Employers who postponed action on health reform compliance will now be going full tilt to continue meeting the legislation's provisions that take effect this year and beyond. But even larger strategic questions loom over their roles as benefit sponsors.
It's now become clear that most employers waited for the Supreme Court's decision before developing a strategy on provisions in the Patient Protection and Affordable Care Act, as evidenced by a Mercer survey taken just after the ruling. Moreover, consultants found that the waiting game continues for 16% of the more than 4,000 respondents, who admitted no action will be taken on 2014 compliance until after the November elections. Forty percent said they will begin examining these parts of the law now that the court has ruled.
In some ways, the June 29 decision was anticlimactic, since all PPACA provisions were deemed constitutional. Many observers predicted at least parts of the law would be tossed out.
"The talk of the town was about whether or not the court was going to find the individual mandate constitutional or strike it as unconstitutional on the Commerce Clause grounds, when, at the end of the day, it was constitutional as within Congress's taxing power," observes James Napoli, a Washington, D.C.-based senior counsel in Proskauer's employee benefits, executive compensation and ERISA litigation practice center. Napoli is also head of the firm's health care reform task force and attended oral arguments at the Supreme Court in March.
Strictly from an employee communications standpoint, the court's decision likely is the easiest for employers to deal with.
"No one has to go back and explain what is changing or what isn't changing," says Jen Benz, chief strategist and founder of Benz Communications in San Francisco. "It's now status quo: What's been communicated already remains, and companies can really just go on [with] business as usual."
But behind the scenes, where benefit managers live, Napoli cautions that there are still some important implementation questions. Among them: What exactly is a full-time employee? How do we determine whether an employee is full-time or part-time for the purposes of the Act? What is an essential health benefit?
"We have general categories of essential health benefits, but we don't have a good list," Napoli says. "We require some guidance on automatic enrollment that will be required come 2014. There are various notices that are required of employers beginning March 2013. Employers will have to begin providing notices regarding health care exchanges and their availability. What if a particular state doesn't have its exchange in effect at the time the notice is available?"
Cost concerns related to PPACA implementation and compliance also remain question marks, says Steve Wojcik, vice president of public policy for the National Business Group on Health. The Supreme Court decision "may be simple in terms of knowing what you need to do. But in terms of cost, it's probably not the simplest," he believes. "Employers can go forward with the upcoming provisions of the law, preparing their plans and implementing those, but there are a lot of administrative costs and staff time needed for that."
While most employers still plan on offering benefits (see sidebar), with so many unknowns still hanging over them, "other employers may use this [decision] to rethink what their long-term role is related to health care," says Mike Thompson, a principal in the human resources services practice of PricewaterhouseCoopers. "Certainly employers with lower-paid workforces have to give serious consideration to whether it's going to be better to provide those benefits on an ongoing basis or just let their employees get subsidized coverage in the exchanges."
Long-term implications
So, what now? Over the long term, an in-depth strategic analysis should be on employers' to-do list, according to Gary Kushner, president and CEO of Kushner & Company, an employee benefits consulting firm. Speaking in Atlanta recently at the Society for Human Resource Management's annual conference, he told attendees "offering any specific benefit ought to be tied back to some strategic objective of the organization ... [and] the strategic question has nothing to do with the Supreme Court."
According to Kushner, the key strategic question HR and benefits pros should raise with the CFO and other executives is: Should we offer a health plan or not? To answer that question, he suggests the following issues need to be addressed:
* If we did not offer a plan, what impact would that have on our ability to recruit the right people for our organization?
* If we don't have a plan, what impact would that have on other portions of our total rewards program?
* If we offer coverage, how does that affect our ability to recruit and retain employees?
* How do we position the plan? Just like other compensation programs and total rewards programs?
* What are our benchmarks? Employers of our size? Area? Industry?
Even if various internal stakeholders band together to conduct the strategic analysis experts advise, the ripples from the Supreme Court decision could result in a power struggle between the HR and finance. According to a Towers Watson survey of more than 300 HR and finance executives at U.S. companies, both HR and finance folks see changes ahead in their own roles when it comes to reward programs. Currently, the majority of HR executives (81%) and finance executives (55%) agree that setting reward program strategy is largely driven by HR. Looking ahead a few years, though, expectations change, with more than one-third (38%) of finance executives believing strategy development will be much more of a shared role with HR.
