By Brian Schilling
The timeline for overhauling the nation's health care system is clear, and spelled out in black and white. (See healthcare.gov and The Commonwealth Fund's health reform resource center). However, the drama surrounding reform has created a muddled mess. The failed repeal effort grabbed national headlines for months and legal challenges to reform are surely heading to the nation's top court. But for employers working to comply with the new law, there are more immediate concerns related to new regulations, the forthcoming exchanges, possible penalties, and as-yet-undefined minimum benefit levels. Purchasing High Performance looks at some of these issues, as well as the implications of the current political and legal threats to reform.
Should employers maintain grandfathered status?
Included in the Patient Protection and Affordable Care Act is a provision allowing existing health plans to opt for "grandfathered" status, thus exempting them from some new reform-related requirements and any associated costs. The appeal of maintaining a grandfathered plan rests on the assumption that those associated costs may be significant. There is a long list of reform provisions from which grandfathered plans would be exempt, including:
Employers, especially self-insured ones, have an important decision to make: opt for a grandfathered plan or comply with the new law. But the decision isn't as simple as opting for the status quo to neatly avoid transition costs—the financial and other restrictions on grandfathered plans are daunting. For instance, cost-sharing, copays, deductibles, employer contributions, and lifetime caps must all remain essentially unchanged or grandfathered status is revoked. For that reason, some health plans are expected to balk at the complex, expensive prospect of maintaining both "grandfathered" and health reform-compliant plans, which would allow them to continue to recruit new members and employers.
If predictions are right, the issue may be short lived. According to a report by the Obama administration, it is estimated that by 2013, only 55 percent of large employers and 34 percent of small employers will maintain grandfathered plans, with further declines to come.1 Thus, grandfathering may be of short-term significance for some employers, but of limited long-term practicality in the long run.
How will the essential benefit package be determined?
Perhaps the largest remaining unanswered question about health care reform is exactly what will be required under the Affordable Care Act's "essential benefit package." The yet-to-be-defined benefit level will determine what services and types of care must be offered by plans participating in the exchanges and for employers offering health insurance coverage to their workforce. The department of health and human services (HHS) is currently working with the Institute of Medicine (IOM) to devise methods for determining and updating this essential health benefits package.
The broad benefit categories that will be covered have already been defined. Under the Affordable Care Act, health plans participating in the exchanges must cover:
What remains to be seen, however, is the extent of coverage in each area as well as related questions about specific treatments (e.g., in vitro fertilization).
For employers, the stakes are high. If the essential benefit level that emerges from the HHS/IOM process is relatively lean, it may actually entice some employers back into the market while at the same time helping to keep premiums steady. At the same time, a lower level of mandated essential benefits might also prompt employers that offer rich plans to scale back.
Employers will have to wait until at least September for more information on the essential minimum benefit package. At that time, the IOM is expected to release its initial report on the subject, which still gives HHS plenty of time to fine-tune the definition before the exchanges are set up in 2014.
Should we pay or play?
Beginning January 1, 2014, employers with at least 50 full-time employees must offer coverage that meets the requirements for essential minimum benefits. If a firm doesn't offer coverage, it will pay a fine of $2,000 per employee.
The fines in question are small relative to the cost of actually providing coverage, so obviously the government is not counting on the fines alone to make a compelling case for covering employees. Most employers won't base their decisions about offering coverage solely on the fines, either. Other relevant considerations include: tax consequences as penalties aren't deductible but premiums are, employee recruitment and retention, investments in workforce health and productivity strategies, and the viability of the state insurance exchanges as an alternative to employer coverage. At least one benefits consultant warns that "the cost impact of terminating employer subsidized coverage will be substantial to your employees and it may be necessary to consider alternate approaches to support an effective retention and recruitment strategy."2 The bottom line? Be careful about opting out.
Some employers are expected to opt out. According to a 2010 survey of 1,400 employers, only a slim majority (52%) expect to continue with their current health plans in 2014, regardless of whether the exchanges offer competitive rates. Many others (33%) are not sure what they will do and 12 percent expect to drop coverage altogether.3
One scenario employers may want to avoid is inadvertently failing the forthcoming benefits "affordability" test, which requires firms to offer coverage that does not exceed 9.5 percent of the employee's total household income. Failing that test may result in a $3,000 penalty and gives employees the option of demanding a "free credit voucher" from their employer to buy coverage from an exchange. Those vouchers must be equal in amount to what the employer would have otherwise spent on coverage through their existing plan.
