The High Cost of Healthcare Reform

The healthcare reform law is placing added pressures on employers, as it adds direct and indirect costs to providing healthcare benefits to workers. "Employers need to look for creative solutions, because rising costs are not going to go away ... . If you want to continue providing healthcare benefits, you need to think outside the traditional box," an expert says.

Thursday, August 25, 2011
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The healthcare reform law, passed by Congress and signed by President Obama in March 2010, has been called many things. Some of them are positive, some unprintable.

The White House's own shorthand name for healthcare reform, the Affordable Care Act, may very well turn out to be affordable for the majority of uninsured Americans. For U.S. employers, however, the initial costs related to healthcare reform are expected to be anything but affordable, according to HR and benefits experts.

For starters, a June 2011 survey of 329 large employers by the National Business Group on Health, a Washington-based nonprofit that represents large employers on national health-policy issues, reports that employers estimate their healthcare benefit costs will increase an average of 7.2 percent in 2012.

"Employers face a multitude of challenges posed by rising healthcare costs, the weak economy, and the financial and administrative impact of complying with the new health-reform law," says Helen Darling, the NBGH's president and CEO.

Kathryn Bakich, senior vice president at The Segal Co., the New York-based benefits, compensation and HR consulting firm, says the group-healthcare aspects of reform are massive, and initially will drive up costs for employers, apart from normal cost increases.

Bakich, who also leads Segal's national healthcare compliance practice, says one example of the way costs will increase, even if indirectly, came on Thursday when the government released new regulations that affect summary-plan design and communications.

Specifically, the departments of Labor, Health and Human Services, and Treasury released new proposed rules for the "uniform summary of coverage" required under the Act, which require health insurers and group health plans to now provide consumers with "clear, consistent and comparable" information about their health-plan benefits and coverage beginning in 2012.

In addition, health plans and insurers must also provide at least 60 days' notice before any significant modification is made to the plan or plan coverage during the plan or policy year. 

The idea, Bakich says, is that, if the reform law's insurance exchanges become reality, such information offers employees an easy way to compare employer-sponsored coverage against other coverage options.


"Insurers now have to create brand-new content, a four-page double-sided document describing their plan in detail, and that is in addition to the typical summary-plan description document," she says. "You have to do everything you already do, plus this."

Mary Clark, principal of the health and welfare practice at Cammack LaRhette, a consulting firm specializing in healthcare, HR and employee benefits, says the complicated disclosure and reporting requirements placed on employers has substantial impact on organizations -- and it doesn't get much play in the mainstream media.

"They are not talked about, but they will add costs because they are on top of existing mandatory requirements," Clark says, referring to the requirement for a new uniform summary of benefits document.

"This bears little resemblance to the traditional way employers represent their healthcare offerings," she adds. "Insurance companies and health plans already are saying it will cost them a ton of money, and you know that cost will be passed on to employers."

On the flip side, Clark says, some changes subsequent to the Act's passage have provided some "relief areas" for employers, including repeal of the voucher program and elimination of 1099 reporting.

Sheryl Grey, a principal in Health and Productivity with Buck Consultants, says the recent headlines about court decisions on the Act's individual mandate are not a top priority for HR leaders.

"The individual mandate is not throwing much of a curve at employers, there are so many other issues for them to consider. It's certainly not top of mind," says Grey. "For so many of the healthcare-industry employers we surveyed, they don't see the mandate as a key component of healthcare reform."

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In fact, Grey says, there is a huge disconnect between what the general public hears about healthcare reform and what concerns HR and employers.

"People are looking at individual mandate as the big issue, but it really doesn't impact employers directly right now," she says. "Costs are the big thing."

According to Bakich, rising costs also will threaten employer plans due to the looming cuts to Medicare and Medicaid, which will lower provider revenues, the effects of which will "trickle down" to employers.

"Providers are already stressed, and that deficit will shift to insurers, and then to employers," she says, adding that HR and employers should be thinking about local solutions, what they can do about improving quality of care, where it is being provided and how to facilitate that care in a more efficient manner.

"They must think beyond the insurance company," she says. "HR and benefits professionals can do a lot, but most of all, [they] must become more proactive in overall claims-cost management.

"Employers need to look for creative solutions, because rising costs are not going to go away in the next five years. If you want to continue providing healthcare benefits, you need to think outside the traditional box," Bakich says.

According to NBGH's Darling, the most important thing for HR is that the underlying forces driving healthcare costs higher haven't changed at all, and if anything, healthcare reform will make it harder to control costs because there will be more demand while hospitals and other providers increase prices.

"HR executives have to be single-mindedly focused on controlling healthcare costs," she says. "At the same time, the federal government has to start helping reduce costs too.

"Like the national debt crisis that we are struggling to solve," Darling says, "we have to solve the healthcare-cost crisis, which is seriously undermining our economy, businesses' abilities to create jobs, working families, our global competitiveness and our standard of living."

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