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All Eyes on the Exchange

HR professionals have no clear answers -- but some important questions -- when it comes to analyzing health-insurance exchanges, especially since the rules of the exchanges are a moving target. Compounding these vagaries is the uncertainty over how the U.S. Supreme Court will rule on charges that the law is unconstitutional.

Monday, April 2, 2012
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Among the most controversial components of the Patient Protection and Affordable Care Act is the ever-nearing reality of health-insurance exchanges. Often a source of confusion and ambiguity, the Act leaves many employers in the dark about whether these exchanges will benefit their employees and bottom lines.

The exchanges, which will be established by individual states or the federal government and will be available in 2014, are insurance marketplaces in which small businesses with 100 or fewer employees and individuals without insurance can purchase affordable and qualified health-benefit plans.

While states can limit participation in their exchanges to organizations with up to 50 employees, they also have the option of opening them up to employers with more than 100 employees beginning in 2017.

Some HR professionals are eyeing them as potential alternatives to their company-sponsored healthcare plans, especially as healthcare costs continue to rise.

However, since the rules of the exchanges are a moving target, they prompt an avalanche of questions. Will coverage in the exchanges be comprehensive? Will the plans be competitive? What will be expected of human resources?

Compounding these vagaries is the uncertainty over how the U.S. Supreme Court will rule this spring or summer on opponents' charges that the law is unconstitutional.

To help decide whether these exchanges make sense for their workforces, HR professionals are rolling up their sleeves and starting to take it all on -- considering the need to analyze each plan's benefits, comparing them against their current coverage, and keeping apprised of ever-changing regulations at both the national and state level.

Not to mention staying mired in speculation, since some key rules that will govern exchanges -- such as defining the structure and scope of plan benefits that will be offered -- have not yet been issued. So far, the process of figuring it all out appears to be demanding, even brutal.

Part Math, Part Guess

Perhaps the best place to start is to conduct a cost-benefit analysis of current healthcare plans and those under consideration, says Deborah Conklin, compliance officer at Ameridial Inc., a Canton, Ohio-based company with 850 employees that offers call-center-support services.

"Have in black and white what's required [for each plan] and develop a pro and con list," says Conklin, who also monitors employee behavior and performance, conducts new-hire training and reviews HR policies. "Look at the return-on-investment if you do plan A, B or C as well as the cost of not doing it. Within the regulations, where can you make a blend?"

When adding up the costs of each option or plan, HR also needs to include expenses related to staff labor. If HR decides to use these exchanges, for example, how much staff time will be spent on counseling confused employees, promoting exchanges, or developing and implementing an employee-communications program that explains what the exchanges are, what their benefits are and how to use them?

So far, she says, employers' biggest fears focus on just one factor -- cost. 

"I think that's the one piece that's been greatly lacking in what I'm seeing," Conklin says, adding that the federal government hasn't been clear on what employers can expect to pay per employee if using exchanges. "As long as you are well aware of what the financial cost is to you, that gives you some leverage as a business [to determine] if they are financially feasible for you."

Other missing pieces include the federal subsidy that will be offered to employees using exchanges, adds Larry Levitt, senior vice president for special initiatives at Kaiser Family Foundation in Menlo Park, Calif. He says eligibility will be based on family income, but how many employers know the family income of their employees?

Likewise, nondiscrimination rules are not clear.

There are no rules or details about how they will work, he says, explaining that companies don't know if they can drop coverage for low-wage workers and send them to the exchange but provide traditional employer-sponsored health insurance for managers.

In addition to dealing with all of the unknowns, HR must also make strategic decisions about how to shift employee compensation or re-allocate funds previously used for health insurance, says Levitt. 

Should HR distribute it to employees in the form of bonuses or wage or salary hikes? Should a bigger percentage be given to low-wage workers versus managerial staff? Should HR use the funds to expand existing programs such as leadership development or introduce new employee benefits, such as wellness programs?

Competitive and In Control

Despite the complexities and guesswork, Levitt says, employers with large, low-wage workforces "may find that the [scale] tips toward not offering coverage and letting workers go to exchanges."

The same holds true for companies that employ many part-timers or seasonal workers, says Helen Darling, president and CEO at the National Business Group on Health in Washington.