"As someone who has worked in employee benefits for over 13 years, I can tell you firsthand that [the ruling] has the potential to [lead to] a major power struggle and a distraction to the true task at hand: effectively strategizing and implementing the health care reform provisions into the organization," says Ed Bray, director of employee benefits for Hawaiian Airlines. "HR is not going to give up the wheel that easily, and if Finance grabs the wheel, they may be too focused on the cost angle as opposed to the effect their decisions will have on the employee base and/or communicating them appropriately."
Short-term action items
However, such possible scenarios are several years in the making. Over the next several months, benefits professionals will have to make decisions that will affect their health plans. PPACA's most immediate provision is the summary of benefits and coverage, which employers need to implement starting with the next plan year. The SBC is the government-prescribed four-page summary of benefits that employers must now provide. It must be written in plain English and follow a prescribed format. Its main purpose is to give employees a quick overview of the financial requirements of their coverage. It must include what's called "coverage examples" designed to illustrate how a health insurance policy or plan would cover care for common benefits scenarios.
It's unpopular with employers "mainly because if you've got a self-funded plan, the summary of benefits and coverage is like trying to put a square peg into a round hole," says Tami Simon, managing director of knowledge resources with Buck Consultants. "Most employers were looking forward to that [provision] going away, and that's not going to happen."
Implementing the SBC has been a long and arduous process for many employers, notes Debbie Harrison, senior manager, public policy, with the National Business Group on Health. Most large self-funded employers already produce summaries of benefits of coverage and other tools to help employees choose coverage, and so the SBC represents an additional administrative burden.
In addition, "every plan's cost structure is unique, especially in the self-funded market, so our members have had a lot more difficulty with those coverage examples than they expected just because there's a standard data set that's issued and you have to plug it in to your own unique plan design," explains Harrison. "That takes a lot of time and review."
Even though the Departments of Labor, Treasury, and Health and Human Services have issued guidance on the SBC requirement (a template can be found on the DOL website), penalties for noncompliance are so severe that "a lot of employers are worried, even with assurances that [federal agencies] will go easy on them this year. I think employers have every right to be concerned," says Jeff Munn, vice president of benefits policy development, with Fidelity Investments.
In the near term, employers must report the value of employer coverage on IRS Form W-2, beginning with the 2012 W-2 forms to be distributed by employers in 2013. The latest IRS guidance on this aspect of W-2 reporting was issued in January and can be found on the IRS website at irs.gov, which also includes Q&As.
Also starting next year, employee contributions to flexible spending arrangements under cafeteria plans will be capped at $2,500. Calendar year plans should be amended to reflect this change before Jan. 1, 2013. The latest guidance on this issue came from the IRS in Notice 2012-40, released in June. In light of the new limit, the Treasury Department and IRS also issued a request for comments on possible modification of the use-it-or-lose-it rule for health FSAs.
Pay-or-play debate
Employers must also comply with the reforms already in effect, such as coverage of dependents up to age 26. As for whether employers will stay in the benefits business or get out come 2014, when state insurance exchanges open, Wojcik expects that the Supreme Court ruling to intensify the pay-or-play debate among employers and lawmakers.
"Unless there's a legislative change, [2014 is] going to be here before we know it," he says. "Given the economic climate, I imagine there's going to be some interest from some in Congress to revisit that and say, 'This is not the time to be adding to employers' obligations and making it more costly for employers to hire people.'"
A recent analysis from Truven Health Analytics, "Modeling the Impact of 'Pay or Play' Strategies on Employer Health Costs," concluded there is no immediate or long-term cost advantage for employers to eliminate group health benefits. The analysis looked at four scenarios employers could consider: eliminating group health plans and making employees "whole" through additional compensation so employees can purchase insurance on state exchanges; eliminating group health plans with a cost-neutral impact for employers (providing extra compensation, minus the PPACA penalties); eliminating group health plans and providing a subsidy to employees; and eliminating group health coverage with no subsidy for employees.
