News Briefs: Reform Costs

Increases in administrative costs tops employers’ concerns about the new health care reform law, according to a recent industry survey. A large majority (93 percent) responded they were at least “somewhat concerned” about the new administrative requirements created by the Patient Protection and Affordable Care Act (PPACA). More than half (56 percent) said they expect the additional reporting and disclosure requirements to cost $1 to $3 per employee, per new PPACA notice.

Small businesses continue to face steep challenges with health care premiums, a release from America’s Health Insurance Plans (AHIP) states. In 2010, the average monthly premium for small-business group health plans was $426 for single coverage and $1,117 for family coverage. AHIP’s analysis found that the smaller the company, the higher the premiums, with companies with fewer than 10 employees seeing average monthly premiums of $446 for single coverage.

A new analysis by Fidelity Investments links high 401(k) account balances with the presence of health savings accounts (HSAs). Fidelity found that the average 401(k) balance at the end of 2010 was $71,500. For those with HSAs, however, the average balance was a whopping $170,500. Fidelity found that HSA holders, on average, had larger 401(k) accounts regardless of their salary.

In a recent survey, the Society of Human Resource Management (SHRM) highlighted a number of once-popular benefits and perks that have shrunk under the pressure of a tough economy. SHRM pointed to traditional pension plans as one of the biggest losers. In 2007, 40 percent of companies offered this benefit, but only 22 percent continue to do so now. Retiree health care coverage also took a hit, with 10 percent fewer companies offering the benefit today compared with 2007. Even dress codes are tightening up, the survey found. Only 55 percent of employers say they encourage workers to dress casually once per week, down from 66 percent in 2007.

The Bureau of Labor Statistics has released data on employer-sponsored benefits for unmarried domestic partners for the first time. The data show that 33 percent of state and local government workers had access to health care benefits for domestic partners of the same sex, while 29 percent of full-time private-sector workers had access to those benefits. Part-time workers, however, rarely had access to such benefits, with only 9 percent having access to benefits for their same-sex partners, the report said.

Employers in the Dark About Effects of Health Care Reform

More than a year after the passage of the Patient Protection and Affordable Care Act, U.S. employers remain uncertain about the lingering effects that the sweeping law will have on the employer-based model for benefits. A survey report by employee benefits brokerage and consulting firm, Health Care Reform Survey: What We Know and What’s Coming provides a baseline of employer views and highlights the continuing uncertainty.

Respondents to the August 2011 survey, fielded to the firm’s current and prospective clients and other businesses, included U.S. employers in all industry segments, most of which are East Coast-headquartered businesses offering comprehensive employee benefits to full-time workers.

The survey results are intended to represent what’s “on the minds of business and HR leaders” as the health care issue continues to be front and center on the public docket. Highlights of the results are presented below:

• 28 percent of respondents reported that health care reform added 6 percent to their 2011 benefits plan renewal costs, while 24 percent reported that reform added between 4 percent and 6 percent to their 2011 renewal costs.

• In thinking ahead to 2012, 32 percent of respondents expect minimal increases attributed to health care reform. However, the results were mixed, as 20 percent expected a larger increase related to reform.

• A good deal of concern remains about the short- and long-term impact of the law. Toward that end, 52 percent of respondents were concerned about their ability to offer benefits to their workers in the future. Yet uncertainty remained a constant when it comes to the law. Whether it’s the upcoming presidential election or court battles, 44 percent said it’s still too early to measure the impact of the law, while 32 percent believe that it will hurt their business. In the end, 40 percent of respondents believe that Congress or the courts will not alter or revoke the law, 36 percent believe changes might be made and 24 percent are unsure.

• In thinking ahead, close to 50 percent of respondents are planning to make plan design/coverage changes to their benefit plans to contend with the impact of health care reform.

