice leader for Absence and Disability Management for the Western Region at Towers Watson. Reach him at (818) 623-4576 or firstname.lastname@example.org.
Many employers shy away from funding their own health insurance, fearing that doing so could lead them into bankruptcy.
But for some companies, this alternative method of health plan funding may not be any riskier than using a traditional fully funded plan, and it has the added benefits of potentially lowering your premiums and benefitting your company should the plan show a surplus, says Mark Haegele, director, sales and account management, at HealthLink.
“There is the misperception that alternative funding is too risky for companies with fewer than 500 employees,” says Haegele. “But if you structure the plan properly, you can minimize potential risks while seeing the benefits that come from a healthier-than-average work force.”
Smart Business spoke with Haegele about how businesses with as few as 20 employees can take advantage of alternative funding.
What kinds of companies can benefit from alternative funding?
Alternative funding is becoming popular for employers with 20 to 200 employees that believe their population is healthy and that don’t understand why they face rate increases of 15 to 20 percent or more. If an employer feels it doesn’t have control over its plan, and it actively supports the health and welfare of its employees, it is a great candidate.
Many companies keep paying the same increases each year, hoping for something different, but may instead continue to pay more with no opportunity to share in the benefits of having a healthier-than-average work force. Take ownership of the plan and evaluate the alternatives.
The dynamics are such in the marketplace, with health care reform implications and new products to protect businesses, that now is a great opportunity to take a hard look at whether alternative funding is the right choice for your company.
How does alternative funding work?
With alternative funding, employers are still buying insurance over a specific risk threshold. Some people use the term ‘self-funding,’ but that is a misnomer because you’re not taking on all the risk. It’s partially funded for most employers, generally, unless they have more than 1,000 employees.
Employers should ask their broker or consultant for a proposal for an administrative services-only health plan that has four main components: a third-party administrator, a health network, a pharmacy benefit manager and a reinsurance carrier. Assess the plan based on how much risk the employer is willing to take on and evaluate proposals from reinsurance carriers based on risk tolerance.
With an appropriate alternative funded plan, the employer may be taking on no more risk than with a fully insured health plan, and its maximum exposure may be no more than it would be if the plan were fully funded. Typically, the employer will purchase specific and aggregate reinsurance; claims up to a specific threshold on an individual person are the responsibility of the employer, and the reinsurance kicks in for anything over that amount.
Alternative funding gives employers the flexibility to design a health plan that fits their member populations. Coupled with education and access to wellness programs, alternative funding will deliver a measurable health care cost savings over an extended period of time.
What are the current benefits of choosing an alternative funded plan?
First, the employer avoids premium tax. Second, it has lower fixed costs than with a traditional plan.
Third, it has the ability to customize its plan design in accordance with specific employee needs. Under fully insured, a plan must meet state mandates such as coverage of bariatric surgery and infertility treatments. But if an employer has an employee population that is all young, single, healthy men, it doesn’t have to cover those mandates.
It has complete control over its plan and can move its dollars to better suit its employees’ needs. For example, if it has a population with a high number of diabetics, or employees with high blood pressure, and it wants to cover those conditions 100 percent, it can do so.
In addition, it has control over plan information. If the plan is fully insured, the employer generally doesn’t have access to the trends associated with its population. With alternative funding, it has total access to that information, which gives it the ability to adjust the health plan to best suit its members’ needs.
As a result, the employer can turn that data into actionable information. For example, it can identify members with chronic illnesses and enhance the benefits to ensure compliance with medication and standard treatment protocol to improve the health of its employee population. That data can also allow it to identify if employees are misusing the emergency room, driving up costs. It can then educate them about the proper use of the ER and the availability of services such as a 24-hour nurse line, clinics and urgent care centers.
An alternative funded plan also gives employers the ability to manage cash flow. With fully insured, the company pays a premium every month, and any upside goes to the insurance company; if it has low claims, it still pays the same premium. But with an alternative funded plan, the employer only has to spend the dollars for the care provided that month.
What are the future benefits?
Under health care reform, there is a defined tax for insurance companies that goes into effect in 2014. That tax bill for insurance companies is estimated at $8 billion in 2014 and as much as $12 billion by 2018, which will be passed on to employers. If an employer has an alternative funded plan, it will avoid paying toward that upcoming tax.
With changes in the market, now is the ideal time for employers to make a change and take ownership of their plan through alternative funding.
Mark Haegele is director, sales and account management, at HealthLink. Reach him at (314) 925-6310 or Mark.Haegele@healthlink.com.