How to weigh risks of continuing to provide health care coverage — or not Featured

7:49pm EDT December 31, 2012
How to weigh risks of continuing to provide health care coverage — or not

With the election settled and a number of lawsuits decided, it’s clear the implementation of the Patient Protection Affordable Care Act (PPACA) is moving forward.

There could be numerous timing glitches with implementation through delayed issuance of regulations and enactment of the exchanges, but Matthew R. Huttlin, vice president, Employee Benefits Division at ECBM, says it is important that every organization continue with its planning.

“This law will continue to be modified and adjusted over the next few years and employers are going to need sound, detailed guidance to negotiate their way through the PPACA legislation,” he says.

Smart Business spoke with Huttlin about the decision of whether to continue your health care program or relinquish coverage to the exchanges.

What risks are employers facing from the PPACA and health care exchanges?

For employers with more than 50 full-time equivalent employees — considered ‘large’ employers under the law — a number of areas need to be reviewed in anticipation of the 2014 effective date of the government health exchanges. However, none is more important than the financial impact. Employers that do not provide adequate coverage or offer coverage that is considered unaffordable may face penalties. However, the calculation to determine whether any penalties will apply in 2014 is fairly straightforward.

Once you’ve assessed potential penalties, what’s the next step? 

The more difficult question is whether an employer should continue its health care program or relinquish coverage to the government exchanges. The two primary areas of concern are financial and human resources. From a financial standpoint, a risk manager can run a detailed analysis to determine the cost impact of each option. The results depend heavily on the current cost of coverage, both for the employer and the employees, and the salary distribution of the full-time employees. The human resource impact is difficult to quantify, having to gauge the impact of each option on retention and recruitment.

Do employers that continue to offer health plans need to revisit their decision?

Employers that decide to maintain their programs should test these programs annually. Rates vary from year to year and from group to group based on the impact of the group’s claim losses in the determination of their rates. The impact of a group’s actual experience on their projected costs increases as the size of the group increases for insured programs. The projected rates for self-funded plans are typically based solely on the group’s claim losses. Whether self-funded or not, the greater a group’s claim losses impact their rates, the more important it is to control costs through utilization management, wellness, plan design, etc.

On the other side of the equation, PPACA penalties are expected, at a minimum, to be indexed for inflation. Also, the cost to obtain coverage from the exchanges — particularly for employees with salaries that exceed 400 percent of the federal poverty limit — is anticipated to increase, possibly at a rate greater than inflation.

How should employers that decide to eliminate their health insurance handle it?

This is a major undertaking for the HR personnel. Detailed communications with the employees explaining the organization’s decision and guidance will be required. This decision also will have a critical impact on administration. Businesses that choose this path should reach out to risk managers and consultants for assistance.

What is the risk of upcoming ‘Cadillac’ tax?

Looking further out, there is another ‘test’ looming under PPACA for 2018, commonly called the ‘Cadillac’ tax. Under this provision, if the combined cost for health care benefits exceeds the dollar threshold limits of $10,200 for single person plans and $27,500 for other plans, the PPACA will tax these rich benefits at a rate of 40 percent on the cost above this amount. According to a 2011 survey by Mercer, approximately 60 percent of employers with more than 500 employees believe their plans would trigger the tax unless they take action to avoid it. Employers will need to keep a close watch on costs as they progress toward this test.

Matthew R. Huttlin is vice president, Employee Benefits Division at ECBM. Reach him at (610) 668-7100, ext. 1312 or

Insights Risk Management is brought to you by ECBM