Benefits professionals see healthcare legislation as both less and more than its promise.
By The Editors
New legislation surrounding healthcare, namely the Patient Protection and Affordable Care Act (PPACA), is causing concern and anxiety for employers. How much concern? Towers Watson hosted a survey in May of 650 mid- to senior-level benefit professionals to capture how employers are responding to healthcare reform challenges.
The top three goals of employers for reform are containing costs, encouraging healthier living, and improving quality of care. The confidence in achieving this through the new legislation, however, is quite low. The survey reported that only 14 percent of respondents think healthcare reform will help contain costs; 25 percent believe it will encourage healthier living; and 20 percent see it improving quality of care. On a positive note, 89 percent of respondents expect the reform to reduce the number of individuals without health coverage (although only 27 percent stated that as a priority of the organization).
The survey touched on these key topics:
• Impact on objects and rewards;
• Education about reform;
• Reaction to costs;
• Developments from reform;
• Effect on retiree population; and
• Action to mitigate risk.
Impact on objects and rewards. Most employers predict little or no impact from healthcare reform on their organization’s ability to achieve key goals, including improving productivity (72 percent see little or no impact), retention (67 percent), and employee engagement (74 percent). One area that respondents voiced a concern about was negative impact on their ability to provide a competitive total rewards package. Thirty-five percent believe healthcare reform will have a poor impact, while 49 percent believe it will have no impact. This might correlate with thoughts on managing potential increased costs.
Education about reform. With the majority of employees concerned about the unknown impact of legislation on their bottom line, transparency is key. As a short-term goal, respondents look to educate senior management and employees on the reforms and their implications, as well as model the financial impact of healthcare reform on their organization.
Reaction to costs. The majority of respondents forecast that reform will raise their costs—an increase that will directly affect their employees. Eighty percent plan on passing along the fees to employees, while 74 percent will reduce their health and benefits programs all together. Conversely, if healthcare reform reduces costs, executives have a few different approaches in mind. Most employers—59 percent—would retain the savings; 49 percent would pass the savings on to employees by reducing their total share of healthcare costs or premiums; and 45 percent plan to offer enhanced wellness/health promotion programs. Figure 2 examines the likely reactions of employeers to cost increases as a result of healthcare reform.
Developments from reform. The potential for consumer-driven health plans (CDHP) is likely to increase as a result of the healthcare reform. Fifty-eight percent of employers surveyed believe these plans will be offered by an increasing number of organizations in order to drive down costs and encourage employees to be more accountable for managing their health and the cost of their care.
Starting in 2014, employers must offer minimal essential coverage to full-time employees or pay a penalty. When this provision takes hold, 88 percent of surveyed employers say they are either definitely, or likely, to continue to provide health benefit coverage. But as the law’s administrative and financial implications become clearer, employers don’t rule out the possibility that their perspective might change.
Through the new legislation, an excise tax might have an impact on plans with group health coverage exceeding specified premium cost thresholds, starting in 2018. Among employers with medical plans for active employees less than half (43 percent) believe they will be subject to an excise tax, while 6 percent were unsure.
Employers have reason to be more concerned about this provision of the PPACA than indicated by their responses. Towers Watson research indicates that more than 60 percent of companies will reach the proposed excise tax on high-cost plans in 2018 if the current trend continues. Of equal concern, the adverse impact of legislated caps would increase over time.
Effect on retiree population. Employer-sponsored retiree medical benefits have decreased in recent years as employers seek ways to contain costs. According to survey respondents, healthcare reform is likely to accelerate the drop. In 2010, 45 percent of employers provide retiree medical benefits, and 22 percent offer subsidized retiree coverage to future retirees joining the company as new hires. In the wake of PPACA passage, 77 percent of respondents report that there is likely to be either a moderate or significant decrease in the number of large employers offering employer-sponsored retiree medical benefits or a complete elimination (43 percent). It doesn’t stop there. The new legislation is encouraging organizations—58 percent—to reexamine their health benefit strategies for retirees.
For companies that offer pre-65 retiree medical benefits, the PPACA may be a boon. If the legislation works as intended, the robust individual health insurance market that exists for Medicare-eligible retirees will extend to pre-65 retirees. That could allow employers to exit their sponsorship of retiree medical programs, while still providing any desired financial subsidies to their retirees. By converting their current commitment into a reimbursement account and allowing retirees to choose how to spend it, employers can offer a subsidy while reducing their administrative costs.
Action to mitigate risk. With the bevy of challenges that healthcare reform is likely to present, the report offered some advice for employers to take in order to mitigate risk.
• Think long term. Healthcare reform is certain to have an effect on cost management, talent management, and productivity. Consider your business model and employee value proposition when tackling the financial implications.
• Take into account the retiree population. A major consideration of healthcare reform is the role of retiree medical in total rewards program. Analyze the cost and effectiveness of your organization’s strategy now to curb costs of the future.
• Avoid excise tax. Data from the 2010 Towers Watson Health Care Cost Survey revealed that organizations have the potential to avoid the excise tax threshold for roughly five years, or until 2023. The use of CDHPs is an approach employers are likely to use to maintain the medical cost component of the Consumer Price Index.
• Maintain a positive outlook. Strong workforce health will deliver several advantages. There’s a demonstrated link between workforce health and a strong bottom line. Employee engagement is also positively effected by a strong benefits plan, which drives performance.
• Take change head on. Change is inevitable, culminating with open enrollment in 2013, when the healthcare reform “big bang” will occur. As with any major change initiative, employees at all levels need to be involved in order to build acceptance and adjust behaviors. Organizations should begin to enlist support from leaders, initiate dialogue with employees, and build the communication infrastructure required to support this major change.