• 2014 is when major pieces of the law will take effect. For example, the advent of state exchanges and penalties on employers do not offer coverage, or offer inadequate coverage, take effect. Perhaps because of the uncertainty of the law or a lack of appreciation for the magnitude for the 2014 changes, 56 percent of respondents have yet to begin to plan formally for its impact.

• By 2014, many employers will have to decide whether to continue to offer coverage or pay a penalty to the government. The issue has gained a good deal of attention as employers and plan sponsors have begun to calculate the cost of coverage vs. the cost of the penalty. Some 60 percent of respondents have indicated that they do not plan to eliminate coverage, while 28 percent are still evaluating the matter.

• In examining the issue of dropping coverage for workers, 96 percent of respondents said it is important to their business culture that they continue to offer benefits. Furthermore, 92 percent believe that if they did drop coverage, it would be received unfavorably by their employees.

• When thinking of the full impact of the law and areas of concern, 68 percent of respondents were concerned with its expected new costs, 60 percent indicated they were concerned with the many unknown aspects of the law, and 56 percent said they were concerned about costs that insurance companies might pass along.

• In spite of the overwhelming information available about the law and its near-term impact, when asked if they had enough information to make important business and benefits decisions, some 60 percent of respondents said they did not and 64 percent reported that their employees did not understand the changes related to the law.

• The law has forced organizations to engage senior leaders in examining its impact. Toward that end, 64 percent of respondents report that C-suite executives have been involved and engaged in making decisions related to the law. Yet only 28 percent report having created a formal committee or process to review the impact of the law on a continuing basis.

Experts: Do Not Rush into Reform Decisions

If one thing can be said about the recent health care reform law, it’s that it has generated a barrage of questions for employers.

Will companies drop health care coverage and instead pay the penalty under the Patient Protection and Affordable Care Act (PPACA)? Will they drive their employees into the new state exchanges? Will the Supreme Court rule that the law is unconstitutional, throwing part or all of the law out the window?

The answers, of course, remain unknown for now. In the meantime, employers may want to consider some facts from a number of experts and recent reports about the law’s possible impact on businesses and their workers.

End of Benefits? Not So Fast . . .
While conventional wisdom holds that many employers will drop their health benefits in 2014 when the major provisions of PPACA take effect, that decision wouldn’t make economic sense for most, according to a new report by the Urban Institute for the Robert Wood Johnson Foundation.

That’s because “employers who drop workers’ coverage but fail to increase the employees’ wages in order to maintain their overall compensation will inevitably lose these employees to competitors,” according to a report by National Public Radio.

The law states that employers with more than 50 workers who don’t offer benefits in 2014 would have to pay a penalty (ranging between $2,000 and $3,000 per worker). If a company drops coverage, it would need to pay the penalty in addition to boosting wages to offer a competitive overall compensation package. For many employers, that might cost more than sticking with a robust benefit package that will recruit and retain quality employees, the researchers noted.

Switching to Exchanges? Hold On . . .
The proposed state exchanges that would help employees find health care coverage on their own might seem to provide an easy way for companies to dump their health plans while still ensuring that their employees have some coverage.

The drawback of the exchanges, however, is they will reduce an employer’s ability to affect worker health and behavior, which ultimately have a significant impact on productivity, said Troyen A. Brennan, an executive vice president with CVS Caremark, in a recent CCH report.

“Do you stay in the driver’s seat and proactively manage the health and productivity of your workforce, or do you climb into the back seat and take your chances?” Brennan asked at a recent industry conference. “Absenteeism and productivity go to the bottom line.”

Court Rulings? Wait and See . . .
This month, the Supreme Court announced that it would start reviewing cases involving PPACA (likely in February or March). Recently, a federal appeals court in Washington, D.C., upheld a lower court’s ruling that the individual mandate created by the law is constitutional. Many observers have noted that until the high court makes a ruling, it’s anybody’s guess as to the long-term effects of PPACA.

