The Challenge of Obamacare
As the nation's employers prepare for the Affordable Care Act's implementation, many are focused on the law's 2018 excise taxes -- and how to avoid them.
By Andrew R. McIlvaine
During recent meetings around the United States with members of her organization (mostly large companies), Helen Darling says she was surprised at the lack of antipathy expressed toward the Affordable Care Act -- a marked change from earlier meetings. However, a question that came up repeatedly, she says, was whether the recently announced yearlong delay in the law's "play or pay" component -- requiring employers of a certain size to either offer affordable health coverage to their full-time employees or else pay a penalty -- meant the ACA was heading for repeal.
"I told them that, unless there's a big change in Congress and the White House in 2016, the law is not going to be repealed," says Darling, president of the Washington-based National Business Group on Health. "I told them they should continue on the path to compliance."
"This is nothing more than a tactical delay," says Chris Ryan, vice president of Roseland, N.J.-based ADP's Strategic Advisory Services. "For all practical purposes, the ACA is moving ahead and the strategic implications have not changed."
HR should be taking advantage of the delay to test and "harden" their systems, he says, using next year as a dress rehearsal to ensure they aren't hit with big fines for noncompliance in 2015.
"The first thing I say to clients is: 'Don't let up,' " says Ryan.
"I don't think employers should be taking their feet off the gas pedal, but [the delay] does allow them to ease up a bit and let the market develop a little," says Chris Calvert, health practice leader for New York-based Sibson Consulting.
Even before the delay, however, Calvert, Ryan and other consultants say their clients -- many of them large and mid-sized companies that already offer healthcare benefits to most of their employees -- were focused mostly on finding ways to avoid the ACA's 2018 excise taxes (also known as the Cadillac tax) on high-cost health plans.
"About two thirds of the employers we surveyed last year said they would probably trigger those taxes in 2018 unless they made changes," says Sandy Ageloff, health and benefits group leader at Towers Watson in Los Angeles.
To avoid that 40 percent tax, employers will need to keep total health-plan costs below a threshold of $10,200 for an individual and $27,500 for a family in 2018.
But doing this "may require fundamental changes in the type of health benefit [employers] provide and how they provide it," says Tracy Watts, a partner at Mercer's Washington office.
As businesses throughout the United States prepare for life under "Obamacare" -- a name that was initially seized on by President Obama's political opponents but has since been embraced by many others, including the president himself -- they are rethinking their approach to health benefits.
Some are choosing to make high-deductible health plans their only option, while others are taking a "defined-contribution" approach by giving their employees fixed amounts of money to purchase their own plans on private healthcare exchanges. Companies are also taking a look at new quality and transparency software tools designed to make employees better healthcare shoppers by encouraging them to focus on price and quality.
On a broader level, many employers are taking a hard look at reining in the cost of healthcare by changing the way doctors and hospitals are paid for their services. This movement is being helped along by recent stories in Time and the New York Times about wide discrepancies in the prices charged
by providers -- often within the same ZIP code -- for identical medical procedures.
"Employers are looking at adopting more aggressive, data-driven techniques to improve healthcare purchasing and to shift payment focus toward services and providers that produce higher-quality outcomes," says Jim Winkler, chief innovation officer for health and benefits at Aon Hewitt.
"It's Their Money"
More than a third of employers say they have begun taking steps now to avoid the 2018 tax, most commonly by focusing on high-deductible health plans, according to a Mercer survey of 900 employers released earlier this summer.
"The nice part of having the tax come into effect later, in 2018, is that you can do things that don't have an immediate short-term impact but can retrain people over time over what represents cost and quality," says Calvert.
Some employers are trying to make their workers active partners in the fight to lower healthcare costs by encouraging them to scrutinize and compare the prices charged by local providers for identical procedures.
At Indiana University, approximately 70 percent of the Bloomington, Ind.-based institution's 18,000 employees -- along with their family members -- are enrolled in a high-deductible health plan paired with a health-savings account that's seeded with money from the university. The plan includes carve-outs for preventive care and medicine for chronic illnesses, so employees don't have to use their deductibles to pay for such things as insulin treatment for diabetes.
"It's marvelous how quickly employees begin thinking of the funds within the HSAs as their own money, even when it comes from the university," says Dan Rives, IU's associate vice president for human resources. "When they see it as their money, they tend to make their decisions a little differently."
By "differently," he means that they tend to want to spend it more judiciously -- and the university offers them a price and quality transparency tool from San Francisco-based Castlight Health designed to help them do just that.
"A major piece of this strategy is getting people to understand that there can be huge differentials in price -- not so much for primary care, but for specialized services such as MRIs," says Rives.
He cites a close friend who recently underwent a CT scan as an example. After the friend's physician recommended a provider, the friend asked whether she was required to use that provider. When the answer was no, she did some research on Castlight and found that, not only were there a total of four different providers in her part of town offering CT scans using identical equipment, but their prices for the procedure ranged from $750 to $1,700.
"Ever since then, she's gotten more engaged in making healthcare decisions than I could ever have imagined," says Rives. "People are walking around checking out the prices of procedures on their mobile devices. I can imagine, in the near future, people walking into a provider's office with this information on their mobile devices and being ready to negotiate."
The tool includes quality information on each provider, along with the source of the quality information, says Rives. Additionally, users can find out whether the provider is accepting new patients and get driving directions to the facility.
"When it comes to their money, our employees are sponges for this type of information," says Rives.
"The closer you can bring employees in, the more they can help you," says Dexter Shurney, executive director of global health and wellness at Cummins Inc., a Columbus, Ind.-based provider of diesel engines and components.
