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Industry Insights

A shout-out to the constituents of Health Care Reform: Understanding the impacts

Joseph Torella currently serves as the National Practice Leader, Employee Benefits Division, HUB International Limited, and President, Employee Benefits Division, HUB International, Northeast.
Joseph Torella currently serves as the National Practice Leader, Employee Benefits Division, HUB International Limited, and President, Employee Benefits Division, HUB International, Northeast. - ()

When the initial tenants of the Patient Protection and Affordable Care Act (PPACA) were announced, there was a fair amount of rhetoric around what it would mean for those directly and immediately impacted by the law versus those who appeared, on the surface, not to be.

But there wasn’t necessarily unilateral impact on individuals or employers...and the concept (perhaps reality) of keeping what you already have or ‘trading it in for the newer improved model’ wasn’t clear. Today, given the tens of thousands additional pages of regulatory guidance, atop the original 2,400 pages, even those who have not been impacted can feel a palpable change if not to them, around them. Here, we have highlighted a number of categories of people and illustrated how these folks have or will be impacted by reform:

1. Larger Employers That Don't Currently Offer Coverage

Typically if an employee is a participant in a true employer-based plan – affordability is mandated by PPACA or the employer is subject to a penalty and the individual may be eligible for subsidized coverage in the Exchange Market. The penalties for employers who don’t offer at least one affordable option (defined as 9.5% of ‘pay’) that meets minimum value levels have been delayed for some large employers until 2015 (other employers considered large under PPACA if meeting certain conditions may be delayed until 2016).

For employers/employees in an environment where penalties are delayed, actually much more work and an increase on compliance are critical. The delay wasn’t instituted (necessarily) because the law or subsequent regulatory guidance will be dismantled (although it could be), simply too many elements that needed to be operational, were not. So, did the employer get a break? Sure, as to the delay of penalties for employers, who don’t ‘play’ by not offering, minimal essential coverage, that provides minimum value and is affordable.

But the delay has also helped the economy because those businesses were going to have to find another way to pay for the added expense of offering coverage to those same employees and many of those hurt would come from service industries, such as telemarketing, retail, security, hospitality and construction. Moreover, those costs would (in large part) be passed on to the consumer. In an economy like ours, those are the types of challenges that could/would stall or damage economic recovery.

On the surface, it might appear that the delay is a minor change, but given that the law and subsequent weight of regulatory guidance, it really means that a lot more guidance is yet to come. Some things, such as employer taxes, fees and layered requirements are still in place and moving forward; while other impacts are not yet known.

In respect to employees, much of what I’ve indicated earlier is also true – it is unlikely that employers, absent the penalties (for now) will on a wholesale basis start offering coverage to all employees; that is not likely to happen until 2015. However, the flip side of that is also true, jobs or hours, or both in these particular industries are likely to be cut and those to whom coverage will be offered will often find the coverage options less attractive than they thought. And even if affordable, the question remains as to whether they’ll take the employer-sponsored coverage, seek options on the exchange or take the individual penalty which is likely to be less expensive than the other two options (and a likely variance between the doctors/hospitals they use today and those available through exchange coverage). But there’s more to consider for the employee in this environment: there is no affordability obligation for family members and spousal coverage is fully optional. That means that even with penalties in place, employed individuals may have viable options to choose from, but other family members won’t.

2. Employers That Already Offer Coverage

Employers already offering health insurance coverage to ‘all’ employees (unlike the industries mentioned above) will see very little impact of PPACA in their behavior toward employees. Employers have offered benefits because that’s what they were intended to be – the benefits an employee receives in addition to their compensation. Employers do so for many reasons – to remain competitive, to hire and retain the best employees, to help provide for and support its critical workforce, to name a few.

And, I might add that the same penalties, taxes and fees noted above will also apply equally to these employers as it does to those who don’t currently offer coverage as widely. But because they already offer coverage to their full workforce, the noticeable impacts will be very different and must be known and managed. Although potentially voluminous, let’s touch on a few highlights around those issues:

--For such employers, cost challenges of providing coverage will continue to loom a concern, but the added pressure of a 2018 Excise/Cadillac Tax means that steps to bend the trend curve today, are even more critical than ever, in managing costs that will bear additional tax burden in the future. For employers, especially in high cost areas (e.g. New York City), that tax is currently not indexed for regional or geographic differences. Therefore, employers will likely be differentially treated – not for offering a richer benefit program necessarily, but because they’re offering the same exact plan as someone else, but in a higher cost area. If they are either unaware or wait to address the issue until 2017, it will be too late to effectuate meaningful change.

