Plan Ahead

Companies that provide health insurance to employees will
soon face the financial impact of the sweeping new health care reform laws.
While small businesses may benefit from new tax credits and exemptions from
penalties if they dont provide sufficient coverage, many midsize and large
businesses likely will see health care cost increases.

There are still some gray areas in the law awaiting more
concrete regulations. But employers cant delay forecasting the potential
effect. They must act now to plan how to neutralize cost increases. Here are
four key areas where health care reform will affect businesses:

1. Health care plans
will need to cover more, so costs likely will increase. Starting this fall, the
new law requires coverage beyond what most employers now offer. For example,
children will be covered on a parents plan until age 26, and lifetime or
annual dollar limits on coverage are no longer allowed. There are also other
provisions that increase coverage and access to care, which employers will have
to incorporate into their health insurance plans.

It is not known how much more such expanded coverage will
cost, but estimated increases are from 0.5 percent to 4 percent. To prepare,
businesses should forecast the near-term impact on the cost of their plans.
This kind of analysis is particularly valid for companies with more than 200
employees covered on a self-funded plan (an arrangement in which the employer
pays for medical claims rather than buying a policy). Knowing what the added
expense will be allows the employer to decide whether to absorb it in the
operating cost or pass it on to employees.

2. Employers may be
subject to penalties when not providing sufficient coverage. Starting in 2014,
employers will face a fine if any full-time employee qualifies for and takes
advantage of a new federal subsidy to buy health insurance. The penalty will be
higher for companies that provide no coverage and lower for those that provide
insufficient coverage.

To prepare, employers should assess their risk of penalties.
Such forward-looking analysis right now will require making some assumptions.
But its essential for businesses to understand their potential financial
exposure, as some will find it significant. Additionally, firms with full-time
employees who arent enrolled in the company health plan will need to consider
the financial impact of these workers possibly opting to take employer-provided
health care coverage once the law that requires each person to have a certain
level of insurance takes effect in 2014.

3. High-value, or
Cadillac, health plans will be subject to excise tax. Starting in 2018,
businesses will pay an excise tax penalty if the value of their insurance plan
exceeds a certain limit. Employers should think ahead to see if they reach that
limit in eight years, given the rise in health insurance costs. For example, a
plan that costs $400 per single employee per month today (or $4,800 per year)
will be more than the $10,200 Cadillac threshold by 2018 if year-over-year 10
percent increases are factored in, something that hasnt been unusual over the
past few years.

4. Small-business
employers could get tax credits and other benefits. Tax credits will be
available to help companies with fewer than 26 workers purchase health
insurance. Businesses with fewer than 50 workers will be exempt from penalties
associated with not providing health care coverage. Also, companies with fewer
than 100 employees will be able to purchase insurance through state-based
exchanges beginning in 2014.

Small businesses should prepare by understanding whether
they qualify for new provisions, as well as how these new benefits weigh
against the potentially increasing cost of health insurance in the near term.

Provisions of health care reform will have both immediate
and long-reaching effects on businesses. Employers should act now to gauge how
the new laws will affect their employees and their bottom line.

Nita Petry is area president for Gallagher Benefit
Services Inc. in Washington state, with offices in Bellevue, Tacoma and Yakima.
Gallagher Benefit Services Inc., a subsidiary of Arthur J. Gallagher & Co.
(NYSE: AJG), is one of the leading employee benefits consultants in the United
States, delivering a full range of employee benefits services to companies of
all sizes. Nita can be reached at 425.454.6000 or [email protected].