As the first snowflakes of change fall on the eve of health reform, HR professionals may soon wake up to an entirely transformed healthcare delivery landscape. The Patient Protection and Affordable Care Act (PPACA) clearly will impact every stakeholder that currently delivers or supplies healthcare in the United States.
While the structural, financial, behavioral and market-based consequences of this sweeping storm of legislation will occur unevenly and are not fully predictable, this first round of healthcare legislation is designed to aggressively regulate and rein in insurance market practices that have been depicted as a major factor in our “crisis of affordability” and to expand coverage to an estimated 30 million uninsured. However, fewer than 30 percent of employers polled in a recent National Business Group on Health survey believe reform will reduce administrative or claims costs.
Yet, it is unlikely that reform will be repealed. For all its imperfections, PPACA is the first in a series of storm systems that will move across the vast steppe of healthcare over the next decade resulting in a radically different system. Whether reform concludes with a single payer system or emerges as a more efficient public-private partnership characterized by clinical quality and accountability remains obscured by the low clouds and shifting winds of political will. One thing is certain during these first phases – inaction and lack of planning will cost employers dearly.
As the U.S. government struggles to rein in an estimated $38 trillion in unfunded Medicare obligations, the private sector and commercial insurance will feel the weight of the government’s efforts to reduce costs and impact our $12T of public debt. HR professionals will have to act thoughtfully to insulate their plans from the inflationary effects of regulatory mandates and cost-shifting.
So while many HR professionals are getting hit from all angles – finding it difficult to continue to transfer rising costs to employees, unwilling to absorb double-digit trends, under-staffed to intervene in the health of their populations and uninspired to assume the role of market catalyst to eliminate the perverse incentives that reward treatment of chronic illness rather than its prevention – they must forge ahead to address the intended and unintended impacts on the estimated 180 million Americans covered under their employer-sponsored healthcare plans.
To prevail over the elements, one must have a map and a flexible plan. It also helps to have a qualified guide. Consider the following as you brace for the “new normal.”
- Think Twice When Someone Suggests Dumping Health Coverage – Many smaller and razor-thin margin employers will be tempted to drop medical coverage and pay the $2,000 per full-time employee penalty – essentially releasing employees to buy guarantee-issue coverage through health exchanges, which will be available in 2014. Aside from impacting employers’ ability to attract and retain employees (consider how many of your employees will fall into the class of individuals eligible for federal subsidies), the assumption that the $2,000 will remain the baseline assessment per employee for those choosing to not offer coverage is a dangerous variable. While it is clear that PPACA as it is currently constructed creates obvious incentives for employers to drop coverage and allow those eligible for federal subsidies to purchase through exchanges, it is unclear how the government can continue to subsidize proportionate contributions on behalf of those buying through exchanges when costs start to inevitably rise. The General Accounting Office ( GAO) has already forecasted an increase of almost $500B in cost due to rising costs of subsidies as medical costs trend upwards. The forecasted CBO savings of $140B versus the GAO’s estimates of a $500B increase in costs have yet to be reconciled. Whether the $2,000 penalty was intentionally set low to entice employers to drop sponsored coverage and move America one step closer to a national system, or whether someone from the CBO missed a decimal, we expect the employer penalty for dropping coverage to increase as costs rise. Employers should be certain to model their own costs to subsidize minimum levels of coverage today against an uncertain future of variable taxes that will only increase to fund coverage subsidies.
- Pay attention to Section 105(h) now. – Many employers may be unaware that self-funded plans that discriminate in favor of highly compensated employees must comply with Code Section 105(h) non-discrimination rules. As of the first plan year following September 23, 2010, these rules now will apply to non-grandfathered, fully insured plans. Insurers may choose to exercise their right to either load rates for potential adverse selection or decline to quote because employers have failed to meet minimum participation percentages. Section 105(h) testing is critical for industries, such retail, hospitality and energy that historically have excluded various classes of rank-and-file employees or provided better contributions and/or benefits to their top-paid groups. Penalties for not complying with the new regulations are $100 per day per employee.
