Nearly four months after President Barack Obama signed a health reform bill into law, employers are still grappling with
its impact on the health benefits they offer their employees.
The law assesses various new taxes to subsidize health coverage for 32 million more Americans, reducing the rate of the uninsured from about 15 percent today to about 8 percent by 2019.
The law will institute fines in 2014 on employers with 50 or more workers that fail to offer health benefits that meet a federal minimum threshold. It also will assess any individual that fails to obtain health coverage by that date.
To help individuals and small businesses buy health coverage, the law requires states to launch insurance exchanges by 2014, which are designed to make it easier to compare plans against one another.
In the days immediately after the law passed in March, large companies such as Deere & Co. and Caterpillar Inc. took accounting charges of more than $100 million because the new law would eliminate in 2013 a tax break on prescription drug coverage for retirees.
Also, new requirements for all health plans—such as no lifetime spending caps and coverage for children up to age 26—are likely to make policies at least marginally more expensive. So are new premium taxes that will be assessed on health insurers.
Some employers figured they could duck many of the law’s other changes by taking advantage of a grandfathering clause that lets existing plans still operate under old rules.
But in June, the Obama administration issued rules saying employers would lose grandfather status if they changed their plans even a little bit, such as by raising co-pays or deductibles more than 20 percent or by decreasing employer contributions more than 5 percent.
The Obama administration estimates that by 2013, half of all employer plans, including two-thirds of all small-business plans, will have lost their grandfather status.
That means most employers can’t avoid grappling with the requirements of the new law. They’re also interested to learn about the law’s incentives to encourage wellness and small-business health programs.
Uncertainty about the law has created a field day for attorneys and benefits brokers. Several have hosted seminars on the bill.
In May, a presentation by Barnes & Thornburg attorneys to the Indianapolis CFO Roundtable sparked a bevy of questions about the new law, yet many of the participants are still struggling to truly understand what the bill will mean for them.
Following are accounts of how five provisions of the bill will impact employers.
Taxing ‘Cadillac plans’ - Insurance for top brass would be taxed heavily
Indianapolis-based WellPoint Inc. and Kimball International in Jasper are among a host of large corporations that have doled out “executive physicals” and other perks for their top brass.
Under health reform, however, employers can no longer offer richer benefits to executives than they do to the rank and file. Also, if any of their benefits get too rich, they will pay a tax that is expected to generate $90 billion over a 10-year period.
The revenue should help finance coverage for millions of people who are uninsured. The tax also would help curb health care costs, supporters say, because insurers would be under pressure to reduce costs and premiums on their priciest products to avoid the levy.
The high-cost health insurance policies, whose generous coverage has earned them such nicknames as Cadillac or gold-plate plans, will still be allowed under a grandfather clause. But if a company changes its plans, those special options will no longer be allowed.
“It’s just the general nature of health care reform to get rid of the gold-plated plans that are available to executives,” said Bob Boyer, a principal at Mercer Health & Benefits in Indianapolis. “It’s a deterrent.”
The law imposes a 40-percent tax on the value of employer-sponsored health coverage exceeding $10,200 for an individual and $27,000 for a family effective 2018.
While insurers and employers of fully insured plans will be responsible for paying the tax, it is expected that the cost will be passed on to workers and retirees.
Yet, Boyer said corporations might explore other options to avoid the tax while still rewarding executives. One alternative could be to raise salaries to help offset the additional cost of the perks.
“We have a lot of employers who want to start planning now, because [the deadline] will come up quick,” he said.
– Scott Olson
Wellness incentives - Employers urged to launch programs
Wellness programs long have been promoted as the last and perhaps best hope for employers to rein in spiraling health care and insurance costs.
Now the federal government is upping the stakes by providing greater incentives to get even more companies involved.
Current law allows employers to establish wellness programs that reward participation by discounting or rebating up to 20 percent of the total premium for each employee. But beginning in 2014, the incentive jumps to 30 percent and could increase to as much as 50 percent, at the discretion of the federal government.
The Healthy Workforce Act introduced by Sen. Tom Harkin, D-Iowa, would provide small and medium-size businesses with tax credits to offer comprehensive wellness programs.
On top of that, $200 million in grants will be available in 2011 to small businesses with fewer than 100 employees to provide wellness programs.
The upshot for employers is that, by promoting healthier lifestyles, they can trim health care costs and workplace absences, which can translate into improved productivity and better financial results.
But will the incentives be enough to spark a new surge in the programs, and will more employees participate to claim a bigger tax break?
