A Supreme Court ruling on the constitutionality of the Patient Protection and Affordable Care Act is expected at the end of June, which could unravel the reform that employers have been dealing with since the first wave of provisions rolled out in 2011.
“These provisions generally caused employers to pay more for their benefit plans,” says Sandy Ageloff, Health and Group Benefits leader, Southwest, for Towers Watson. “This impacted a number of large employers in the self-funded category, with a cost increase somewhere in the range of 0.5 percent to 2 percent.”
While you might be tempted to take a wait-and-see approach instead of preparing for additional provisions set to roll out in 2014 and 2018, that could be dangerous.
“It’s better to have a portfolio of scenario planning rather than having the act upheld and be saying, ‘We were waiting to see what would happen before we did anything,’” says Ageloff.
Smart Business spoke with Ageloff about how employers need to shift their strategic focus around the role health benefits play today and determine what role they should play in the future.
How could the upcoming Supreme Court decision on health care reform impact employers?
Regardless of the outcome, this will generate strong political reactions from both sides of the aisle. If upheld, we expect to see Republicans in Congress attempt to repeal certain provisions of the legislation and to defund specific elements, especially the state insurance exchanges set to begin in 2014.
If the legislation is ruled unconstitutional, we expect the Supreme Court will make a high-level statement and push it back to Congress and the Oval Office to sort out. The challenge is that a number of things that have been implemented would be politically difficult to undo for both parties, such as the 100 percent preventive care clause, the removal of lifetime maximums on coverage and the expansion of dependent coverage. Even if the government is silent on those provisions, the question becomes, ‘Would employers and insurance carriers actually undo them?’
With a ruling due so soon, why shouldn’t employers wait to see what happens?
Employers should act now because of the very broad business implications that health care reform could have. Employers should be treating it as business contingency planning and need to understand their options.
Also, there are multiple touch points, such as underlying health care costs, attraction and retention, and work force composition. Employers that have large seasonal, part-time and variable work forces might face issues in 2014 when they have to offer coverage to anyone working 30 or more hours per week. These employers have a very fundamental business decision to make about how to structure their work force and they might want to redefine how they manage workers. By the time the Supreme Court decision comes out, there won’t be much time for large employers to have their strategy in place by January 2014.
What else do employers need to keep in mind regarding health care reform?
The next milestone is 2014, when state insurance exchanges are set to go live, the individual mandate for all U.S. citizens to enroll in some form of health care coverage or pay a penalty will be enforced, and employers who offer coverage and don’t meet certain eligibility and employee contribution affordability requirements will face government penalties.
It’s important for employers to understand who in their workforce meets those eligibility requirements. If they don’t, it will trigger a penalty on the employer’s entire work force population. For large organizations (e.g., a company with 5,000 eligible employees), penalties could reach $10 million, depending on the scenario.
What consequences could result if employers pass on health care increases to employees or reduce benefits?
In the U.S., benefits are a top-five attractor for employees looking externally for a position, and it influences retention and engagement. Employees have become more sophisticated at evaluating not only their take-home pay but also the benefits that employers offer.
Top talent is difficult to attract and retain. The challenges for employers are making sure they are in the right competitive phase and are not overbenefitting people, as well. Finding the balance between what employees want and what employers can afford is important.
How can employers cope with current changes to the health care laws?
Cost control is one way to create a sustainable benefits plan. Another is to focus on employee health. There’s a need to decrease the rate of increasing costs. While the Consumer Price Index remains in the low single digits, health care costs are trending as a three- to four-time multiplier on the general CPI number. As a result, employers with business growing at a much slower rate face health care costs that are growing exponentially. By focusing on the health of employees, employers can change the rate of increases over time.
What are challenges of focusing on the health of employees?
The two biggest challenges are capturing employees’ attention and making them comfortable with the fact that the employer has a sincere interest in their well being. There’s a growing sense of skepticism about why employers care about employees’ health, so making sure they understand what’s in it for them is important. Make sure they understand it’s a win-win — employers have healthier employees who are at work more often and who are more vital and engaged, and employees gain a better quality of life. They have the chance to become fitter and healthier, spend less of their own money on health care and live longer to enjoy the fruits of retirement.
Sandy Ageloff is Health and Group Benefits leader, Southwest, at Towers Watson. Reach her at (310) 551-5709 or [email protected].
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