Health Care Reform Update: Anticipated Cost Implications

Yesterday brought a couple of potentially substantial changes to Health Care Reform that have not been discussed in the media. First, the Federal Appeals Court in Virginia reversed a lower court ruling that the Health Care Reform law is unconstitutional. The reasoning behind it being declared unconstitutional is what makes this interesting. It has been the general assumption that the U.S. Supreme Court would eventually have to make the final decision on the constitutionality of Health Care Reform and that it would decide sometime in 2012. However, if the Supreme Court follows the logic of yesterday’s ruling the decision could not be made until 2014–after the law is scheduled to become effective.

Second, in his speech last night, the President made job proposals that would cost about $450 billion. He then said that he would look for the Super Committee, already created by the debt limit compromise to find $1.5 trillion of budget reductions, to come up with this $450 billion on top of the $1.5 trillion. It was expected that a large portion of the original $1.5 trillion would come from money budgeted for Health Care Reform. Those original dollars of cut would have certainly cut into the impact and effectiveness of Health Care Reform. Now that another 30% of cuts will be necessary, implementing Health Care Reform will be even more difficult.

On a related note, the hospitals have begun lobbying to make part of the $1.5 trillion of cuts come from raising the eligibility date for Medicare from 65 to 67 or higher. In addition to cutting the budget and deficit this move would actually increase revenues to the hospitals because they get reimbursed about 30% more for non-Medicare patients than they do for patients who have Medicare. Hospitals are facing very substantial reductions in reimbursement as the result of Health Care Reform and looking to find ways to get an increased share of their reimbursements from employer sponsored group employee benefit plans. Keep in mind that if this type of change occurs, the cost of employer sponsored health care plans will rise even more than normal.

The second most powerful person involved with the implementation of Health Care Reform, Donald Berwick who heads up Medicare, recently described Health Care Reform as “an expedition of discovery”. One has to wonder how that “expedition” is going to be affected by drastic reductions in funding levels that were probably already inadequate when the law was passed. It appears that Health Care Reform as it stands is going to get more and more difficult to implement.

These developments should tell plan sponsors to plan for the future on two tracks:

The first is to assume that Health Care Reform will go into place in 2014 and plan accordingly.

The second track is to plan to do what makes the most sense for your organization assuming that Health Care Reform will not ever become effective. Reality will probably lie somewhere in the middle.

Posted by Jim Farley

In Reform’s Wake, Health Firms Adjust Employee Coverage

The ways in which U.S. health care organizations are responding to health care reform, as employers managing their own employee health plans, contain lessons for other organizations, according to an 2011 survey report.
Health Care Reform Readiness Survey of more than 200 professionals in U.S. health care organizations reveals that costs are expected to rise significantly with health care reform but will be balanced with increased access to care and a renewed focus on organizational efficiencies to improve patients’ quality of care.
Cost-Shifting and Health Promotion
The majority of health care industry respondents (75 percent) believe that health care costs will rise as a result of reform, with 43 percent indicating they expect a significant increase. To offset increased costs in their plans:
• More than 90 percent of health care employers expect to pass on some or all of these additional costs to their employees through higher employee contributions or reduced coverage.
• Some health care employers (48 percent) plan to facilitate improvements in employee health by increasing their wellness initiatives, while virtually none expect to reduce wellness programs.
Six in 10 health care respondents (62 percent) report that their employees have had very few questions about health care reform, while only 14 percent say employees have raised many questions.
On the other hand, 62 percent of respondents report communicating the impact of health care reform to their employees, and 33 percent plan to do so in the near future. Much of this communication activity has occurred in the context of annual benefits enrollment communications.
The major communication channels used to inform employees about health care reform included:
• Employee meetings (64 percent of respondents).
• Existing newsletters (41 percent).
• E-mails (40 percent).
• Intranet postings (22 percent).
Most organizations plan to maintain communications using existing channels (89 percent). About 35 percent will produce special educational communications (such as newsletters and e-mails) to educate employees on health care reform specifics.
Care Design Changes
Respondents said their organizations were implementing or planning to make additional changes to improve care in the next three years by:
• Using electronic health records (85 percent).
• Using evidence-based or predictive-modeling technology tools (66 percent).
Likely coverage delivery changes cited by respondents include reallocating primary care to nurse practitioners or other appropriate caregivers, comparing patient treatment outcomes and cost, increasing focus on patient care collaboration, and using social media to facilitate communication between health care providers and patients.

