The Affordable Care Act is here to stay. How your company can prepare.
By Sharon Cunninghis, Jeff Miller, and Tracy Watts
Healthcare reform will continue to be a matter of intense debate as the November elections approach, but now that the United States Supreme Court has upheld the individual coverage mandate and left virtually all other provisions of the Patient Protection and Affordable Care Act (PPACA) intact, employers need to determine their go-forward strategies for compliance, program design, and administration.
The first order of business for employers should be a healthcare reform checkup to assess the impact of the law on their benefits and business strategies. The imperative for employers and their benefits providers is to ensure that the complexities of the law’s requirements are efficiently administered, including the law’s enrollment requirements, which are expected to increase the roles of the insured for many employers.
Immediately following the Supreme Court’s decision, Mercer polled more than 4,000 employers. The majority revealed they were waiting for the court’s decision before developing a strategy around the law’s provisions slated to go into effect in 2014.
Employers must now act quickly to implement new requirements for 2012 and 2013, including providing benefit summary disclosures, complying with new dollar limits on healthcare flexible spending arrangements, reporting health coverage on 2012 W-2 forms, and increasing Medicare withholding for high earners.
Healthcare reform may result in additional medical plan enrollment, due to changes in coverage or enrollment requirements. For example, employees working an average of 30 or more hours per week will now be eligible for coverage. Twenty-eight percent of survey respondents report that this will present a “significant challenge” for their company.
Employers with large part-time populations, such as retailers and healthcare organizations, are faced with the difficult decision of either increasing the number of employees eligible for coverage or changing their workforce strategy. Nearly one-third (29 percent) also feel that auto-enrollment will be a significant challenge, placing additional pressure on cost. With the average cost of health coverage now exceeding $10,000 per employee, a big jump in enrollment will have a significant financial impact.
Meanwhile, the provision that has the most employers worried—47 percent of survey respondents—is the excise tax on high-cost plans, expected to go into effect in 2018.
Employers already struggling with annual healthcare cost increases of double or triple general inflation are determined to avoid this tax. Since the tax was proposed, consumer-directed health plans (CDHPs), high quality networks, and employee health management have becoming increasingly popular. Survey results suggest this trend will continue.
Current and Future States
PPACA’s key elements have been complicating things since 2010, when the bill’s requirements for expanded dependent coverage, no lifetime dollar limits, no rescission of coverage, and various tax and accounting changes regarding Medicare and retiree coverage went into effect for many employers.
Form W-2 reporting for health coverage is going to expand. Employers will want to communicate with their employees to ensure they understand their W-2 information and any changes to their medical plans. It is also an opportunity for employers to increase transparency around the cost of providing medical coverage, as this information will be on the 2013 W-2 that employees receive.
Next year, employers must notify employees about health insurance exchanges. A higher Medicare payroll tax will go into effect for employees making more than $200,000. By 2014, the individual mandate is slated to begin, along with additional reporting and disclosure requirements, and Health Insurance Portability and Accountability Act (HIPAA) wellness limit requirements. Come 2018, these additional standards and full implementation will begin, with a 40 percent excise tax on high-cost employee coverage.
The creation of public health insurance exchanges by the individual states is already starting to pop up. According to a recent report from the Kaiser Family Foundation, 14 states had established exchanges as of February, four had made plans to, and 22 were studying their options. Only nine states had no significant exchange activity and two decided not to create them at all. States can make use of a federal exchange alternative if they aren’t ready or choose not to create their own public exchange.
Given these complexities, we expect that employers will maintain as much control of their healthcare plans and costs as possible. Between now and 2018, many employers will stay focused on their competitive goals, paying attention to the impact of their health and benefit offerings on attraction and retention of key talent and a healthy, productive workforce.
Against this backdrop of health reform’s many requirements and uncertainties, employers that we’ve interviewed are proceeding with bold steps to manage costs in anticipation of reform. For example, some are considering CDHPs as a core or default plan for employees and newly eligible part-time workers. Some are starting to narrow their benefit spending by implementing high-quality network plans, making more employer-paid benefits voluntary (vision, dental, etc.), and reducing spend on dependent coverage. Organizations are also looking to add or improve wellness and health management programs, and favor health plans with better coordinated care management for high-cost patients.
Opening Lines of Communication
The realities of the health reform era bring new choices to light for employers. They can simply choose to “pay”—that is, to exit the system, stop offering health plans, and pay employees to buy from state exchanges. Or they can “play”—that is, to aggressively manage healthcare costs by applying enhanced versions of traditional solutions. They can also play in a new way: Move toward a defined contribution (DC) health approach and redefine the healthcare roles of employer and employee, funding and facilitating healthcare for employees rather than managing plans themselves.
The need to ensure compliance and administer complex administrative requirements has never been greater. PPACA carries with it a significant administrative burden for employers with its array of reporting requirements, payroll requirements, interaction with the exchanges, and an expected 50 percent increase in the volume of call-center questions from employees.
Employee communication strategies that engage, educate, and inform are a must. Employers will need to help employees understand how the changes affect them and provide meaningful education around the need to become active managers of their health. Organizations should aid employees in adjusting to this new set of responsibilities and expectations while also fostering appreciation for their benefit programs. Consumer engagement, accountability, health improvement, care management, and the importance of using quality providers should all be emphasized.
For the benefits outsourcing community, PPACA represents an unprecedented opportunity to ease the administrative burden and provide seamless service to employers and their diverse workforces. For companies and their service providers, it’s time to seize this moment. Whatever changes lie ahead, healthcare reform is here, and every stakeholder among us should rise to its challenges now.
Sharon Cunninghis is Mercer’s U.S. health and benefits regional business leader; Jeff Miller is president and group executive of Mercer’s outsourcing business; and Tracy Watts is a partner in Mercer’s Washington D.C. office.