Many sectors of the healthcare industry are beginning to figure out what the reform that was passed nearly six months ago really means.
But some people—including health insurance brokers, insurance executives and consultants who work with employers on picking plans and how they will look—say that the reform already has hit the ground running.
And it may not be playing out as it was intended, according to some market watchers who have identified potential reform trends.
Some people could choose to pay a penalty rather than buy more expensive insurance—actually resulting in fewer people with health insurance. Larger companies could decide to pay for their own health insurance claims rather than pay pending taxes that are scheduled to come into play in 2014, the year when much of the law’s elements will take effect.
The Business Journal’s Vita Reed asked a few brokers, insurance executives and consultants to share their thoughts on how healthcare reform is affecting them and their clients. An edited version of their answers follows.
Greg Haack, Director of group sales, Pacific Group – Employee Benefits Specialists
Laguna Hills
One could make the argument that healthcare reform is a gigantic nuisance to employers.
While the overhaul of healthcare was designed to increase access to healthcare for the uninsured, many complain that the legislation is doing little to address the cost of healthcare.
In 2016, when insurance is (fully) required, the penalty for not purchasing insurance will be as low as $695 a year.
A shrewd consumer of healthcare will forgo paying months of expensive premiums and only enroll in guaranteed-issue insurance when he or she needs something as serious as a heart bypass. Once patched up, they’ll go home, drop their insurance and continue to game the system on an as-needed basis.
We desperately need these healthy bodies in the insurance pool. How is such a low penalty going to incentivize anyone, let alone those who are healthy and opt out of coverage, to pay for 12 months of health insurance premiums?
The poor economy has been a great opportunity for many of our clients (groups of 50 to 200 workers) to do a complete reset in their benefits offerings. With the understanding that employees aren’t likely to get a better employment offer, this is a great opportunity for employers to scale down the generosity of their benefits.
Healthcare reform cannot be looked to for rate relief, so employers need to proactively position themselves to absorb the expected future rate increases.
During the past five years, health savings accounts were all the rage. More than half of our clients offer their employees preferred provider organizations with at least a $2,000 deductible. For many, the high-deductible PPO is the base plan for employer budgeting purposes.
The next big trend is the greater adoption of Kaiser (Permanente), especially in South County. Kaiser is placing tremendous pressure on Aetna, Anthem (Blue Cross), Blue Shield, Health Net and UnitedHealthcare to keep their health maintenance organization prices in line.
We’re in the middle of moving a national retailer from UnitedHealthcare and Kaiser to just Kaiser. While Kaiser does offer a PPO, I’m surprised that the employer is leaving the comfort and peace of mind of UnitedHealthcare’s HMO and PPO networks for Kaiser.
I shouldn’t be too surprised though—if I were writing the check, I could learn to love Kaiser if it meant reducing my health insurance costs by 47%.
My gut says that healthcare reform is far from over. If Republicans win enough seats in November and take back the White House in 2012, all bets are off and much of healthcare reform will change before the more radical changes are phased in.
Todd Larue, Account executive, employee benefits, Heffernan Insurance Brokers
Orange
Healthcare reform is affecting the structure of my clients’ healthcare plans in 2010. For plan years beginning on or after Sept. 23, my clients are required to begin making changes to their health plan benefits.
For example, children up to age 26 are eligible to receive coverage from their parents’ plan, regardless of student or marital status. No lifetime maximum benefit limits may be imposed.
(Also), the plan may not apply annual maximum benefit limits for “essential benefits,” except as may be permitted in regulations to be issued at a later date. It cannot limit coverage for pre-existing conditions for children under age 19, regardless of whether the child has had a gap in coverage.
Under the new law, health plans may not rescind coverage on any individual, once the insured has become a participant in the health plan.
The recently enacted healthcare reform legislation includes a grandfather provision that permits my clients to retain the coverage they had in place as of March 23 (when the bill was signed).
A client’s plan would lose grandfathered status if there were certain changes, such as a significant cut or reduction in benefits for specific conditions, raising co-insurance that is based on a percentage, significantly raising deductibles or fixed copayment changes, reducing employer contributions, reducing annual limits or changing insurance carriers.
As my clients approach the first major set of health reform mandates, they must decide whether to keep their plans’ grandfather exemption.
My clients whose healthcare plans qualify under this provision must include a disclosure in their plan materials that the plan believes it is a grandfathered plan and therefore is not subject to some of the provisions of the Affordable Care Act.
When considering all the additional mandates that must be met and the expectation for healthcare costs to continue to increase at three to four times the rate of inflation, many of my clients simply came to the decision that it is not worth trying to maintain grandfathered status.
