Employers have an opportunity to contemplate their future health benefits strategies while the rules and regulations from the Patient Protection and Affordable Care Act (PPACA) roll out slowly and take effect. The most significant question they'll confront: whether to discontinue sponsorship and “pay” a penalty tax or to “play” by continuing to offer health benefits.
James Klein, president of the American Benefits Council, presented a look at key issues for answering that question at MetLife’s 7th National Benefits Symposium, held March 28, 2011, in Washington, D.C. Among the key points employers should weigh are:
Low Individual Mandate Penalty
The individual penalty for not complying with the new mandate to purchase health care insurance is very modest, Klein noted. He speculated that young, healthy workers might make the “rational financial decision” to pay the penalty in lieu of paying the premium contribution for their employer's plan or buying a plan from the health care exchanges. This would result in them waiting until they need insurance to purchase it, especially now that insurers cannot turn people away for pre-existing conditions.
“If that happens, it will be very difficult to keep your group together,” Klein said. “If you were thinking of ‘playing’ instead of ‘paying,’ that would have to be something to consider if you were only left with the older, more expensive people within your plan.”
Restrictions on Age-Related Premiums
Under the PPACA, insurers selling individual policies will be limited in the extent to which they can vary premiums based on an enrollee’s age, thereby depressing the costs of coverage artificially for older individuals—and increasing the costs artificially for young people purchasing private insurance, Klein asserted. This will have the effect of deterring young people from buying individual coverage, Klein said, even with subsidies offered.
“If you intended to pay rather than play, you may find a lot of employee pressure from younger workers coming to you and asking that you continue to sponsor a group plan for them,” he said.
The PPACA calls for each state to set up an exchange, or marketplace, where people not covered through their employers would shop for health insurance at competitive rates. Most employers will probably wait to decide to pay or play based on the success of the health care exchanges in creating a viable market for employees to purchase coverage, Klein said. The exchanges could be a positive development for employers, including being “the absolutely logical place” to bridge coverage for early retirees and facilitating the expiration of COBRA.
“A very compelling policy argument to make is that COBRA will have outlasted its usefulness under the new scenario with the availability of the exchanges,” Klein said.
Additionally, the exchanges will be open to large employers in 2017, which might open up a third possibility beyond paying or playing—playing through the exchange.
The Excise Tax on High-Cost Plans
Not scheduled to go into effect until 2018, the 40 percent excise tax on “Cadillac plans” “more than anything else will have a dramatic bearing on employers’ being able to continue to sponsor coverage,” Klein said. The provision levies a 40 percent nondeductible tax on the annual value of health plan costs for employees that exceed $10,200 for single coverage or $27,500 for family coverage in 2018.
The problem, according to Klein, is that the thresholds set in the law are indexed not to health care cost trends but to the U.S. Consumer Price Index. Over time, more plans will be caught by this tax. How will employers respond? “By sharing more costs with employees and raising co-pays and deductibles,” he said. But that strategy will reach a prohibitory limit when the employer ends up being penalized for sponsoring a plan with less than 60 percent actuarial value.
“You now have an untenable option: You are either sponsoring an expensive plan and subjecting yourself to the excise tax, or you’re providing an unaffordable plan, which will send your employees into the exchanges, hitting you with a $3,000 penalty for each employee who gets a subsidy from an exchange.”
Under that scenario, employers will be paying and playing, Klein said.
Treatment Effectiveness Data and Payment Reform
Could Lower Employer Costs
“Comparative effectiveness is something that the employer community advocated vigorously for and could bear positive fruit,” observed James Klein, president of the American Benefits Council, during his remarks at MetLife's National Benefits Symposium.
The aim of comparative effectiveness research is to improve health outcomes by developing and disseminating evidence-based information to patients, providers and health care decision-makers about the effectiveness of treatments relative to other options. Identifying the most effective and efficient interventions has the potential to reduce unnecessary (and potentially harmful) tests, surgeries and therapies, which in turn would help lower costs, Klein said.
Another proposed strategy embedded in the health care reform law could reward professionals for the quality and efficiency of services, rather than the quantity, he noted.
A fee-for-service payment structure, as is currently practiced, creates incentives to provide high volume rather than high value—more, not better, care. The proposal of a bundled, episode-based payment scheme would help to move the system in the right direction, Klein said.
“This concept of paying for the overall episode of care rather than for each X-ray, each bandage, each blood transfusion is a more rational way of going about paying for health care services,” he explained.
Roy Maurer is a staff writer for SHRM.
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