Health reform legislation challenges HR leaders and providers to manage change—and cost.
By Tracy Watts and Kelly Traw
After nearly a year of debate and political firestorms, U.S. healthcare reform became a reality in March, with the passage of the Patient Protection and Affordable Care Act (PPACA) and subsequent amendments. The result raises significant issues for employers and the healthcare marketplace during the coming decade and beyond—with immediate impact and long-term uncertainties that employers, HR leadership, and the benefits outsourcing community must address strategically.
Embedded in the law’s voluminous provisions is the goal of the expansion of health coverage by relying on many existing mechanisms, including public programs, employers, and the private insurance market. That goal is joined with an effort at removal of perceived barriers to coverage and affordability. But lack of detail and the unknown consequences about many aspects of the legislation will require ongoing interpretation, monitoring, and a flexible approach.
Indeed, while the first wave of regulatory guidance is arriving, various government agencies will continue developing regulations through a long and staggered process taking many years. In fact, with a long implementation timeline and intervening elections, modifying legislation could even be passed before some provisions become effective.
New Rules, New Strategies
By now, employers should be aware that two sets of new rules are slated for employee health benefit plans. The first set targets plan years beginning on or after September 23, 2010, including such requirements as offering extended coverage to covered employees’ children to age 26, and an end to lifetime dollar limits and recissions. The second set targets plan years beginning on or after January 1, 2014, and includes no preexisting condition exclusions, among other requirements.
Additional obligations to offer coverage to employees working 30 or more hours per week, and to pay a voucher to certain benefits-eligible employees, will raise administrative, cost, and strategic considerations for employers. And health industry fees, marketplace shifts, tax, and process changes will pose tactical and employee communication challenges. Obviously, a close collaboration with health benefit providers, consultants, and outsourced administrators will go a long way toward effectively addressing these new realities.
At the same time, healthcare reform reinforces the need for new ways to manage costs. Among its myriad complexities and uncertainties, the legislation means that more people will be covered by employer-sponsored health plans, with less variation permitted in plan design and contributions. One likely result will be more cost shifting from government, providers, and payers, with limited opportunities for cost-cutting. Thus, employers need an increased focus on managing costs that, left unchecked, might rise even faster in the reform era.
To attack this potential for out-of-control costs, employers should be collaborating with their trusted advisers on some basic strategic approaches. For starters, they should consider several assessments:
• Evaluate eligibility: For existing and non-grandfathered plans (i.e., a plan that was not in place before March 23, 2010), are you covering spouses and dependents who have access to other employer-sponsored coverage? What procedures will you use to hold participants accountable for terminating coverage if they have access to other coverage?
• Evaluate contribution strategy: Should you change and/or expand your coverage tiers? How much do you want employees to pay for dependents? Should you adopt salary-based contributions?
• Evaluate plan design: Do you have benefit maximums that need to be lifted? Is your plan in compliance with mental health parity requirements?
In addition, it’s time to consider a default plan for employee auto-enrollment in health insurance plans, another looming aspect of healthcare reform. Will the default plan meet minimum contribution requirements? Will your auto-enrollment process provide additional options as a buy-up or tied to incentives?
It’s also a good time to evaluate your carrier’s performance. Has it exhibited long-term viability as a market leader? Has it actively created sustainable, innovative healthcare delivery solutions that will positively impact cost trends and improve outcomes? Consider making vendor evaluations more rigorous and more frequent, with more aggressive performance guarantees, looking closely at disability case management and return-to-work programs. Demand evidence of ROI, improved reporting capabilities, more targeted messaging to all participants, including adult children.
Leveraging the rising tide of consumerist strategies for enhancing wellness and keeping healthcare costs down is sure to be a factor in the post-reform era. Member education, awareness building, and self-care options can combine with emerging engagement tools such as social networking, along with incentives for wellness program participation, health improvements, and the promotion of prescription drug switches to economical generic versions.
Then there’s the cost-saving advantage of offering high-deductible plans with health savings accounts. Mercer research indicates an economical $6,400 average annual cost for these consumerist plans, versus $8,200 for PPOs and $8,600 for HMOs. Beyond the cost advantage—in part driven by a less generous benefit design—these plans can provide a longer-term perspective on healthcare, engaging the consumer through decision-support tools to make better financial decisions. Structured and communicated properly, these high-deductible plans are more than just a low option for default coverage.
Another strategy for the reform era is to focus aggressively on quality, providing incentives for participants to seek high-quality yet cost-efficient care. Considering that a third of the care provided today is, by some estimates, inappropriate or unnecessary, the opportunity to address quality as a way to enhance outcomes and improve health status also translates into lower costs. This includes the trend toward “medical homes” for high-cost, complex conditions (medical homes are marked by an integrated, enhanced-access approach to care); domestic tourism to centers of excellence for high-risk, high-cost surgical procedures; and greater acceptance of non-physician clinicians, given the short supply of primary care doctors.
Adopting a successful, holistic strategy for the era of healthcare reform is not going to be a slam-dunk for organizations that delay. The time is now to model the impact of any plan changes to comply with health reform requirements, to evaluate alternative strategies and develop a short- and long-term strategy to comply. It’s also important to build a process to update strategy in response to future reform and market changes. Despite the frustrating fact that health reform legislation has many requirements that require further clarification, employers need to move forward into the reform era with their employees and providers—and not simply wait for those regulatory mists to clear.
Tracy Watts leads Mercer’s healthcare and group benefits consulting segment activity in the Mid-Atlantic, Southeast, and Southwest. She may be reached at tracy.watts
@mercer.com. Kelly Traw is an attorney and a principal in Mercer’s Washington Resource Group. She may be reached at email@example.com. This article is adapted from a presentation given by the authors at Mercer’s May 2010 Global Benefits Outsourcing Conference. in Washington, D.C.