If you cover your ears when someone starts talking about the Affordable Care Act—Obamacare in common parlance—you have lots of company. Running close to 1,000 pages, the act is mind-numbingly complex, and many details have yet to be worked out. To top it off, many of its provisions don’t even take effect until 2018.
But with the United States Supreme Court’s decision this summer to uphold most of the act’s provisions, it’s time to start paying attention. Even if Mitt Romney wins the presidential election, most experts believe health care reform is here to stay.
The biggest impact of the act is to make health insurance more accessible. “There will be 32 million more Americans with access to health care,” says Jeff Roe, senior vice president for employer and individual markets at Premera Blue Cross. What reform doesn’t do, notes Roe, is address underlying costs. The price could be a challenge to the state of Washington, which already spends about $10 billion a year on health care and is set to add hundreds of thousands of Medicaid patents to its rolls. But what does it mean for businesses that offer health benefits to their employees?
If you have more than 200 employees, it’s likely that you already have a generous health care package that covers the minimum requirements of the new law, including 100 percent coverage of preventive care. Still, large companies should keep an eye on a few things that could have an important impact on them.
Challenge 1: Employers at large firms will need to implement a plan that automatically enrolls employees in insurance, says Diana Birkett Rakow, executive director of public policy and government relations at Group Health Cooperative. They will also face new reporting requirements. action scenario: Rakow suggests large organizations consult with lawyers and tax experts for guidance on their specific situations.
Challenge 2: Effective in 2018, there will be a 40 percent excise tax on so-called Cadillac plans that cost employers more than $10,200 for individuals and $27,500 for families, notes Mike Gray of Mercer, a health care consulting firm. If you pay $500,000 in annual premiums, for example, and that’s $50,000 above the threshold, you will be taxed $20,000. “Some employers, like hospitals, public sector organizations and large companies that offer generous benefits, are going to be hammered,” says Gray. action scenario: “Labor negotiators and HR managers should be bringing up this issue, which could substantially raise the cost of health care,” says Gray. Although Congress could still change this portion of the law, he adds, for employers negotiating multiyear contracts beginning in 2016, it’s not too early to address the challenge. “We are encouraging some clients to bring up the issue in bargaining today,” he says.
The Affordable Care Act seeks to persuade more small companies to offer employees health insurance in three ways. It requires each state to provide a new Health Benefit Exchange that has a one-stop shop where individuals and small businesses can easily compare and purchase health insurance. To cover as much as half the cost of insurance, it includes tax credits for a limited time to companies with fewer than 25 employees with average incomes of $50,000 or less. And it penalizes firms employing more than 50 people if they don’t offer insurance.
Challenge 1: There is a great deal of uncertainty about what plans will be offered through the Health Benefit Exchange and at what price. Roe, at Premera Blue Cross, is skeptical of how successful the group benefits portion of the exchange will be, estimating that as few as 30,000 of the 460,000 or so employees currently in small-business group plans will seek insurance there. Patrick Chestnut, CEO of AAOA, which features employee benefits through chambers of commerce and other associations, says the uniquely heavy use in Washington of such associations to provide benefits to small companies (as much as 80 percent of small-business firms get their health insurance through such associations) means that the benefits exchange won’t have the kind of cost savings that might be available in other states. “We’ve already squeezed a lot of the cost out of the system,” says Chestnut. Grant McDonald of Seattle-based True Benefits, a health benefits broker, says associations that were created for the sole purpose of offering health benefits could be dissolved, forcing some small businesses to turn to the exchanges. action SCENARIO: If you can afford it, continue to get insurance through an association or take a look at the Health Benefit Exchange when it opens for enrollment in October 2013. Your employees will love you for it and you’ll find it easier to keep the talent you want. To stay abreast of the latest on the exchange, go to the Health Benefit Exchange web page on the Washington State Health Care Authority’s website, hca.wa.gov. Insurance companies must decide by the end of this year whether they will participate. If yours is a small company with many low-income employees, the exchange could make sense for you because you could have access to subsidies to help pay for those benefits.
