After months of haggling on Capitol Hill, it’s Corporate America’s turn to make some gut-wrenching decisions. The health care reform act carries immediate cost implications for employers that continue through 2018 with the introduction of a 40 percent excise tax on high-cost group health plans. While the costs vary by company, the compendium of mandates is projected to increase the annual tab for employee health care by 3 to 10 percent, according to estimates from Towers Watson.
Later mandates may inspire some employers to take on new roles like offering employees stipends to purchase coverage on their own. One thing is certain: Maintaining the status quo is not an option.
“Employers can’t wait until 2015 to make decisions about health care because it will be too late,” says Ron Mason, CEBS, senior consultant for health and group benefits at Towers Watson. “Cost implications loom large and will not dissipate without decisive action.”
Smart Business spoke with Mason about the need for employer decisions in the wake of health care reform.
Which decisions require immediate attention?
Employers need to forecast increases through 2018 to see if annual costs may possibly exceed the threshold for high-cost group plans. A strategy change or plan restructure might be needed to avoid the excise tax, and a longer wait may necessitate more draconian changes. The elimination of the lifetime benefit cap and the extension of dependent coverage to age 26 could also have an immediate impact on employer costs.
Employers should investigate whether their stop loss carrier will provide unlimited coverage to protect against catastrophic losses. Finally, a new reporting requirement in 2011 and a slew of additional reports in 2014 calls for quick action regarding data collection or possible outsourcing.
What other choices await employers?
Some significant mandates in the bill:
Mandate: Pay or play requires large employers to provide health coverage for employees working 30 or more hours per week or pay an ‘assessment’, which may impact companies with large flexible or seasonal work forces.
Decision: Offer coverage, amend staffing models or pay the assessment. In the past, employers avoided this problem by extending coverage waiting periods. The bill imposes a maximum wait of 90 days by 2014 and requires large employers to automatically enroll employees in health plans.
Mandate: Community Living Assistance Services and Support (CLASS) allows employers to offer coverage for a long-term care option through the government.
Decision: Employers must decide what role they want to play and either enroll in the CLASS program and make necessary payroll deductions, or not administer this option.
Which decisions impact retiree coverage?
After reviewing the promises made to retirees, employers should revisit health plan designs in light of the new mandates. For example, it may not make sense to continue sponsoring a drug plan given the changes to Medicare Part D. These changes have already resulted in new accounting rules, closing the infamous ‘donut hole’ over 10 years, and new mandates that require manufacturers to offer a 50 percent discount on brand-name drugs and biologics in the donut hole. A three-year initiative to lower provider reimbursements through Medicare Advantage plans beginning in 2011 could diminish retiree participation and, possibly, plan availability, ultimately forcing an estimated half of retirees into more costly plans. Would offering Medigap coverage or a stipend be prudent now or in the future? Should employers continue to sponsor retiree coverage? These are just a few of the questions employers must answer.
Can employers mitigate some of the cost increases through strategic decisions?
Employers who proactively invest in wellness incentives will receive an extra boost in 2014 when the HIPAA limit is raised from 20 to 30 percent. The incentives become more powerful when combined with a decision to offer preventive services without co-pays or deductibles, which adds only half a percent to health care costs, but ultimately can yield a 5 to 10 percent increase in the number of people using preventive services, according to the U.S. Preventive Services Task Force. The final piece of the cost savings puzzle is helping employees to be wiser consumers of health services. The key decision is whether employers wish to hold employees accountable for their health management and to what degree. Other cost savings measures touted in the bill are wild cards. Will allowing carriers to sell insurance across state lines lower premiums? Will regulating insurers’ margins inspire employers to move away from self-insured plans? There’s only conjecture to consider when making decisions because the only givens at this point are cost increases.
What’s the biggest decision facing employers?
Certainly the introduction of the pay or play mandate might entice some employers with lower-wage work forces to pay the penalty and offer employees a wage increase to purchase coverage as state-run insurance exchanges come online. Considerations include the reaction from clients, competitors and, of course, current and prospective employees, who generally expressed anxiety about purchasing coverage on the open market in a recent survey by Towers Watson. However, 67 percent said they expected to pay more for health benefits in the future, so altering plan designs or total rewards to mitigate rising costs while continuing to offer group coverage might be a wise decision.
Ron Mason, CEBS, is a senior consultant for health and group benefits at Towers Watson. Reach him at email@example.com or (949) 253-5203. For more information about health care reform, visit www.towerswatson.com/health-care-reform.