Sweating The Details: Health Reform Supporters Fret Over HHS Rules

PubliBehind the scenes, however, some worry that they are losing a few key battles to the insurance and business communities.

They point to a long-sought provision in the law that entitles patients to an external review if an insurer won’t pay for a medical service, but charge that recent regulations limit its effectiveness. One of their biggest gripes? It allows insurers to choose their own “external” reviewers.

“Advocates who have dealt with the external review process believe that it’s pretty clear that if [a reviewer] is being chosen by an employer [or insurer] it’s not independent,” said Timothy Jost, a professor at Washington and Lee University School of Law.

While consumers should be happy with some regulations, including one requiring health plans to summarize in simple language what their policies cover, Jost notes that other rules “feel like somebody from the Chamber of Commerce got to somebody in the administration.” He points to regulations that he believes are “more friendly” to employers and insurers than to individual consumers.

Erin Shields, a spokesperson for the Department of Health and Human Services, said the administration is balancing multiple interests as it implements the law. “The Affordable Care Act provides some of the most important protections for health care consumers in history,” Shields said. “As we implement these protections, we are working to ensure a balanced approach toward all stakeholders including patients, caregivers, doctors, hospitals, employers, and insurers to ensure that our system continues to provide world-class care effectively.”cly, consumer and patient advocates continue to cheer wildly for last year’s health care law.

By Mary Agnes Carey and Marilyn Werber Serafini

Nov. Webinar: Wellness Programs and Compliance

The Latest on Wellness Programs: What Can Employers Legally Do to Increase Participation?

Tuesday, Nov. 8
2 p.m. ET / 11 a.m. PT

Employer wellness programs are now a part of the benefits landscape. And employers that have tried the “soft” approach to implementing these programs (e.g. health risk assessments and biometric screenings) are now looking for ways that they can actually improve the wellness of their employees. That means greater incentives to participate in wellness programs — and sometimes even penalties for refusing to do so.

At the same time, employers are constantly reminded of the legal constraints they face in attempting to increase the level of wellness program participation. In this webinar, we’ll summarize those constraints and offer concrete examples of steps employers have taken to raise the participation level in their wellness programs. We’ll also look at some of the wellness-oriented provisions of last year’s health care reform legislation.

Kenneth A. Mason, Partner – Spencer Fane Britt & Browne LLP
Ken heads the Employee Benefits Group. He concentrates on ERISA and other aspects of employee benefits law, including tax and fiduciary issues, retirement and welfare plans, executive deferred compensation, federal employment discrimination statutes and issues unique to governmental and other tax-exempt employers.

Julia M. Vander Weele, Partner – Spencer Fane Britt & Browne LLP
Julia practices in the Employee Benefits Group and is a member of the ERISA Litigation Group. Prior to Spencer Fane, Julia was in-house counsel for Fortis Benefits Insurance Company, where she managed ERISA litigation and advised senior management on ERISA issues.

Please contact us if you’d like to register for this webinar or if you have any questions.

Note: This webinar event has been submitted to the Human Resource Certification Institute to qualify for 1.5 recertification credit hours.

Healthy workers are a benefit

For many employees, November is health care enrollment month. In recent years, re-signing has meant an increase in out-of-pocket expenses, higher premiums and deductibles, and/or less coverage — and sometimes all of the above.