Truven's data from 33 large employers with 933,000 employees show that it will cost employers as much as $17,269 per employee per year in 2014 to make employees whole if they shift their benefits to an exchange rather than to continue existing group health plans.
"An employer is quite likely able to provide health care coverage for their employees less expensively than the employees would be able to obtain coverage in an individual exchange," says Dr. Ray Fabius, chief medical officer for Truven Health. "And for that reason, it makes sense for employers to continue to provide this coverage because it's a valued benefit for employees."
Moreover, according to the report, should employers choose to eliminate group health plans, employees will suffer a significant reduction in overall compensation when they assume the incremental costs of benefits. "One of the reasons people seek employment is to get health coverage and even with the exchanges, that will still be highly valued in the marketplace," says Fabius.
So far, California, Colorado, Connecticut, Hawaii, Maryland, Massachusetts, Nevada, New York, Oregon, Rhode Island, Utah, Vermont, Washington, West Virginia and Washington, D.C. have established some type of state exchange. Florida, Louisiana, Maine and New Hampshire have decided not to create state exchanges, while the remaining states are either actively studying their options or have yet to decide what they're doing.
Sound off!
IFEBP survey: Majority of employers 'very likely' to keep coverage
Here's what readers on EBN's website are saying about the legislation and the Supreme Court's ruling:
"Obamacare is a bad law and should be repealed. Government trying to micromanage any service industry (yes, health care is a service, not a right) only succeeds in eliminating competition thereby causing higher costs with less accountability and innovation. It is appalling that the Supreme [Court] agreed with such a corrupt stance ultimately undermining individual rights." -posted by msmox
"Being a member of neither party, I hate to agree with Mitt Romney. Obamacare was bad law and policy yesterday, and it's bad law and policy today. This is why I am glad I left HR." -posted by Bill K
"Any broker or advisor who had not prepared their clients to abide by the law and the modest changes involved is guilty of malpractice. For employers providing coverage, this is a really minor deal that will actually simplify their lives administratively and from a communication perspective." -posted by J N
"The reform doesn't address the underlying reason that health care costs continue going up, which is the expensive and inefficient U.S. health care delivery system. The consequences of the fee-for-service model put an unnecessary financial burden on patients and employers, and raise the overall cost of health care." -posted by Kathryn M
"All health care reform is going to do is now make health care unaffordable to those people currently not covered due to health history. The same people without coverage will continue to not have coverage, just switching the cause from pre-existing history to cost." -posted by kmcsmail
IFEBP SURVEY
Despite the differing reactions among U.S. business sectors to the Patient Protection and Affordable Care Act Supreme Court ruling, 77% of surveyed organizations are very likely to provide health coverage in 2014, according to a recent survey by the International Foundation of Employee Benefits Plans.
Following the Supreme Court's decision, almost half (49%) of the organizations are shifting their attention to wellness, while 32% are focusing on consumer-driven health plans; 27% will shift costs to employees, and 26% will focus on value-based health care, according to The Supreme Court ACA Decision Reaction Survey.
"We're not surprised by these findings, since our recent wellness survey told us that seven in 10 U.S. employers offer wellness programs," says Paul Hackleman, IFEBP's health care and public employer analyst.
Overall, the results were split when respondents identified which Supreme Court decision would have been most beneficial to their organization. The data showed that 46% felt the best possible decision for their organization would have been PPACA being thrown out, while 41% said the best decision was the law being upheld. Another 12% of organizations would have liked the individual mandate overturned, but the remainder of the health care law to stay intact.
Most organizations have been keeping current with the legislative aspects of PPACA, and some are already prepared for provisions in the future. Of the respondents, 78% are extremely or very far along in terms of complying with current PPACA provisions, while 60% are extremely or very far along with preparing for future provisions. Further, organizations in states that have already implemented health care exchanges are generally more satisfied with the court's decision (47% vs. 35% of respondents in states that haven't implemented), and are more prepared with current provisions (47% vs. 36%) and more likely to continue coverage in 2014 (56% vs. 42%).
The survey was administered on June 28 to measure organizations' reactions to the landmark decision. Responses were received from 1,122 plan administrators, trustees and organizational representatives.
