Health Care Reform: Time For a Checkup?

Health Care Reform: Time For a Checkup?

Don't be fooled by a lull in the rollout of provisions. Now is the time to shape your health care benefits strategy.

Will it stay or will it go? Despite being signed into law in March 2010, the Patient Protection and Affordable Care Act (ACA) remains politically radioactive. Republican presidential candidate Herman Cain, a critic of President Bill Clinton's health care reform proposal nearly 20 years ago, says it is time to "repeal and replace Obamacare with patient-centered, free-market reforms." Mitt Romney, who himself has been roundly criticized by Republican competitors for health care legislation passed in Massachusetts, says he wants to "stop that law in its tracks."

For his part, President Obama recently began to embrace the term Obamacare, telling a campaign stop in August: "I have no problem with folks saying Obama Cares.' I do care. If the other side wants to be the folks who don't care, that's fine with me."

The political debate has spilled over into the courts, where more than 20 challenges to the law have largely focused on the individual mandate provision of the law that will require all Americans to buy health insurance or face a fine. The next stop for the legal battle is expected to be the U.S. Supreme Court. On Sept. 28, the Obama Administration asked the court to hear an appeal of the Eleventh Circuit Court of Appeals' decision that struck down the individual mandate. The Supreme Court is expected to rule on the case next June, adding a likely spark to the November presidential campaign.

While the law continues to be debated, one issue is clear. The reform law has not curtailed the steady rise in health care costs for employers. In fact, it appears to have exacerbated it, at least in the short term. Employers expect the average cost of health care benefits to increase 7.2% this year, according to a survey by the National Business Group on Health (NBGH) and Towers Watson. That is up from an average of 6% in 2010, and both figures are well above current inflation rates. About 1% of the rise this year can be attributed to the health care reform law and requirements it has imposed for coverage, says Helen Darling, president and CEO of the National Business Group on Health.

For example, ACA requires medical plans to cover dependent children up to the age of 26. For The Sherwin-Williams Co., a Cleveland, Ohio-based coatings manufacturer and retailer, that resulted in 700 adult children being added to its plan. However, notes Martha Lanning, the company director of health and welfare plans, the impact was tempered by the fact that these young adults tend to be healthy and make fewer claims than older enrollees.

"Manufacturers will be looking at costs going higher."
-- Ed Bray, director of compliance for Burnham Benefits Insurance Services

Concern about the affordability of health care was evident in a recent report from the Institute of Medicine. An IOM committee was charged with providing the Department of Health and Human Services with criteria for determining what "essential health benefits" must be included in health plans sold in the state-based insurance exchanges mandated by the ACA. The committee said it recognized "two competing goals: to provide health insurance coverage for a wide range of health needs and to make it affordable."

The panel compared the choices ahead to a shopping trip for groceries. You can either go to the store, fill your cart with the groceries you want and then find out what the costs are, or "walk into store with a firm idea of what you can spend and fill the cart carefully, with only enough food to fit within your budget." The committee recommended the latter approach, urging HHS to develop the essential benefits package with a focus on what small employers and their employees can afford. The committee also recommended that HHS update the benefits package annually, beginning in 2016. It said HHS should scrutinize costs on an ongoing basis, so the essential benefits package did not become unaffordable. It also urged development of a "strategy to reduce the rate of growth in health care spending, bringing it in line with the rate of growth in the economy."

Looking Ahead

For manufacturers and other employers, the next few months shapes up as "a bit of a lull period," notes Judy Bacchus, vice president and chief human resource officer for Kennametal Inc., the Latrobe, Pa.-based manufacturer of metalworking and other products. When the ACA went into effect, it brought several quick changes in benefit plans. Dependent children were covered until they were 26, caps on total benefit payouts were lifted and preventive care services were introduced with no copayment.

Some of the most far-reaching requirements of the law, however, won't go into effect until 2014. For example, the so-called "play or pay" provision of ACA will require employers to decide whether they continue to offer health care benefits or drop their plan and instead pay a penalty.

Sometime between now and 2014, ACA's automatic enrollment provision will start, which automatically enrolls employees in their employer's health care plan unless they opt out.

"The odds are enrollment will be higher," says Ed Bray, director of compliance for Burnham Benefits Insurance Services, an employee benefits brokerage in Southern California. "Manufacturers will be looking at costs going higher."