The rising cost of health care affects not only the take-home pay of workers but the bottom line for companies. “It’s the gorilla in the room that is breaking the bank,” said Dave Rearick, medical director at gBehavior, an incentive-based behavior management firm. PricewaterhouseCoopers’ Health Research Institute predicted that corporate medical costs would rise 9.9 percent in 2008 and 9.6 percent in 2009. “Health care costs have become a top concern for CEOs,” Rearick said. “For manufacturers it’s usually a company’s third-greatest cost after labor and materials; for a service firm, it can be second, after compensation of employees.”

For the last decade, the trend has been to shift some of the cost to employees via higher premiums and co-pays or less coverage. “If the premium or cost of using the insurance becomes too high, of what value is the benefit?” Rearick asked. “The best way to control cost is to decrease utilization. It’s a lot cheaper to keep a well person healthy than [treat] a sick one. A healthy work force is a competitive advantage.” With chronic illness accounting for 75 percent of health care costs, organizations are beginning to integrate wellness programs, prevention education and disease management strategies into their benefit packages.

Surprising savings

“Seeing employers make innovative changes aimed at prevention and wellness instead of just shifting costs around is like a breath of fresh air,” said Nancy Kennedy, executive director of Northwest Georgia Healthcare Partnership. This not-for-profit organization, whose members include the city of Dalton and Hamilton Health Care System, is dedicated to improving the health of residents in Murray and Whitfield counties.

The organization was chosen to participate in the Diabetes Ten City Challenge in 2007, an initiative to teach employees with diabetes how to take better care of themselves. Based on the successful Asheville Project (1997) that has become a model for diabetes care by reducing payer costs and improving employee health, the challenge was sponsored by the American Pharmacists Association Foundation and funded by GlaxoSmithKline and participating employers.

“We had four employers with a total of about 5,000 employees, out of which about one in eight had diabetes,” Kennedy said. “When a patient gets into care, you’d think the health care costs would increase, but actually the opposite happens. The medication costs increase, but hospital, doctor and emergency room visits caused by uncontrolled symptoms and complications go down. We saw the cost per participant decrease by $1,460 in the first year.”

Employers paid for the medication and doctor visits of diabetic employees who agreed to meet regularly with a pharmacist trained in diabetes education. The pharmacist tracked the patients’ glucose levels and showed them how to make healthy changes to their lifestyles. Face-to-face consultations were key in getting people to take responsibility for managing their disease, Kennedy said.

By Laura Raines

Watch for dramatic declines in employer-provided health insurance

By John Barrasso
Most American workers value their employer-provided health insurance. It gives them the security of knowing they can get the care they need, from the doctor they want, at a price they can afford.

All that will change drastically if the president’s health care law remains on the books.

That’s not just a warning from a conservative Republican — the administration’s own chief actuary of Medicare estimated that more than 14 million people would lose their employer coverage during the next eight years.

Even some of the administration’s most ardent supporters are starting to complain. The Service Employees International Union, or SEIU, is on record as saying it would be “financially impossible” to follow this law.

In a study co-authored with my colleague, Sen. Tom Coburn, R-Okla., we reported the disturbing fact that more than half of all employers could have to stop offering employee health benefits altogether by 2013.

A June study by McKinsey and Co. concluded that 30 percent of employers would definitely cease offering employee benefits altogether by 2014.

That same study showed that among those employers who know how the law will affect them, as many as 50 percent could drop out.

The Obama administration already has handed out waivers exempting more than 3 million Americans from the law’s mandates. About half have gone to people who get their health insurance through unions like the SEIU.

If the terms of this onerous law now are “financially impossible” to meet for unions, why did they lobby for it in the first place?

And, more important, why can’t all Americans get waivers, too?

The answer to both these questions is that the new health care law is designed to ultimately end employer provided coverage altogether.

Under the law, businesses are permitted to drop out of paying for employer-provided coverage so long as they pay a fine of $2,000 per employee.

This number is far smaller than the $15,000 it costs businesses to provide family health benefits to each of their employees.

