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Window of Opportunity

Ronnie Garrett

Tue, Dec 07, 2010

Health care reform is having a direct impact on employer-sponsored health care plans this enrollment season

Window of Opportunity

On March 23, 2010, President Obama signed health care reform into law giving employers the opportunity to seize the momentum and reset their approach to health care benefits. But many companies remain unsure of what to do next to ensure they comply with the new regulations.

This is a very real concern for many companies, according to Lisa Tranberg, director of marketing and product innovation at Wisconsin-based, Dean Health Systems Inc. “The legislation is pretty daunting,” she admits.

But the legislation has a multi-year roll out, Tranberg adds, noting companies should train their focus on what needs to occur in 2011. “If you start looking long-term right now, you’re going to get overwhelmed,” she says.

Knowing exactly what steps to take first requires a basic understanding of what has changed. Key 2011 mandates include:

  • New plans must provide coverage for preventive services without co-pays.
  • Lifetime limits on benefits and restrictive annual limits will no longer be allowed.
  • Young adults can remain on their parent’s insurance health plans until age 26. While this may not affect premium costs, it will put more people on employer health plans.

The good news is many existing plans already include these things, states Tranberg. “A lot of plans are already in compliance or about 80 percent there,” she says. “Slight tweaks to your plan may be all that’s required.”

Same old, same old

Companies have the option of grandfathering any group or individual health plan in effect on the date of the law’s enactment. Grandfathering avoids implementing some of the new federal rules, says John Trochlell, vice president of actuarial underwriting and planned development for Wisconsin’s WPS Health Insurance.

Grandfathering offers some key benefits. For instance, new plan designs must eliminate cost sharing on preventive services. If a company’s existing plan requires enrollees to pay a co-pay or cover the entire service themselves, adding 100 percent coverage for this care may significantly increase premiums. “In this case an employer would not want to add that benefit, and grandfathering would make sense,” Trochlell says.

Even so, Trochlell states getting and maintaining grandfather status may not be worth it for a couple of reasons.

Keeping grandfather status means plans cannot change significantly over time. The changes allowed to existing plans are miniscule compared to the plan adjustments employers typically want to make, Trochlell explains.

Many Wisconsin employers already include first-dollar routine services in their plans, eliminating the need for grandfathering. “It’s not uncommon, even if you have a high-deductible plan, to have first-dollar routine coverage,” he says. “The fact that you have to remove all cost sharing, even if you have a small co-pay, might not be a meaningful downside to losing grandfather status.”

In addition, once grandfather status is granted, companies must follow a very complex formula to keep it. For instance, companies often raise deductibles or co-pays to reduce their health insurance costs. Grandfathering limits the scope of such changes. In addition, if employers alter premium distributions, requiring employees to shoulder a greater share of the premium, these changes may jeopardize grandfather status.

“For a lot of employers, especially small employers, the amount of deductible or out-of-pocket change that can be made without jeopardizing grandfather status is so low, they might say forget it and make the changes today,” Trochlell says.

Premium impacts

What can employers expect in terms of premium costs if they opt to implement these mandates in 2011?

Earlier this year, the state of Wisconsin required employers to change their policies to cover things like cochlear implants, autism and dependents up to age 27. Because of these changes, many Wisconsin policies may already comply with federal law.

However, companies will likely see slight premium increases in 2011 and greater increases in years to come, Trochlell admits. For instance, changes to lifetime maximum benefits and annual benefit limits may increase premiums by a half percent in 2011, while costs associated with expanding preventive care will vary depending on the coverage in current plans. “If a company has a plan without cost sharing for these services, and the only thing it has to do is add a few more services, the impact on premiums will be modest,” Trochlell says. “But if a company has a high deductible plan, that does not cover these services, the impact could be as high as 15 percent.”

Getting what’s coming to you

Sprinkled through all this legislation are tax implications, adds Tranberg. Businesses with fewer than 50 employees may be eligible for tax credits covering 35 percent of their health care premiums, increasing to 50 percent by 2014.

“If you’re a small employer, you’re now going to have to worry about whether you are eligible for a tax credit or might be taxed if you don’t offer benefits,” Tranberg says. Employers need to understand what tax credits are available and what they need to do to receive these credits. “Small employers should work with their benefits consultants to see if there is anything there,” says Trochlell.

