Five Key Healthcare-Reform Considerations for HR
As U.S. healthcare reform approaches its implementation next year, the key aspects of the Patient Protection and Affordable Care Act have become well known to most employers, but there remain more than a few issues that haven't received as much attention but still need to be addressed by HR executives.
By Tracy Watts and Eric Grossman
As U.S. health care reform approaches its implementation next year, the key aspects of the Patient Protection and Affordable Care Act have become well known to most employers, but there remain more than a few issues that HR executives are grappling with. Here are five key considerations for employers in this pre-implementation year:
1. The Hourly Threshold
For many companies, the question of providing health benefits versus managing hourly workers to less than the 30-hours-per-week eligibility threshold is a key issue, and in our discussions with employers it's evident that many of them haven't solved it. Beginning in 2014, companies with 50 or more full-time equivalent employees will face Shared Responsibility Penalties if they do not offer a medical plan that meets minimum plan requirements and with affordable contributions for all who work 30-plus hours per week.
More than half (51 percent) of employers we surveyed (in Mercer's 2012 Survey of Employer-Sponsored Health Plans) who don't currently offer coverage to 30-plus hour employees say they are likely to change their workforce strategy so that fewer employees work 30-plus hours per week. Other options, such as offering a lower-cost plan for newly eligible hourly employees, were favored by only 27 percent, while making all employees eligible for full-time employee plans was favored by 24 percent.
Regardless of their strategy, employers will have to rigorously track their employees' hours, relying on solid databases to document those hours. The data will be critical to prove what they may or may not owe in Shared Responsibility penalties based on IRS data calculations after the close of 2014. While 93 percent of the companies we surveyed in 2012 remain committed to providing health insurance to employees (for reasons that make competitive sense in terms not only of attraction and retention but also in terms of engagement and productivity), health-coverage decisions based on hours worked can have a significant financial impact.
Consider, for example, a company that currently offers coverage to workers scheduled for more than 35 hours a week and employs 1,000 employees who work 30 to 34 hours a week. We estimate that the cost of extending single coverage to those additional workers can range from $6 million to $8 million. On the other hand, the cost of reducing employee hours to below 30 to avoid ACA coverage requirements can be even greater, as more employees will be required to meet work demands, while the wage loss for the employees whose hours are reduced may take a heavy toll on productivity and profitability.
2. The Dependent-Coverage Dilemma
A popular provision of the ACA with consumers was the expansion of health-coverage eligibility to dependent children up to the age of 26. For employers, this extension added, on average, 2 percent to their cost of providing health coverage. Employers have responded by raising the employee contribution requirements for health coverage that includes the spouse and/or children.
The affordability requirement of the ACA only applies to individual coverage. With the cost to employees of adding dependents to their health plan increasing, over time this may result in significant cost to cover dependents and may become unaffordable for some. On the other hand, many employers want to be as competitive as possible in offering dependent coverage.
At present, this affordability issue represents something of a gap in the ACA, in that employees with affordable coverage from their employer that meets all the ACA requirements will preclude other family members from qualifying for subsidized coverage on a public exchange. This gap may be addressed in future changes to the law; in the meantime, employers can help their workers through communication efforts that help clarify the options for spouse, dependent and family coverage.
3. Resetting Benefit Values
As 2014 approaches, benefit plan design remains a strategic question for many employers. Each year since the law was signed into effect, employers have faced compliance requirements that have added cost to the health benefits. The elimination of benefit maximums and one hundred percent coverage for preventive care are several examples. This will continue into 2014 when employers must provide benefits to everyone working 30 or more hours per week, satisfy minimum plan design requirements and affordable contributions or be subject to the Shared Responsibility Surcharge. As employers quantify the impact of the law on their overall health benefit costs, many have become motivated to embrace bold plan design strategies.
In our research and interviews with HR executives, we see a trend toward more companies making consumer-directed health plans, or CDHPs, their default or core plans, and better communicating the advantages of the CDHP option, from which employees can buy "up" to higher benefit levels. As companies figure out their optimal mix of part-time/full-time employees in order to ensure productivity and balance the costs associated with the ACA, they can also take advantage of plan design strategies that can reset benefit values fairly and effectively.
4. Driving Improved Health
Employers have long been focused on improving the overall health of their workforce. Wellness and health management programs are prevalent strategies as well as favoring health plans with better coordinated-care management for high-cost patients. More employers are now willing to reward health performance through outcomes-based incentives such as offering lower premium contributions for non-tobacco users, or rewarding employees for achieving or maintaining specific health status targets such as BMI (body/mass index) or blood pressure.
While it's challenging to show the savings from improved health, about two-fifths of very large employers (more than 10,000 employees) in our 2012 survey say they have formally measured the ROI of their health management programs. And the results are strong: more than three-fourths say that these programs have already had a positive impact on their medical cost trend. As we move toward the ACA's year of implementation, the companies with the least to fear are the ones that have taken the initiative, embracing the greater good of better employee health.
5. Private Exchanges Rising
As one of the major changes wrought by ACA, new public exchanges through which health care can be purchased directly may be viewed by many executives as the solution to the unending problem of rising health care costs: Why not just end benefits sponsorship and send everyone to the public exchanges?
But as we noted above, very few employers are likely to terminate employee medical benefits. An emerging option, however, is to offer health insurance through private exchanges providing access to range of health plans. The private exchange landscape is growing quickly, as a number of players, including Mercer, have introduced private marketplaces for both large and small firms with as few as 100 employees.
It's worth noting that the use of a private exchange can facilitate the transition to a defined-contribution approach to providing benefits coverage. This transition mirrors the defined-benefit-to-defined-contribution revolution in retirement plans over the last 15 to 20 years. A DC approach shields the employer from the open-ended costs of traditional arrangements and gives the employer direct control over future cost increases.
While moving to a DC approach may solve an employer's cost issues, if it simply shifts increasing costs to employees, many will consider it sub-optimal. Private exchanges will operate much like markets do in other sectors of the economy. Since health plans and other benefit providers will be competing for the consumer's business, the market forces of innovation and price competition will be in play.
Many employees are currently over-insured for health coverage. A private exchange with compelling decision support and access to other benefit products that enable employees to manage their risks will help drive adoption of medical plans that will be less expensive and have a slower rate of cost increase.
Importantly, the employer's role changes when it provides benefits through a private exchange. Today, employers control most aspects of their benefits programs -- which benefits are made available, details of the plan design, which carriers/vendors are offered, and so on. With a private exchange, employers still will determine how much they will pay toward benefits and how to allocate that money among their employees.
But they will rely on the exchange sponsor to provide most or all benefits management functions, including handling the compliance complexities of the ACA. An end-to-end consumer experience -- ranging from employee education to decision support tools, shopping and customer-service enhancements -- also will be the responsibility of the exchange sponsor.
In all, the five considerations we've discussed are major signposts for HR executives and senior management as they navigate the thickets of the ACA on the way to 2014. While a number of the law's technicalities remain to be resolved, and changes are certain to complicate its implementation, these five realities need to be faced now -- to help ensure cost-efficiency and employee engagement as the healthcare-reform era continues to gain momentum.
Tracy Watts is a partner in Mercer's Washington office and is Mercer's U.S. Leader for Health Care Reform. Eric Grossman is a senior partner in Mercer's health and benefits business, in Norwalk, Conn., and the business leader for the Mercer Marketplace private exchange.