Later this month, employers will know - based on the Supreme Court ruling whether to uphold the Patient Protection and Affordable Care Act - if their employees must have health insurance. Should the law and all of its provisions be ruled constitutional, the cost of offering health benefits may prove too much for some employers, allowing employees to seek coverage from state-run insurance exchanges.
Unless the court strikes down the law, states have little more than six months to set up an exchange by January 2013. If they fail to do so, the federal government will set one up for them. For large employers who decide they'd rather "pay" the $2,000 per employee penalty than "play," PPACA permits states to extend coverage to larger employers beginning in 2017.
The numbers are all over the board when it comes to the number of employers that will put their employees into exchanges; the Congressional Budget Office has estimated that only about 7% of employees currently covered by employer-sponsored insurance will have to switch to subsidized exchange policies in 2014. However, a 2011 McKinsey Group survey of more than 1,300 employers across all industries showed that 30% of employers thought they'd definitely or probably stop offering coverage in the years after 2014. (This survey, however, is believed by many experts to have used flawed methodology.)
Mark Rust, a health care lawyer at Barnes & Thornburg LLP, says simple arithmetic may overthrow any hopes HR/benefits leaders may have harbored for maintaining health benefits as a recruitment and retention tool.
Instead, "[most employers are thinking], 'We want to be tied for second,'" Rust says. "Most employers happened into health benefits accidentally as a matter of historical fact. They wanted to ensure that their employees did in fact get coverage in a market where insurers could turn down individuals. When they know that their employees can't be turned down for insurance on the open market, it is a ready-made possibility for each company to pull off their own mini Paul Ryan." Indeed, House Republicans recently released a report that says 71 of the nation's top companies could save almost $30 billion by 2014 by dropping health coverage for their employees and opting to pay the penalty, and that grows to $422 billion in savings over a decade. Rust says employers are holding their breath to see what the Supreme Court decides.
Little state progress opens door for private exchanges
Fifteen states have made "little or no progress" implementing state exchanges, according to The Robert Wood Johnson Foundation. (See related content.) Employers will be able to enroll individuals based on where they work, or they can make a plan available according to where a company is headquartered, according to health care reform and employee benefit attorney Josephine Harriott at Miller & Chevalier. There are only two established state exchanges already functioning, Massachusetts and Utah. Utah, however, serves as more of a clearinghouse for insurance to small employers. Harriott says states will be able to decide on how involved they get.
"This all depends on how the state exchange will manage the market. They'll have a greater role in how many plans they want to participate; they may restrict the number available," she says. What is known is that there will be four different levels of plans: silver, bronze, and the richer plans, gold and platinum.
Whether state exchanges will onboard private employees is a guessing game, but the industry also got a big boost in March when the Department of Health and Human Services clarified its position on PPACA and opened the door for private exchanges, like Liazon, to play a significant role in insuring individuals that will qualify for government insurance subsidies in 2014.
Bright Choices exchange platform, the Liazon exchange, deals with around 2,200 small companies across 23 states where a company gives a lump sum to the employee; workers can either put the funds toward exchange insurance or keep the money. If the individual mandate is ruled constitutional, employers will have to decide whether or not to let employees keep those benefits dollars if they are covered by a spouse or some other form of insurance.
Five years ago, Liazon started its first exchange and, although most employers struggle to offer competitive health insurance, 90% of its clients previously offered some form. Chief Strategy Officer Alan Cohen says though the private defined contribution model of delivering health insurance takes only 1% of business, in a few years, it may very well be around one-third of the market, regardless of the Supreme Court decision.
First-year clients usually see a cost savings from 10% to 30%, Cohen notes. Though he also mentioned that given the choice, employees will generally go for the cheapest plan with a health savings account and a $2,500 deductible. Lizaon has been approached by several states to discuss its work in delivering care, though Cohen says the firm has turned down any offers because they don't want to get muddled in the inevitable politics that go toward setting up state exchanges.
Other technology companies that already work with employers are also placing their bets that exchanges will proceed as outlined under current law. Trizetto, which provides third-party packaged and proprietary software applications to the health care industry, recently introduced a technology with Connecture, which provides health insurance process automation, to facilitate onboarding within private exchanges. Some private exchanges already exist, but they're mostly for small employers. Todd Tipton, vice president of product management at Trizetto, says that he'd be surprised if other core administration vendors didn't have plans at least on the drawing board.
"Part one of the challenge is making sure their products will work and function in the new system," he says. One of the reasons small employers have had a hard time getting affordable coverage for their employees is because of economies of scale and leveraging power. With exchanges, small- and medium-sized employers no longer deal with that issue. Because of this, the technology has to evolve. "A lot of carriers are on reasonably antiquated technologies; it wouldn't be surprising if there a last-minute rush to get new technology."
Factoring in wellness
Employers on average spend nearly 2% of their total health care dollars annually on wellness programs, according to 2010 data from the National Business Group on Health. Although PPACA authorized $200 million for workplace wellness grants to small businesses, the funds never were appropriated, so the administration has taken $10 million from the controversial Prevention and Public Health Fund to attempt to portion out some money to small employers. However, it's unclear if large employers will make similar investments on their own.
"The informed opinion was that if we were to create a law that granted more access through state exchanges, but didn't do anything about wellness, that our health care costs would go up in the long term and, in short term, there would be downward competition to put employees into exchanges," says John Kaegi, chief corporate strategist for Healthstat, a workplace provider of onsite primary care, health-risk intervention and chronic care management. Kaegi works mainly with large, self-insured employers with 1,000 employees or more.
Kaegi predicts that either way, his business will be O.K. if his large employer clients take the penalty and send employees into exchanges, since there may be money left over from cost savings that he believes they will invest into a more rigorous wellness program. "The combo is the two will be less expensive and more predictable in cost." And if they decide to keep offering employer-sponsored coverage, then there is even more incentive to keep claims costs down through prevention and wellness.
Even within exchanges, there may be a possibility to involve health incentives in some way. The Bright Choices exchange platform gives small employers the option to allocate a certain amount of money per month toward the buying of benefits, but with a portion carved out to be earned through taking a health risk assessment, following a treatment regimen and other things that are typically used in a worksite wellness program. But, that choice is completely up to employers.
Ultimately, the decision for mid-sized to large employers to stop offering health benefits not only will be determined by the Supreme Court decision, but by states' ability to get exchanges together in time. As Rust points out, "No one wants to be the company that puts their people in an exchange that's not run well."
Florida is one of the states lagging behind in its preparations for setting up a health insurance exchange. EBN Contributing Editor Nancy L. Bolton wonders about the governor's motives behind the delay in a recent commentary for the April 15 issue. Read it online at ebn.benefitnews.com.
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