It’s likely, said Keith Reissaus, vice president of community and workplace initiatives at Goodwill Industries of Central Indiana Inc. But incentives are only part of the solution, he cautioned.
“[Employers] also have to have the necessary penalties and rewards associated with the choices,” he said. “Everyone needs to be accountable.”
Reissaus is the brains behind an ambitious wellness program at Goodwill that relies heavily on incentives to get employees interested in health. It has saved the organization $2 million in preventive and direct health care expenses within the past five years.
Goodwill, for instance, provides on-site health educators and also offers incentives for employees to enroll in exercise programs or smoking-cessation classes.
“Where we’re going next, because of [health care] reform, is that we want to be even more aggressive with those types of incentives,” Reissaus said.
Minimeds - Plans will be ended,but options remain
The days of the so-called minimed insurance policy are numbered. Health care reform dictates that the policies be phased out during a transition period ending Jan. 1, 2014.
Formally known as group limited benefit plans, minimed policies offer bare-bones coverage for such basics as natural childbirth and gallbladder surgery, but typically limit total payouts to a few thousand dollars a year. And therein lies the problem for purposes of health reform: The amount of coverage provided under policies can no longer be capped.
Minimeds were developed for companies and associations that otherwise couldn’t afford to offer insurance. The plans cost less than $2,000 per person a year—a fraction of the cost of a typical full-blown policy. Other limits, such as on the number of doctor visits, also are part and parcel of the genre.
Most employees who latch onto minimeds have low-paying jobs but enough personal assets to make the cost of insurance worthwhile—think school bus drivers or fast-food managers.
The plans proved so popular that an estimated 1.4 million Americans are insured under them, said Greg Wright, a longtime insurance broker who now specializes in investigating insurance and securities fraud.
“If this takes effect as the way law is currently written, those plans will come to a screeching halt, and those people will be out on their own,” Wright said. “They’ll be naked.”
The working poor in small organizations appear to have few options under reform, he said. Only organizations with 50 employees or more are forced to offer insurance.
As a result, people in low-wage jobs, many of whom work for small organizations, probably will not have the option of receiving insurance through their workplaces.
However, the health care bill aims to make affordable health coverage available through new insurance exchanges.
Expanded coverage - Costs expected to risewith widened coverage
A slew of new insurance mandates that begin to take effect this year could add to the escalating cost of coverage.
But most experts agree it’s too soon to know exactly how much, noting that any increase largely will depend upon a plan’s enrollees and the health of their dependents.
One of the key components of health care expansion allows children to remain on their parents’ plan until age 26. The new law applies to plan years beginning on or after Sept. 23. Plans that run on a calendar year must begin covering children under 26 on Jan. 1.
Many group health plans currently drop kids from their plans around age 19 unless they are in school full time, in which case they typically can remain on the plan until ages 23 or 24.
Susan Rider, a broker at Gregory & Appel Insurance, said she’s been slammed by employers seeking guidance about the changes.
“It is going to be a mess,” she said. “My volume of e-mails and phone calls [is] off the hook.”
Complicating matters is the fact that dependents can be covered even if they don’t live in the same state as their parents. And female dependents in particular could drive up the cost if they give birth while insured by their parents’ plan, said Shawn Gibbons, media relations chairman of the Indiana State Association of Health Underwriters.
“[The mandates are] going to cause costs to go up,” he said. “No one is quite certain, though, by how much.”
Changes that take effect this year also include no lifetime spending limits and no rescissions of coverage except for fraud or lying. In addition, preventive care must be 100 percent paid by the employer or insurer and fully insured plans must spend 85 percent of premiums on medical claims, or 80 percent for small group and individual plans.
In 2014, reform calls for no annual spending limits and no exclusion of coverage based on pre-existing conditions. Also, insurers must renew an employer’s coverage each year and new hires can wait no longer than 90 days to be eligible for health coverage.
Flexible spending - Prescription meds, supplies curtailed
Health care flexible savings accounts, a benefits staple that allows employees of an organization to pay expenses with pre-tax funds set aside from their paychecks, won’t be the same under reform. But that doesn’t mean employers will stop offering the perk, also known as “cafeteria plans” and “125 plans.”
Beginning Jan. 1, 2011, the plans can no longer be used to pay for over-the-counter medications and supplies, with the exception of prescription medicines and insulin.
Two years later, contributions to the accounts, which currently are not limited by law, will be capped at $2,500 per year and then indexed for inflation.
John Gause, president of Apex Benefits Group Inc., said the changes will add costs for employers, but that he expects employers to continue offering the accounts.
“It’s still a big benefit,” Gause said. “You just can’t do as much with them.”•
— Norm Heikens