As a result of the Patient Protection and Affordable Care Act (PPACA) and its effects, employers are taking steps to manage the cost of care by moving toward self-funded insurance and greater oversight of health benefit plan subcontractors. Others are making a cost trade-off between the tax burden of providing versus not providing coverage.
Selvadas Govind, a senior manager in Assurance Services at Weaver, says it’s too soon to say whether costs will go up or down in our complex health care system.
“The only thing one can do is try to manage the risks that are presented at a particular point in time,” he says. “You’re not going to be able to influence the market or analyze it in any significant way.”
Smart Business spoke with Govind about some of the risks employers face in this new era of health plan benefits.
What is the impact of companies increasingly self-insuring?
Larger businesses are making the shift toward self-insurance, which is more transparent in terms of management. Insurers no longer go to a company and give them a rate; rather, companies can pay medical costs themselves and hire a third-party administrator (TPA) to handle administration. It’s a great business practice, but the downside is employers are on a less-than-level playing field with insurance companies that know how the industry works.
It’s a big risk that needs to be managed, and many organizations are not in a position to mitigate those risks. In fact, one study found employer audits of TPAs had error rates for medical claims of 3 percent to 16.8 percent. Similarly for pharmacy benefit programs, errors ranged between 3 percent and 8 percent. A 3 percent error rate by a plan’s pharmacy benefit manager in a medium-sized entity of 2,000 employees can amount to an overpayment of $155,000. For this reason, it is often worthwhile to bring in external auditors with specialized knowledge to mitigate this risk exposure.
Employers also need greater oversight of health benefit plan subcontractors. For example, after an employee pays his or her pharmacy co-pay, the balance is charged to a pharmacy benefit manager (PBM) which, in turn, pays off the distributor or manufacturer and submits the claim to the self-insured company. However, there is usually a rebate from the distributor or manufacturer to the PBM. By right, that rebate — which can be quite substantial — belongs to the employer, not the PBM.
How does the individual mandate create new risks for employers?
With the individual mandate and the increased dependent eligibility age of 26, there’s a financial incentive for children to remain on their parents’ health care plans. The risk companies should consider is that some may try to retain children on their plans beyond age 26 and/or include dependents who are not necessarily their own. The benefit of this abuse to perpetrators is that they can choose to pay the lower tax penalty for not having individual coverage and still obtain coverage through their parents at employer-subsidized rates. So, the situation leads to an educated decision on whether it is more cost effective to try to stay on the parents’ plan, pay the penalty for not buying coverage, or buy coverage through an employer or a health benefit exchange.
You can audit this risk, but health benefit plan audits tend to be invasive, which could irritate employees. A way to sensitively handle it is to educate employees on the potential issue and what the cost could be if even a small percentage of employees are dishonest. Companies should also review the amount of evidence required to justify a dependent; however, if the requirements are too stringent, employees could resist.
Are many employers deciding to take the penalties and not offer insurance?
It depends on the attitude of the employer and the type of work force. There will always be employers who offer better benefits than others. However, it’s a very industry-specific question, and in an industry with narrow margins, businesses may simply not be able to offer insurance. There could also be a shift away from full-time employees who qualify for health care benefits to the use of more part-time employees who would not qualify for employee-sponsored health benefits.
Selvadas Govind, MPA, CPA, CIA, CICA, CRMA, senior manager, Assurance Services, Weaver. Reach him at (512) 609-1940 or Selvadas.Govind@WeaverLLP.com.
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