(Overall), with the government mandates soon to be enforced on my clients’ healthcare plans, I expect their healthcare costs to increase from the current levels by 14% to 16%. I expect my clients to continue to pass along the additional expenses to their employees by increasing their contributions, deductibles and co-insurance.
Furthermore, if medical (costs) continue to spiral out-of-control in the next couple of years, my clients are contemplating dropping their healthcare plans completely and forcing their employees to get coverage through the new healthcare exchanges.
Several of my clients have been outspoken in reference to paying the penalty beginning in 2014, when they will be mandated to offer healthcare coverage to their employees.
Chris De Rosa, President and general manager, Cigna Healthcare of Southern California
Irvine
We really haven’t seen a whole lot of change (in plan offerings for 2011). We’ve added the dependents up to age 26—it’s a moderate change to what a lot of employers already did here in California. Many of them already had students to 24 years old.
The biggest change in thinking that’s going on is that given the (insurance) taxes that are going to come into play in 2014, a lot of customers are now thinking about self-funding where they weren’t before.
I’ve recently had more dialogue around alternate funding than I’ve had in the last 10 years.
The other big thing that I’ve explained to employers is that 2014 is a long way away. If you have an unmanaged program, you could still see your costs double before that (part of the) law takes effect.
So many employers are aggressively talking about health and wellness. The only way they’re going to get reduced costs in the future is to have a healthier employee pop-ulation.
We are (working with our sales force to communicate reform chang-es to clients), and it includes daily, weekly and, in some cases, multiple times a day group conference calls and training because it is changing so rapidly. Every time the Department of Health and Human Services releases a new regulation, a new letter or a new advisory, we have to get it to our teams and make sure we can give good and accurate information.
I think that’s something all carriers are doing as quickly as possible, and a lot of the industry groups like (America’s Health Insurance Plans) also are providing good information to help people understand what’s coming out.
There really is a lot to do. The law did a great job on providing access (to insurance) but really didn’t address cost and quality. There’s still a lot of work that I do with my employers on how to help them control costs through health and wellness (programs). And there’s a lot I’m doing with (healthcare providers) about how we can continue to put in quality meas- ures that also will improve the outcomes for everyone.
So there’s still a lot to be done.
Mitch Morris, Principal, life sciences and healthcare, Deloitte
Orange County
Employers are carefully watching and waiting to evaluate the impact of health reform legislation.
For 2011, affordability is the prevailing issue for both employers and health plans. Most are expected to continue current trends of higher employee contributions and more a la carte benefit arrangements.
It’s likely that employers gradually will increase the use of incentives to change and reward healthy behaviors. At the same time, employers are carefully evaluating the impact of reform legislation with some considering dropping health benefits altogether and paying the penalty instead, which is significantly less costly.
Labor and a competitive market may push back on this trend, and additional tweaking of the final rules may impact how many employers drop or significantly reduce health benefits.
Consumers are concerned about how employers will respond to health reform legislation.
In a May survey of U.S. consumers, the Deloitte Center for Health Solutions found that 80% of respondents with employer-provided health coverage think the employer will pass the increased cost of health benefits through to its employees.
When asked whether they thought employers would pay the penalty and discontinue health coverage for employees, 61% said no.
Ronald Mason, Senior consultant, Towers Watson
Irvine
Employer evaluations of healthcare will revolve around two important dates: 2014 and 2018.
Because of mandates regarding benefit design for 2014, most employers are planning modest changes over the next few years.
Payroll contributions will rise more rapidly for dependents. Em-ployers are exploring other ways to constrain costs, including more limited provider networks driven by cost and quality, elimination of plan options with high premiums, restrictions on non-network coverage and wellness programs with strong incentives for participation and results.
A few more employers will begin to promote high-deductible plans, which (within limits) will be viable options under health reform.
For 2014, employers are considering who should be covered for benefits. Full-time employees will be eligible for coverage. Part-time employees may lose coverage at some companies due to potential costs of free-choice vouchers and the existence of health exchanges with government subsidies for low-income workers.
Some companies will exit health plan sponsorship for retirees. Those that don’t will review other alternatives for delivering retiree benefits. Communication with employees and retirees about company responses to reform have begun and will continue to escalate as 2014 draws near.
In 2018, the excise tax will apply to plans with costs above certain thresholds. At current trends, most employers will exceed the thresholds within the next 10 to 15 years, after which a 40% non-deductible excise tax applies.
Most employers are committed to operating plans under the excise tax threshold.
The drivers of these decisions around 2014 and 2018 are the need to manage and constrain health costs, and workforce planning. No one expects healthcare cost growth to slow appreciably between now and 2014.
