The major components of health care reform don’t go into effect until 2014, but that doesn’t mean that you can wait until then to act.
If you don’t begin planning now for how the changes will impact your company, you could find yourself in trouble, says Steve Freeman, president of USI in San Francisco.
“There are going to be specific requirements and mandates,” says Freeman. “You need to start the process today. Have a plan, know what your core values are on offering benefits to your employees and know where you want to be versus your competition on compensation and benefits. Make sure your plan is in compliance for what you need to be doing now, and make sure you’re going to be ready for 2014.”
Smart Business spoke with Freeman about how to prepare for the coming changes.
What changes have already been implemented?
Effective Sept. 23, 2010: plans can no longer have lifetime limitations on essential benefits or unreasonable annual limits on essential benefits. Also, employers have to provide coverage for employees’ children up to age 26. There are no rescissions on coverage and insurance companies can’t impose any pre-existing conditions exclusions for individuals under the age of 19. And as of Jan. 1, 2011, flexible spending accounts can no longer be used to pay for over-the-counter drugs without a prescription.
What changes have impacted employers that cover part-time or seasonal workers?
Many employers with seasonal or part-time employees offer limited medical plans, providing a fixed amount of medical benefits, typically up to an annual maximum of $15,000 to $25,000. Under the new rules, health care reform prohibits imposing annual limits.
For plans beginning after Sept. 23, 2010, to Sept. 23, 2011, the maximum on limited medical plans increases to $750,000. After Sept. 23, 2012, that goes to $1.25 million, and in 2013, it increases to $2 million, making those plans cost prohibitive to employers and employees.
However, the government has allowed employers to file for waivers that restrict the annual limit at the same level. If the Department of Health and Human Services determines that compliance would result in loss of access to benefits, or a significant increase in costs to those covered, it will grant the waiver.
Can plans be grandfathered in under the old rules?
If you don’t make any changes to your benefit plan, it is considered grandfathered. If you make any significant changes in regard to deductibles, coinsurance or employee contributions, you lose your status. And because costs continue to rise, most employers will have to change their plans.
Once you lose your grandfathered status with your health plan, you have additional requirements in the benefits you offer, which include preventive service at 100 percent. In addition, if you have a fully insured plan, you can no longer discriminate in favor of highly compensated individuals. There are also other patient protections in regard to primary care physicians, OB/GYN access and emergency services.
What changes are coming in 2014?
The most significant is that employers will be mandated to provide health care coverage if they have more than 50 employees. If they don’t provide health care coverage, there is a penalty of $2,000 a year, per employee, in excess of 30 employees. Now, most employer groups pay an average of $8,500 to $10,000 per year, per employee. If an employer can pay $10,000 a year for coverage or $2,000 in a penalty, it may choose the penalty.
Employers of choice will continue to offer benefits to attract and retain employees, but in a recent survey by McKinney & Co., 30 percent of employers said they will definitely or probably stop offering employer-sponsored health plans after 2014.
Individuals will also be mandated to have health insurance, but, again, the penalties are not significant. In 2014, it is $95, or 1 percent of one’s taxable income. In 2015, that increases to $325, or 2 percent of taxable income and, in 2016, that goes to $695, or 2.5 percent of taxable income.
What should employers be doing now to prepare for 2014?
Many owners are so busy running their businesses that they’re not thinking about how this is going to impact their business and their employees. But you need to look at your existing program now to make sure you’re in compliance with the parts of health care reform that have already been implemented.
Second, develop a strategy for the next two to three years on where you want to position your benefits as a percentage of total payroll. Develop that benchmark of where you want to be, what you want to pay and where you want to be positioned versus your competition.
If you’re not paying attention now, you have two-and-a-half years to the day of reckoning, and you need to be aware that your competition is probably thinking about it. How is your competition going to be positioned to attract and retain good employees? If the competition is going to offer benefits, what are those, versus forcing employees to buy through an exchange?
Businesses need to act now, as failing to address the impact this will have on your company will put you at a distinct disadvantage come 2014.
Steve Freeman is president of USI San Francisco. Reach him at (925) 472-6772 or [email protected].