Using employee salary data, the benefits administration and software firm bswift found that a typical company with 1,000 employees would likely employ about 60 workers with salaries that would be below the affordability test threshold. For that company, the resulting annual fines would amount to $174,000, or 2 percent of the employer's total health care costs.
Will the delivery system and payment system reforms make a difference?
One of the central ideas behind health care reform was that by improving health care quality, we could reduce waste, bend the cost curve, and save enough money to pay for covering more Americans. Employers waiting for those improvements in quality to materialize don't have much longer to wait. The Affordable Care Act includes more than a dozen significant delivery system or payment reform provisions that hold real promise to improve care quality and system efficiency.
Notably, these reforms include establishing a Center for Medicare and Medicaid Innovation that is charged with developing, testing, and implementing new payment approaches to streamline the adoption of models like the medical home. In addition, the Center will use efforts to revise Medicare's payment practices as models for commercial insurers. The Center has been appropriated $10 billion to support innovation activities through 2019; several demonstration project grants have already been awarded.
Employers have taken note. In October 2010, seven large employer–purchasers, including one state, joined together to launch Catalyst for Payment Reform, an organization that seeks to coordinate with the Center on payment reform to make sure its approaches are applicable to the private sector.
Other notable—but still pending reforms—include:
These and more than a dozen other provisions in the law hold real promise to help replace the prevailing pay-for-volume approach to provider compensation with a more enlightened process that drives quality and reduces waste.
What do the political and legal challenges to reform really mean?
The recent House effort to repeal health care reform may have been purely symbolic, but it was by no means the final assault on the law. Just days after the Senate struck down the bill, House of Representatives Republican vice chair Cathy McMorris Rodgers (R–Wash.) introduced a bill that would stop the Internal Revenue Service from enforcing penalties associated with the individual mandate. Other piecemeal assaults will inevitably follow, but with a Democratic majority in the Senate, these efforts are unlikely to represent a real threat to the law.
The legal challenges are another matter. At the heart of the various court cases challenging the constitutionality of health care reform—there were at least 24 at last count—is the argument that, in requiring Americans to buy health insurance, Congress exceeded its authority to regulate interstate commerce.4 The government's counterargument is that choosing not to buy insurance now represents a choice to try to pay for needed health care later, which isn't realistic and undermines the system. Four federal courts have already ruled on the issue: two courts have said the reform's mandate is constitutional and two have said it's not. This inconsistency virtually guarantees that the Supreme Court will weigh in on the matter decisively and probably soon.
A word about public opinion
It is probably inevitable that any 2000+ page law will be misunderstood, and the Patient Protection and Affordable Care Act is no exception. As recently as November, a poll showed that 48 percent of Americans supported repealing the law, but when asked about the key elements, they overwhelmingly approved its contents.5 Even the least popular elements—the individual mandate, raising taxes on the rich, reducing the deficit—were viewed favorably by about 60 percent of Americans. Between 70 percent and 80 percent support other key elements like closing the Medicare Part D coverage gap (also known as the "doughnut hole"), the health exchanges, and subsidies for low-income citizens.6
But public opinion does not make or unmake law. For now, health care reform is the law of the land and it will remain so for the foreseeable future. That makes the rational course of action for employers simple: consider your options, make decisions, and prepare, prepare, prepare.
1 U.S. Department of Health and Human Services, "Keeping the Health Plan You Have: The Affordable Care Act and 'Grandfathered' Health Plans," Fact Sheet, June 14, 2010, http://www.healthcare.gov/news/factsheets/keeping_the_health_plan_you_have_grandfathered.html.
2 E. Patterson and M. Colarusso, "Health Care Reform: Should You Pay or Play in 2014?" Charon Planning, http://www.kmco.com/nonwebarticles/Health%20Care%20Reform.pdf.
3 J. Goedert, " Health Data Management, "Will Employers Adopt State Insurance Exchanges?" Health Data Management Breaking News, Nov. 10, 2010, http://www.healthdatamanagement.com/news/reform-accountable-care-act-state-insurance-exchanges-employers-41329-1.html.
4 L. Lambert and J. Pelofsky, "Factbox: Lawsuits Challenging U.S. Healthcare Reform," Reuters, Jan. 31, 2011, http://www.reuters.com/article/2011/01/31/us-usa-healthcare-legal-idUSTRE70U7EG20110131.
5 E. Klein, "Is Health-Care Reform Popular?" The Washington Post, Feb. 23, 2010, http://voices.washingtonpost.com/ezra-klein/2010/02/is_health-care_reform_popular.html.