Small businesses face an even clearer incentive to drop coverage for their employees. They are not required to pay this fine for the first 50 workers who lose coverage.

And where are those workers supposed to go?

The new health care law has set up health care “exchanges” for them to enter.

These “exchanges” are shorthand for insurance markets where as much as 80 percent of the cost of a family’s insurance could be borne by taxpayers.

Under these circumstances, the natural response is for businesses to drop coverage for their employees altogether and simply offer them less expensive cash benefits.

Meanwhile, the employees will have to replace the coverage they like with a plan Washington mandates.

The really bad news for taxpayers is that the annual cost of providing these huge subsidies — about $900 billion — is more than nine times what the White House is willing to admit.

This is because the estimates Washington uses to claim this law is “deficit neutral” assume that no employers will drop coverage at all, even though it is clearly in their financial interest to do so.

The facts are clear. The health care law takes away the coverage that Americans have and will drive America further into debt.

It is bad for patients, bad for providers and bad for taxpayers. I am working to repeal and replace this law with patient-centered reforms.

Americans want high-quality, affordable health care coverage. The president’s health care law doesn’t come close to achieving that goal.

Sen. John Barrasso, R-Wyoming, is an orthopedic surgeon.

Lower health care costs: Employers struggle to change employee behavior

Employers are putting the onus on employees to help curb rising health care costs, and the inability to motivate and change employee habits is prompting concern, according to Aon Hewitt, a global human resource consulting and outsourcing business of Aon Corp.

“As employers wrestle with the reality of continued increasing costs, they are ramping up efforts to ensure cost efficiency, including negotiations with insurers, elimination of ineffective programs, and pursuit of new approaches to motivate employees to use cost effective, high quality providers,” Jim Winkler, Large Employer Segment leader in the Health & Benefits Practice with Aon Hewitt, told Insurance Networking News.

In its 2011 Health Care Survey, Aon Hewitt surveyed 1,028 employers nationwide, and discovered that the top health care outcomes that organizations would like to achieve this year are improving employee health habits (56%), lowering the health care cost trend (49%), decreasing worker health risk (44%), increasing participant awareness of health issues (37%) and enhancing participation in health improvement/disease management programs (37%).

This survey suggests that success may be difficult, as 56% of respondents say motivating participants to change unhealthy behaviors is the most significant challenge to accomplishing 2011 health care program goals. This was followed by issues involving reluctance to change (26%), unpredictability of costs (23%), government regulations/compliance (22%) and managing the health of an aging workforce (21%).

Both companies and health insurers have a vested interest in taking a proactive approach to wellness. In particular, the survey revealed that many companies offer disease management (70%), health and wellness improvement (64%) and behavioral health (60%) as key components to health care strategies. In an acknowledgement that more needs to happen to achieve success, many organizations are looking to expand efforts during the next three to five years and implement strategies that focus on total well being to improve physical and mental health (60%), absence management (53%), and integrated safety and health improvement efforts (50%).

“Despite reform, organizations still face rising costs and worsening population health,” says John Zern, Americas Health & Benefits Practice leader with Aon Hewitt. “It’s clear that traditional annual trend mitigation tactics alone won’t work. As a result, leading employers are implementing a ‘house money, house rules’ environment, using a mix of incentives, penalties and targeted messaging to reward healthy behaviors.”

While some companies are budgeting for a medical trend increase during the next four years, many do not have a long-term increase built into their budgets as of yet. Nearly one-third of respondents (30%) have budgeted an annual medical trend increase between 4% and 7% from 2011 to 2015, and 22% have budgeted an increase of more than 8% during that time. Meanwhile, 42% have not built an annual long-term increase into their budget at this point.

“Employers are spending millions of dollars annually on health care, and yet many report they do not have a specific plan for how best to manage that investment,” Winkler says. “Given the risks and opportunities presented by health care reform, it is imperative that employers develop a written strategy for controlling cost and improving health.”

By Pat Speer