Although the newly passed health care reform bill exceeds 2,000 pages, employers still lack critical details and guidance to implement many of the unprecedented changes that will affect retired, active and future American workers. For many employers, simply complying and maintaining the status quo is not an option. A recent Towers Watson survey found that nearly three-fourths (71 percent) of employers believe health reform will increase the overall cost of health care services in the United States.
“This bill is a call to action for employers both tactically and strategically,” says Caty Furco, senior consultant and actuary for the health and group benefits practice at Towers Watson. “Employers should evaluate the role of health care within their total rewards strategy and consider long-term strategic changes amid the new regulations.”
Smart Business spoke with Furco about the call to action for employers following the passage of health care reform.
What makes health care implementation challenging?
Many mandates lack specificity and consequently preclude employers from making key decisions. For example, the 2014 pay or play mandate requires employers to provide health coverage for employees working 30 or more hours per week, but the qualification methodology is ambiguous. A government task force is working to fill in the bill’s missing details, but the additional clarity won’t reduce the amount of time and resources it will take to implement these changes. There’s certainly enough information for employers to begin assessing risks, develop a communications strategy and conduct a strategic benefits review so that they’re poised to act as additional details become available.
What should employers consider during strategic reviews?
Tactical decisions always flow from strategy, so this is an opportune time to revisit your company’s benefits philosophy by asking these questions.
- Should the company provide employee health coverage or benefits? What should our role be?
- How are employer-sponsored health benefits viewed internally and externally? How do they influence our market position and talent strategies?
- What is our return on investment for providing employee health care benefits?
- Should total rewards or benefit packages be rebalanced to offset rising health care costs?
What are the critical action items for 2010?
The 2010 regulations surround retiree plans, so employers must communicate coverage changes and implement new accounting rules, resulting from the elimination of the employer’s deduction for Medicare Part D drug coverage. The communications plan should also touch current employees, since many are apprehensive about reform and have heard that their health coverage won’t change. To avoid surprising them down the road, explain that the company is reviewing the law, even if you haven’t worked out all of the specifics. Finally, employers must prepare for 2011 changes, including a reporting mandate, which requires disclosure of the annual value of employee health coverage on W-2s.
Is 2011 a pivotal year?
Employers will definitely be impacted by 2011 mandates, including:
- Coverage extended to adult children up to age 26
- Elimination of lifetime health benefit caps with restricted annual limits
- Elimination of pre-existing exclusions for those 18 and younger
If your company offers retiree health coverage, be aware that 2011 begins a three-year initiative to lower provider reimbursements through Medicare Advantage plans. This could diminish provider participation and plan availability, ultimately forcing retirees into more costly plans. Employers will need to closely monitor renewals and the underlying assumptions used to develop 2011 premium rates.
Which of the remaining mandates will have the greatest impact on employers?
Major changes occur in 2014 and include: the introduction of the pay or play mandate and employee free-choice vouchers, automatic enrollment for employees, restrictions on coverage waiting periods and new reporting requirements. The wild card in 2014 involves new fees on health insurers, which seemingly will be passed along to purchasers in the form of higher premiums. The looming excise tax on high-cost group health plans beginning in 2018 requires employers to immediately forecast future increases and possibly devise a strategy to avoid the tax by altering plan designs. Every company’s situation is unique and their response to reform will vary. It is imperative to stay abreast of emerging guidance through regular visits to Web sites such as www.towerswatson.com/health-care-reform.
Are there opportunities for employers to mitigate future cost increases?
State-run insurance exchanges launch in 2014, which may entice employers in the long term to offer a stipend in lieu of company sponsored plans as a cost-control strategy. Insurance companies begin selling coverage across state boundaries beginning in 2016, which is expected to increase competition and lower premiums. Finally, the bill increases incentives for wellness programs, and recent studies have shown that participation in wellness programs reduces health care costs. Remember, the legality of the bill has been challenged and there will be two critical elections between now and 2018, so savvy employers will evaluate their options and be ready to act under a variety of scenarios.
Caty Furco is a senior consultant and actuary for the health and group benefits practice at Towers Watson and can be reached at (415) 733-4309 or email@example.com.