- Understand the sources of cost shifting pressure – As Congress and state governments wrestle with Medicare and Medicaid reimbursements and begin to focus on fraud, over-treatment and accountability for clinical outcomes, providers will feel the increasing pinch of reimbursement reform and will pivot in the direction of trying to shift costs to commercial insurance. Physician hospital organizations (PHOs) and other integrated healthcare delivery systems – where health systems operate primary care, specialty and inpatient care – are accelerating – giving more clout to providers in contract negotiations and increasing commercial insurance unit costs, potentially exacerbating already conservative insurer claim trend assumptions. HR professionals will need to better track employee utilization patterns for in-patient facilities especially in high-use urban and rural commercial hospitals that also derive a large percentage of their revenues from Medicare. If a hospital derives 60% of its revenues from government reimbursement and 40% from commercial insurance, proposed fee cuts will impact facility revenues and create pressure to cost shift to private insurance. An understanding of hospital utilization and consideration of tiered networks can help insulate your plans and drive lower costs.
- Don’t be intimidated by self-insurance – Many employers underestimate the advantages of self-insurance and overestimate its complexity and risk. But, in a post reform world, firms with more than 200 employees should give serious consideration to partial or total self-funding. Aside from the total transparency of commissions, fees, administrative expenses and pooling charges, employers own their own data. The sooner employers get comfortable with self-insurance as a risk financing strategy, the sooner HR professionals can construct loss control programs that can mitigate claims costs. By self-funding, employers may better manage their population’s health risk; may avoid a myriad of state-based mandates legislated to fund potential shortfalls should local exchanges prove inadequate to contain costs; and may increase flexibility with respect to plan design. Be certain to understand the economics of your self insured arrangement. A cheap third party administrator with weaker provider discounts and limited medical management capabilities ultimately costs you much more than services provided by a national insurer with better discounts. In other cases, insurers may have more than one PPO network and assign the less aggressive discounts to their self funded TPA based clients. Make sure you press for the best possible discounts.
- Forget Wellness – Think Risk Management. – Wellness has become a broad-brush term to describe any sponsored effort at health improvement. Forget wellness. Population risk management (PRM) is the operative term to describe a process of understanding embedded health risks and structuring plan designs to remove barriers to care and keep people healthy. PRM requires access to clinical data, cultural engagement and designs that have consequences for employees who do not engage. If employers do not understand the risk within their workforces, it is impossible to improve results or be confident that plan changes will drive a desired result. For example, more than 50 percent of claims arise out of modifiable risk factors and as few as five percent of employees drive 50 percent of claims. The great news is PPACA actually increases employers’ ability to charge up to 30 percent more in premium for individuals who do not actively get and stay healthy. Also, employers that establish comprehensive workplace wellness programs and (1) employ less than 100 employees who work 25 hours or more per week and (2) do not provide a workplace wellness program as of March 23, 2010 can take advantage of available government grants.
- You are the “market forces” everyone keeps talking about and you need to use this power to influence on-going reform. – Employers purchase healthcare for more than 180 million Americans – about 60% percent of all individuals who have healthcare coverage, but ironically feel less empowered, informed or in control of their spending or their employees’ behavior as they access the system. HR professionals must become activists for public health improvement and change – promoting healthy behaviors, transparency and accountability while putting an end to public-to-private cost shifting, overtreatment, fraud, abuse and clinical variability. Congress will only listen to employers because the other stakeholders have a perceived conflict of interest in how health reform is ultimately resolved. Employers must build up the courage and resolve to begin to reshape the local, regional and national delivery models that result in overtreatment and lack of accountability for poor outcomes.
As we look out the window, the full force of reform is still swirling somewhere off in the distance. As business hunkers down and adopts PPACA legislation, the question for many in HR is simply – will reform happen for me or to me?
Michael Turpin is Executive Vice President and National Practice Leader of Healthcare and Employee Benefits for USI Insurance Services. USI provides a range of business and risk brokerage, consulting and administration services to mid-sized and emerging growth companies across the US. USI is privately held and is a portflio company of Goldman Sachs Capital Partners. Turpin can be reached at Michael.Turpin@usi.biz