Here's why: Even if an employer pays 80 percent of an employee's healthcare, paying the remaining 20 percent may be out of reach for low-wage earners who are then forced to decline coverage for themselves or their family. However, the same employees may be able to afford coverage through the exchange with help from the federal subsidy.

Another big question is whether exchanges will make effective employee recruitment and retention tools. Not always, Darling says, which raises yet another consideration for HR.

"There are parts of the country where it would be almost impossible to run a business and not provide health benefits," Darling says, explaining that health insurance is a recruiting magnet. Without offering it to employees in the Northeast and Midwest, companies could not compete for talent since the majority of employers there provide insurance.

 "In places with high numbers of employers that don't provide coverage [such as Texas and California], you're not as much at a competitive disadvantage."

Exchanges may also work well for employers in specific industries, such as retail -- that usually don't provide rich healthcare benefits, she says.

Still, HR must ensure that it's providing enough of a healthcare benefit to remain competitive, especially since some employees mainly work for health insurance, not their paychecks.

"In those work situations, if you mess with the health benefit in any way, you will have a disproportionate negative effect," Darling says, adding that such employees may shop for a new employer. "You have to understand your workforce very well. Is the healthcare benefit highly valued? If you have a lot of early retirees, part-timers and seasonal, low-wage employees, and a relatively small number of employees who would benefit from [employer-sponsored] coverage, then [such coverage] may not be worth it to you."

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However, forfeiting control over employee health to exchanges may not be wise, says Dr. Troyen Brennan, executive vice president and chief medical officer at CVS Caremark in Woonsocket, R.I.

"Lots of people in the benefits world think that, by developing a specific insurance package, they can lower overall insurance costs and also lower costs associated with disability and absenteeism," he says. "They want to retain control over health insurance rather than simply have employees seek individual policies through the exchanges."

For example, he says, employees using exchanges may not purchase plans with robust wellness benefits, which may lead to delayed doctor visits and increased hospital visits, causing unintended employer costs such as higher absenteeism. He says HR professionals need to evaluate current employee behavior. Can they keep employees healthier than the exchanges can?

Lisa Bisaccia agrees. As senior vice president and chief HR officer at CVS Caremark, she sees that, "we also need to balance the issues of cost and access with how important it is for us to be able to develop and manage our own healthcare programs designed to improve health outcomes and ultimately, employee productivity, rather than cede control to an external group."

At this point, CVS Caremark's HR department has no plans to transition employees to exchanges. Bisaccia considers the company's current healthcare plan as an internal exchange in which employees can own their own health and, with HR, produce the "highest-quality outcomes."

Explain, Promote, Connect

Transitioning to exchanges requires a crisp employee-communications strategy that involves paper-based, online and face-to-face communication, says Craig Maloney, CEO of healthcare exchanges at Lincolnshire, Ill.-based Aon Hewitt.

"We've seen communication plans fall down [because] they were not consistent, easily understood or . . . presented at the point in time in which employees needed to make a decision," he says.

Exchanges put the onus on employees to become better consumers of healthcare, which can frighten some, or even anger others who feel their employer is abandoning them.

Since healthcare is an emotional, even volatile, issue, HR's communication plan needs to include a public-relations component that "sells" employees on exchange benefits such as access to more affordable coverage or the choice and autonomy exchanges offer, enabling workers to purchase a plan better catered to their needs, Maloney says.

Where HR may go wrong is not linking exchanges to the company's total-rewards, talent-development and retention strategies, which maximizes the potential impact of the change.

For example, with typical health benefits, some employers reward workers for losing weight, exercising or lowering their cholesterol. But with exchanges, he says, it's a one-time event. Employers simply provide employees with a subsidy to purchase insurance.

"There's a hole in the fact that some employers use these [rewards] as a differentiator, a retention tool," Maloney says. "If you move to an exchange, what becomes the new differentiator? The idea would be to ramp up your leadership and talent-development programs or wellness programs."

Meanwhile, Maloney says, exchanges developed by the state or federal government are just one slice of the pie. Others are being created by various organizations. He points to two exchanges developed by Aon Hewitt -- Navigators, an individual medical exchange that targets post-65 retirees, and Corporate Exchange, which is based on a group-plan model that includes exchange elements.

"This is a topic of extreme interest," says Maloney. "There's still so much ambiguity, so much variability state-by-state. I think [HR] folks need to have a concrete plan and clear understanding of how they will work, state-by-state."

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