--When the penalties kick-in, these same employers will unlikely be concerned with the pay-or-play penalties because of their employee strategy. However, they will need to take a closer look to ensure they offer at least one plan with minimum essential coverage or a plan that meets the minimum value standard at an affordable level.

--And, while there are other fees/concerns to consider, the driving message is that managing cost will demand that employers consider a range of options for managing their health plans:

  • Employers that don’t currently operate a self-insured medical plan will need to consider that option, even if they are a smaller plan and of a size that is atypical for a self-funded mechanism. This type of approach allows clients to avoid the additional PPACA Insurer Fees (although initially estimated between 1% and 3%, we’ve seen these as high as 4.5%) as well traditional premium taxes – and employers retain greater flexibility with respect to plan design, especially with respect to mandates.
  • HSAs should gain additional traction as an important tool in connecting employees more closely to their health care decisions and driving accountability. The design lends itself to smarter funding of health care than more traditional plan design options do.
  • Wellness initiatives are favored under PPACA in several ways. Implementing wellness is another important step in connecting employees with their health care decisions; and a well-designed program targeted at disease, will provide employees with improved clarity over the clinical risks they face. Under PPACA the current differential for employer-based wellness incentives is 30% in 2014 and the non/smoking differential can be as much as 50%. These can serve as powerful incentives for changing behaviors that are associated with health risk and plan cost.
  • As employers are incentivizing employees to be more informed about their health (clinical) risks, PPACA also calls for a restructuring in the way clinical services are provided and paid for. So, under the Accountable Care Organization models (driven by PPACA), employees will benefit from being more aware of the quality/cost they receive and payers will be more aware of the episodes of care they manage because the financial models are built to move from a ‘unit cost’ mechanism to an ‘outcomes-based’ mechanism.
  • And given these many changes (and more), Executive Benefit and Voluntary Benefit solutions will become even more critical due to the changing nature of how employers both offer and fund the several levels of benefits – using non-medical incentives for executives and ‘gap’ solutions for employees.

3. Individuals with Pre-Existing Conditions

While many of us know that PPACA did away with pre-existing conditions, what does that really mean for someone with a serious condition? Many questions arise about how this works; do they pay more, but still have coverage? Are they covered without paying more? PPACA was developed with a few overarching concepts – one of the concepts was that people could keep the coverage they had. Another concept was ensuring that coverage would be affordable, the last was that individuals without coverage, or the possibility of losing coverage, would be able to access ‘affordable’ coverage without fear of pre-existing conditions interfering with their ability to secure such coverage; or that coverage would have limiting provisions. And the law, together with subsequent regulatory guidance, attempts to do all those things.

PPACA mandates coverage for all individuals (with penalties for non-participation) so that there is a balance of younger and older individuals. The greater the number of younger participants (those who are healthy), the more affordable coverage will be for the rest of the covered population. There is one additional risk worthy of consideration whether an individual will seek coverage if the penalty is too small – and many people are concerned that the current individual penalties will be more palatable than the actual coverage.

Affordability in the long run will be based on the mix of participants in the pool. If the individual is in a pool dominated by twenty-somethings, the coverage will be much more affordable than a pool dominated by fifty-somethings. But in the short term, the Government hopes that the initial coverage offering of a variety of plans (Platinum, Gold, Silver and Bronze levels) will be considered affordable. The State in which the individual lives will also impact the affordability as well as the available plan options. Given the early adopters of public exchange coverage, the news is not good – very few young individuals are signing up driving the average age much higher than carriers predicted or that traditional models of risk can support – leading many to believe that cost increases are not far behind.

4. Seniors

Medicare is a very tentative topic given the 10,000 people a day who will join the growing number of baby boomers. Given the dynamics on the employer side, many are dismantling retiree health coverage in light of exchange availability, thereby reducing post employment health choices for seniors and financial obligation for the employer. But it might suggest the value of HSAs (even for this population pre-retirement) which can be powerful for the soon-to-retire generation that can use HSA savings post-retirement for COBRA premiums or for purchasing medical services (IRS-approved/213d expenses) on a pre-tax basis. But many have been concerned that the already exploding and growing cost for the Medicare population will also support the pocketbook necessary to fund PPACA expansion.

5. People on Medicaid

In an attempt to avoid the natural transition into some of the more political areas, the reality of PPACA as translated at the state level is that ultimately, the States had to decide if they’re in or out of exchanges and that, to some degree, plays into this question. And, why is it political? Because the shift in parties at the Governor level will determine to some degree which way the State swings.