Though these changes are years off, employers should be taking action now to adjust their health plans, says Darling. She noted that the so-called "Cadillac plan" provisions of the law scheduled to go into effect in 2018 are already causing large employers to make changes to their benefit plans to control costs and try to avoid the tax. "The richer the benefits now, the more you need to hurry," says Darling.

According to an analysis by Towers Watson, many current plans could exceed the thresholds set by the law. Those thresholds are for health care plans where the annual value exceeds $10,200 for single coverage or $27,500 for family coverage in 2018. Plans that do so trigger a 40% nondeductible tax. For a single coverage plan with costs of $11,200, Towers Watson calculated, the plan would exceed the limit by $1,000 and trigger a tax of $400 paid by the employer.

Benefits experts say there are a number of steps companies can take to control costs now. One is to adopt consumer-directed health plans (CDHP), which commonly combine a high-deductible health plan with a health savings account (HSA). Enrollees use this tax-sheltered account to finance their "out-of-pocket" health care costs. Such plans provide protection against catastrophic expenses, but because they don't cover initial costs, say some experts, they encourage people to be more careful about the use of health care services. According to an August 2011 survey by NBGH, 73% of employers will offer employees at least one CDHP in 2012, compared to 63% this year.

Sherwin-Williams' Lanning said her company has already begun a "recalibration of our plan offerings over a number of years to make sure we don't hit that excise tax with a high-value plan in 2018." She reported the number of employees enrolled in the company's CDHP-HSA plan has doubled to 10% and projections are that nearly 25% of employees will choose that plan in 2012. She said the company has been educating employees how the CDHP-HSA plan can provide them good coverage, particularly with regard to preventive care, and save them money now that can be put toward future medical expenses. Lanning said Sherwin-Williams is acting now so it can gradually introduce changes to health care benefits.

Darling notes that CDHPs encourage employees to make cost-conscious decisions about health care. For example, employees can save money by using generic drugs rather than name brands, order drugs through the mail and avoid using emergency rooms for routine health care.

Lanning said health care reform and the shift toward CDHPs has led Sherwin-Williams to "dramatically" expand its communication activities about health and benefits. She said there is more targeting of communications to address the concerns of specific employee groups. The company also provides employees with information about the costs of procedures and the quality of providers so that employees can make better choices.

Wellness Programs

While companies are trying to get the best deals on insurance plans, they are also increasingly focused on trying to reduce demand for health services through wellness programs that promote healthy lifestyles and good management of expensive chronic health conditions.

"Viewing health care and a healthy population as an investment rather than an expense is really key," says Lanning. "You can have the greatest machinery and the greatest formulas in the world, but if you don't have a healthy, engaged workforce to make and sell your product, I don't think you are going to survive."

To help employees maintain or improve their health, Sherwin-Williams provides a $200 premium incentive if they complete an annual health-risk appraisal. The appraisals not only help individual employees identify health issues, but gives the company an aggregate view of the health risks in its population. "We really need to move from repairing something that is broken to predict and prevent," said Lanning.

Sherwin-Williams also provides a $500 incentive to employees and their covered dependents if they do not smoke. The company subsidizes Weight Watchers and smoking cessation programs. Where populations can support them, it also provides fitness centers. A study found that the fitness center at the company's Cleveland headquarters returned a 3-to-1 return on investment.

For employees living with chronic conditions such as diabetes or asthma, the company has a chronic care management program that Lanning says has proven very cost-effective.

At Kennametal, the company also offers incentives to employees to participate in health-risk appraisals. It promotes healthy living through a variety of programs such as smoking cessation, walking contests, biometric screenings and weight loss. The company cafeteria offers healthy food choices.

Mike Pepperney, director of HR benefits, said the company looks for ways each year to improve its wellness program and provide incentives to employees to pursue healthy lifestyles. This not only allows the company to mitigate increases in health costs, but promotes a healthier workforce.

Whether the ACA is repealed or not, employees will be more aware of their spending on health care, says Scott Loochtan, a financial planner and partner in Retirement Planning Group. That awareness that there is no free ride in health care will be an essential part of efforts to bring the costs of the world's most expensive medical-care system under control.

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