Large employers may also receive government funding for insuring early retirees.

“One of the provisions in health care reform is providing a subsidy for companies that offer coverage to early retirees, generally retirees between age 55 and Medicare age,” Trochlell says. “If a company provides coverage for early retirees, the government has set aside funds to subsidize a portion of any large claims coming from these retirees.”

Dean has already begun working with companies offering early-retiree coverage to help them receive this benefit. Trochlell says company experts have filed applications, assisted in getting applications approved, and will soon help companies submit claims for reimbursement.

Grab your partner

The answers to these and other compliance issues can be found if companies team with their health care partners: insurers, third-party administrators and benefits consultants.

“We live in the details every day and have been working on this 24/7 since the law passed,” Tranberg says. “We are very comfortable helping employers determine what this law means to them and what they need to do.”

Trochlell agrees. “You need to make sure you have some kind of assistance from an agent or consultant because this is a very tough law to navigate.”

Insurance partners can help companies determine if they offer the right level of coverage, are in the correct provider network, provide appropriate incentives for wellness and health risk assessments, and so on. These are things every company should be looking at, says Trochlell.

Benefits professionals can also help companies plan for the future. Though many unknowns remain, Tranberg says companies need to consider what changes may be coming down the pike. “They need to start considering what their three- to five-year plan will look like,” she says.

How does the future look? Costly, says study

Due to recent higher medical claim costs, an aging population and changes brought about by health care reform, employers can expect 2011 health care cost increases to be at their highest levels in five years, according to an analysis by Hewitt Associates, a global human resources consulting and outsourcing company. Next year, Hewitt projects an 8.8 percent average premium increase for employers, compared to 6.9 percent in 2010 and 6.0 percent in 2009.

According to Hewitt’s analysis, the average total health care premium per employee for large companies will be $9,821 in 2011, up from $9,028 in 2010.

The amount employees will be asked to contribute toward this cost is $2,209, or 22.5 percent of the total health care premium. This is up 12.4 percent from 2010, when employees contributed $1,966, or 21.8 percent of the total health care premium. Average employee out-of-pocket costs, such as copayments, coinsurance and deductibles, are expected to be $2,177 in 2011—a 12.5 percent increase from 2010 ($1,934). These projections mean that in a decade, total health care premiums will have more than doubled, from $4,083 in 2001 to $9,821 in 2011. Employees’ share of medical costs—including employee contributions and out-of-pocket costs—will have more than tripled, from $1,229 in 2001 to $4,386 in 2011.

According to Hewitt, a variety of factors are driving the increase in projected health care cost increases for 2011. Employers are seeing an increase in the amount of charges and frequency of catastrophic claims. This is particularly true today, as slower levels of hiring have left employers with slightly older work forces who are more prone to costly medical conditions. Hewitt estimates that the most immediate applications of health care reform—including covering dependents to age 26 and the elimination of certain lifetime and annual limits—contributed approximately 1 percent to 2 percent of the 8.8 percent projected increase for 2011.

“After 18 months of waiting for health care reform to play out, employers find themselves in a very challenging cost position for 2011,” says Ken Sperling, Hewitt’s health care practice leader. “Reform creates opportunities for meaningful change in how health care is delivered in the U.S., but most of these positive effects won’t be felt for a few years. In the meantime, employers continue to struggle to balance the significant health care needs of an aging workforce with the economic realities of a difficult business environment. While health care reform cannot be blamed entirely for employers’ increasing cost, the incremental expense of complying with the new law adds fuel to the fire, at least for the short term.

“Companies cannot afford to take a ‘wait and see’ approach to health care benefits. Now is the time for organizations to be bolder about the strategies, programs and tactics they’re using to contain cost and motivate employees to engage in their own health,” he says.

According to a recent Hewitt survey of 600 large U.S. companies, employers have grown increasingly concerned about rapidly rising health care costs. Almost all (95 percent) of companies say managing costs is a top business issue. To mitigate these costs, employers continue to take a number of proactive steps, from increasing employee cost sharing and managing dependent eligibility and subsidies to aggressively managing vendors and improving employee health.

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