The company offers only a high-deductible plan to its 18,000 employees in the United States, he says. In addition to a transparency tool from Castlight Health, Cummins provides a service called Second Opinion, which lets employees consult other doctors for additional advice on whether they need a procedure that's been recommended by one doctor.
Pushing for Payment Reform
Getting employees focused on price and quality may turn out to be an effective strategy, but it can't be the only strategy, says Suzanne Delbanco, executive director of Catalyst for Payment Reform, a San Francisco-based employer coalition pushing for "better value" in U.S. healthcare. The CPR's members include companies such as Wells Fargo, GE, Walmart and IBM.
The CPR's formation in 2010 was supported by members of the Leapfrog Group -- a coalition of large employers that worked with hospitals to standardize pricing and improve service quality.
"The impetus behind our formation came from large employers who were thinking about what's next in terms of getting better value out of the healthcare system," says Delbanco. "Our goal is to make it as easy as possible for employers to become health reformers."
The United States has a "long way to go" to get to a healthcare system in which the preponderance of payments are supporting better-quality care, she says. She cites the CPR's first-ever National Scorecard on Payment Reform, released in March, which found only 11 percent of the healthcare dollars paid to doctors and hospitals in the United States tied to quality and efficiency. Nearly 90 percent of the healthcare spend was devoted to traditional fee-for-service payments or bundled payments, in which providers were simply paid for their services with no questions asked about their quality or necessity.
With the United States paying far more for healthcare than other industrialized countries, yet getting worse outcomes in return, something has to change, says Delbanco.
"There is general agreement that we need to move away from fee-for-service and toward payment methods that create incentives for higher-quality care, as well as more careful use of resources," she says.
Rather than simply offering a potential upside, says Delbanco, providers must also have some financial risk at stake should they end up going over-budget -- which could be addressed through bundled payments with quality measurements attached. "Right now, very little of the payment methods today involve shared risk for the provider, but ultimately we're heading there," she says.
New approaches such as "reference pricing" are beginning to take hold, says Delbanco. With reference pricing, employers list the price they are willing to pay for a given procedure or service -- employees who go to a provider that meets that price will receive full coverage. Those who elect to go to providers that charge more will pay the difference out of their own pockets.
Reference pricing has been under way for several years in places such as California, where a program negotiated by the California Public Employees' Retirement System (Calpers) in partnership with Wellpoint resulted in providers agreeing to fixed prices for certain medical procedures performed at their facilities for plan participants. The participating providers include well-respected institutions such as Cedars-Sinai Medical Center in Los Angeles.
During its initial year, overall costs for operations under the program fell by 19 percent. The average amount Calpers paid hospitals for joint replacements, for example, fell from $35,408 to $28,695 in 2011 alone, according to Wellpoint.
"It's a race to value," Dr. Samuel R. Nussbaum, chief medical officer for Wellpoint, told the New York Times.
Luring the Young
High-quality catastrophic-case-management services, specialty programs to help employees manage their chronic conditions and biometric screenings will all be instrumental in helping to keep costs down, says Ryan.
What else will be instrumental? Making sure younger employees enroll in and remain with your organization's benefit offerings to offset the costs of their older -- and less healthy -- colleagues, he says.
"The key point is that, over time, businesses are going to be competing with the public exchanges to enroll the younger population, so the question will be, how do you get young employees to participate in your company's health benefits?" says Ryan. "I think the key is being able to offer a low-cost catastrophic care option for young people and engaging them to join your plans -- that's a viable strategy to keep premiums lower."
Although the average age of the workforce is 40.1, he says, the average age of employees who enroll in health benefits is 43.
"So ask yourself, what could happen if you could bring the average age of enrolled employees down?" says Ryan. "It could be a strategy for bypassing, or at least delaying, the excise taxes."
While HR departments can calculate how many employees will be newly eligible for coverage next year, they can't predict how many will actually elect coverage, he says. Although the ACA requires most adults to have coverage, the penalties for not having coverage in 2014 are so small -- as little as $95 per person -- that many may elect to forgo coverage.
It's one reason that advocates of private healthcare exchanges -- which allow employers to offer a variety of health plans for employees to choose from -- are a good option for companies that want to keep their younger workers enrolled. Young people tend to be less interested in health benefits than older generations but will be more likely to participate if they can choose a bare-bones plan that charges a low premium, they say.
Private exchanges can also lower healthcare costs overall, they say. Mercer, Towers Watson, Aon Hewitt and Buck Consultants have all rolled out private exchange platforms recently. Although private exchanges initially were focused on selling fully insured products, many now offer options for self-insured employers as well.
"Employees are going to spend their employer's money very freely, but they're going to spend their own much more stingily," says Jim DiGiuseppe, a principal at Evolution Benefits Consulting in Malvern, Pa. The firm has created a private healthcare exchange for its clients.
As Darling sees it, the drawbacks to a DC approach to healthcare benefits is that if it's not done in a "sufficiently nuanced manner," with lots of support, then it could turn into something that sucks up a lot of money while delivering little in return. "It would always be experienced as a problem, and it would create a lot of resentment if you don't provide lots of tools and resources," she says.
It will be interesting, Calvert adds, to watch the public exchanges and see whether the narrow networks -- which offer enrollees a very limited selection of providers -- being offered there end up being tolerated by consumers.
"If they do, I think we'll see more aggressive tactics in those areas by employers," he says.
There are drawbacks to anything that limits choice, Calvert cautions. However, cost pressures dictate that employees and their employers must do things they may not be comfortable with, including putting some limits on choice, he adds.
"No one wants to have to flip a switch in 2018 and cut the heart out of their health-benefits program," says Michael Thompson, a principal in New York-based PwC's healthcare-consulting practice.