That said, there are similar funding issues associated with Medicaid as with Medicare in that the system is already overburdened and that’s in a system where many who are currently eligible for Medicaid (and potentially for some time) don’t seek coverage as they should. Without getting into the reasons for that, it is very likely that employers/others will seek to identify Medicaid eligibles and do everything possible to encourage a Medicaid solution before a PPACA solution. One could also make a compelling argument that appropriately fitting the Medicaid solution to all those who are qualified would offer a much better picture of the true cost of that population while lessening the strain on employers or the public system. PPACA was enacted in part because tens of thousands eligible individuals either didn’t know they qualified for Medicaid, or didn’t pursue it as they should have. There is still opportunity to change that.

This is a much more important – and deeper – topic than be covered, but straightening out both Medicare and Medicaid, including fraud and abuse would infuse back into the system (probably) just shy of $100 Billion per year on a combined basis. Expanding coverage, increasing plans and ensuring millions of individuals (perceived as disenfranchised) can be reintroduced into the system without it necessarily costing us more if the system is reengineered more thoughtfully. Layering on more taxes without fixing the problems or potentially shifting funds from programs already struggling, may also create challenges that could be avoided or certainly managed more effectively.

6. Adults on Their Parents’ Coverage

The truth is that in many families, the extended family means that the twenty-somethings are living at home with mom and dad and unlike those returning from World War II; they’re delaying the start of their own families. Many such families may not even realize that the Federal extension of coverage for children to 26, in some states has been extended to 30 years old (or more). There are rules governing how the various state regulations might vary from the PPACA definition, but the idea is quite simply to provide affordable access and a simple way of distributing such coverage to a population that has traditionally lacked coverage.

Why? Because such younger individuals consider themselves indestructible . . . and therefore, medical insurance, especially at premium levels typically offered are considered much too expensive. Coverage through their parents’ plan is often employer-based and charged at a child’s rate; not what a young adult would pay on their own.

7. Members of Congress

There are two levels of consideration regarding coverage for members of Congress. One is Federal Employees and the second includes State Legislators. There already exists a Federal Employee Health Benefits Program and there are no major changes expected to the program as it exists today – that said, the provisions of PPACA also apply to Federal workers. Some have argued that the long term evolution of the Federal program could be expanded outward and become a ‘single-payer’ solution. There would be several challenges because it is unlikely that the current plan would be perceived as affordable. At the State level, the issues are generally the same with several of them considering the viability of expanding the State Health Benefits Programs to individuals and other constituencies.

Strategic planning for health reform is fast becoming more imperative than ever. Specific actions must be taken to help address the financial impact as well as to adapt to new announcements. Consult with your broker to review your particular circumstances and decide on the optimal financial and compliance strategy.

Submitted by: Joe Torella, president/national practice leader HUB International

Contributing Author: Dennis Fiszer, chief compliance officer, HUB International, Eastern Region

Joseph Torella currently serves as the National Practice Leader, Employee Benefits Division, HUB International Limited, and President, Employee Benefits Division, HUB International, Northeast. A 20 + year industry veteran, he is responsible for the overall management of the Employee Benefits operations throughout HUB Northeast's regional offices in New York, New Jersey, Connecticut and Pennsylvania. Torella joined HUB in December 2009.

Prior to joining HUB, he served as vice president, business development with Savoy Associates, a group benefits general agency in New Jersey, since January, 2003 where he was responsible for overseeing a regional office and expansion of the firm in Central and Southern New Jersey and into Pennsylvania.

Throughout his career, he has held a number of other managerial and executive positions for managed care companies and the consulting community.

Torella is the immediate past-president of the Central Jersey Association of Health Underwriters and a past-president of the NJ Association of Health Underwriters - the NJ statewide organization. He is also a past-president of the Northern New Jersey Chapter. He is a long-standing member of the American Marketing Association and the International Foundation of Employee Benefit Plans, Inc.

He has been a public speaker and continuing education instructor for the past fifteen years and often speaks on many topics including consumer-driven healthcare, transparency, managed care and related health care trends. He is also the author of a monthly column in the Financial Advisor. He has recently written articles for Corporate Wellness Magazine and been featured inCrain's New York Business on health care reform.

Torella earned his MBA and BA Degrees from Rutgers University. He lives with his wife, Fran, in North Edison and is an active member of the community and local school organizations. His son, Joseph, lives in Boston, Mass., and is working towards his PhD in Systems Biology at Harvard.

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