CHALLENGE 2: Companies with more than 50 employees that do not offer insurance will be penalized $2,000 per employee per year for each additional employee over a head count of 30. To avoid the penalty, companies must provide benefits to all employees who work 30 hours or more, a requirement that could prove to be a heavy burden for restaurants, hotels and other operations that employ a lot of part-timers. action scenario: If you have more than 50 employees and the $10,000 or more cost per employee of providing benefits is simply too high, you may find it cheaper to pay the penalty and help employees pay the cost of getting individual insurance on the exchange. Depending on their income, some of those individuals could also have access to subsidies. But be aware that the penalties could increase over time. Another harsh reality for workers is that organizations with large numbers of part-timers may choose to keep each employee’s workload under 30 hours a week, or they may keep their head counts under 50, either by avoiding growth or by splitting the company.
Long term, the best way for a company to reduce premiums is to reduce health care costs per employee. The Affordable Care Act includes a number of innovations that encourage health care providers, insurance companies and employers to cut costs. But Kevin Cipoletti, area vice president at Gallagher Benefit Services, says other approaches to cutting costs that have been under consideration for many years could be introduced at an accelerated pace because of the pressure on all players to cut costs.
Accountable Care Organizations (ACOs): The health care law allows providers to establish health care networks through which patients can gain access to a range of services. These ACOs would be permitted to keep a portion of the savings they generate by introducing new efficiencies. The ACOs will initially target Medicare and Medicaid patients, but could become attractive as well to employers. A number of providers in Washington state are looking at creating ACOs. “If I were a large company, I would want to be following this,” says Gray at Mercer. “ACOs will likely use the most efficient doctors in town. They will be the doctors who understand that to make lower payments work, they have to deliver care differently.”
Value-based care: The focus is on cost, quality and outcome rather than on the number of visits or procedures provided. “You might see packages where an individual doesn’t have any co-pay for visiting a primary physician or being prescribed generic drugs, but would have a higher co-pay for specialists, expensive imaging services or high-cost brand drugs that don’t have proven efficacy, says Rakow of Group Health. A benefits plan designed by Group Health using such an approach saves King County $4,315 per employee per year compared to an alternative plan offered by Aetna.
Reference-based care: Under this approach, an employer’s health plan might put a cap or “reference price” on a given service, whether it is a knee procedure or a cholesterol test. A similar approach is to create incentives for patients to seek out low-cost providers by charging lower co-pays for such services. “Health care is one of the last bastions in business that is not a true marketplace,” says Roger Muller, medical director for United Healthcare Washington. The company recently began offering its 14 million enrollees its myHealthcare Cost Estimator, which provides physician and hospital rates for 100 common procedures, making it easier for consumers to comparison shop.
Defined contribution strategy: This approach, which is to health care what the 401(k) is to retirement, could gain currency as employers seek to limit their spending, says Cipoletti at Gallagher Benefit Services. Rather than providing employees with a certain set of benefits, the employer contributes a defined dollar amount and plan participants decide for themselves how to spend the money. In some cases, employees might be allowed to carry over to the following year money they haven’t spent, encouraging them to be wise stewards of their health care dollars.
The medical home: Many organizations are seeking to cut costs by putting greater focus on primary care, an approach sometimes called the “medical home.” Some companies are taking that one step further by offering primary care onsite. Microsoft has plans to establish a clinic on its campus, while Expedia is working with Qliance to offer on-site primary care. Gray of Mercer says such clinics could go a long way toward cutting costs by offering preventive care, treatment of chronic conditions and promoting wellness.
Encouraging wellness: A growing number of health plans will include incentives to encourage employees to live healthier lives. United Healthcare offers new incentives, including $20 a month to plan members who go to a health club at least 12 times a month, says Muller. Past plans by Premera, United and Group Health have shown high returns for investments in employee wellness.
Higher deductibles and co-pays: Premera’s Roe says that the most generous health care plans cost 40 percent more to the health care system than the least generous because of heavy use of services. But he notes that health care reform limits the use of exceptionally high deductibles because employers are required to offer care that covers at least 60 percent of an employee’s health care costs.
Staying nimble: Eric Larson, executive director of the Group Health Research Institute, says businesses that complain about health care reform are reacting to the first phases of reform that broadens access to health care, thereby raising overall costs. Over time, he says, the health care system will begin to evolve in a positive direction. “Peppered throughout the bill are a number of experiments and demonstration projects that should reduce cost,” he adds. In the meantime, businesses will need to be fleet-footed to keep their health care costs under control while they adapt to the new Affordable Care Act.
Seattle freelance writer Jonathan Shipley provided additional reporting for this story.