Obama's health care act upheld
In June, as health-reform advocates were dancing in the streets and opponents were vowing a re-energized fight following the U.S. Supreme Court’s monumental upholding of the Affordable Care Act, Bill Lindsay was fielding an onslaught of calls from employers: What does this mean? What do I do? His answer: It’s time for everyone, political opinions aside, to stop the foot-dragging and get prepared if they want to survive the health-reform ride that lies ahead.
"A lot of them have been sort of hoping and wishing that this would go away," said Lindsay, president of Lockton Employee Benefits Group. People are now finding that playing the waiting game in hopes that the law would be thrown out did not make good business sense, said Lindsay, who specializes in health reform.
Even with a renewed oath of repeal from Republicans and an intense November election likely, history shows dismantling major legislation doesn’t happen quickly. "If businesses are waiting to see what happens, they could be waiting forever," said Dede de Percin, executive director of the Colorado Consumer Health Initiative. "As long as it’s the law of the land, this is what we need to be doing."
For employers, that means bracing for increased costs and new regulations at the insurance-renewal table again this fall, planning for industry transformations such as the health insurance exchange, and finding the educational resources needed to keep them apprised and afloat.
BRACING FOR COSTS
Some business owners might be blind-sided by a number of new rules affecting them when renewing policies this year, many of which increase costs (see changes sidebar). "Some of them are soft costs, because they are purely administrative. But some of them are actually going to result in hard costs," Lindsay said. Just one example: Beginning this renewal period, all employers will face a fee of $1 per covered life (including spouses and dependents), which increases to $2 per covered life the following year. Neither Bob Deibel, president of a 350-employee group of companies that includes OfficeScapes, nor Tony Gagliardi, state director for the National Federation of Independent Business, was aware of the fee.
"The complexity of the law is so great and so deep, it’s hard to find anyone, quite frankly, who really fully and completely understands top to bottom, A to Z," said Deibel, whose company recently went to a partially self-funded plan to help mitigate the changing pressures of the health industry. Gagliardi said his ignorance on the $1 fee exemplifies what employers will be facing: a number of surprise costs from the ACA. "There’s like 26 hidden taxes in there, and I’ve only gotten through the first two. That’s what happens when you have a plan written behind closed doors."
Most business owners won’t be surprised to hear that they should gird for a premium increase, although, for the first time in years, the Colorado Division of Insurance has predicted an average increase in the single, not double, digits, at about 8 percent. The Department of Health and Human Services recently attributed the new federal rate-review process in part to the lower premium hikes, saying President Obama’s law is working. Lindsay rejected the notion.
"That comment presumes that insurance companies are raising rates just whimsically," he said. In reality, rates are a reflection of past health-care costs and utilization, with the recent economic slump leading to the lower rates, Lindsay said. When times are tough, economists say, things like elective procedures and maternity rates fall, decreasing utilization. "And health care tends to be a lagging indicator," Lindsay said, explaining why, with signs of a recovering economy, the lower rates are hitting now.
But Commissioner Jim Riesberg, whose Colorado Division of Insurance began reviewing rate increases before the federal government did, doesn’t discount the idea that the process serves as a motivator. "I think in order to avoid that review, some companies probably had a little sharper pen," Riesberg said. When linking the review process to lower rates, HHS noted that states reported a 4.5 percent decrease in the number of proposed rate hikes in the last quarter of 2011.
While the increase bucks Colorado’s long double-digit trend, it’s not likely to send employers into celebration mode. "We know premium rates have been increasing faster than inflation and wages in most areas," Riesberg said.
Moreover, the increase is just an average, Gagliardi said. "I got an email yesterday from one of my members who was just hit with another 17 percent increase. The only way they can get the rate back down is to go to a higher deductible or less coverage," Gagliardi said. "The law does nothing to address the true costs of health care, and that’s what drives premiums."
Gagliardi predicts that increasing expenses and continued uncertainty will drive out more small business owners this year. "I hear from members all of the time. They are saying: I just don’t want to play in this arena anymore." Others might be forced to stop offering insurance to their employees, he said.
A Towers Watson survey of employers in 2007 found 73 percent said they were confident that they would be offering health insurance in 10 years. The number dropped to 38 percent in 2010. The ACA does not require businesses with fewer than 50 employees to offer insurance. But, by 2014, because the high court ruled to let the ACA’s individual mandate stand, their employees will suffer penalties at the tax table if they do not have coverage.
Yet it’s not all dark news. There are other options out there and on the horizon, and becoming educated about health reform means small businesses can find the life preservers being tossed their way.
PREPARING FOR CHANGE
"I still talk to so many business owners who don’t know they are eligible for a small business tax credit," de Percin said. Businesses with fewer than 25 employees that pay average annual wages below $50,000 might qualify for a tax credit of up to 35 percent to help pay for health insurance right now (up to 25 percent for nonprofits). "And that increases to 50 percent (35 percent for nonprofits) in 2014," de Percin said.
Couple tax credits with the impending Colorado Health Benefit Exchange, and offering insurance for small businesses could become easier down the road. "Business owners really want more affordable health plans," said Patty Fontneau, CEO of Colorado’s exchange. "In addition, they want more choice and they want to have the burden of administration taken from them." And that’s what the virtual exchange, which will offer an individual marketplace and a small-business marketplace known as SHOP (Small Employer Health Options Program), aims to provide, she said.
On track for an October 2013 launching, Colorado’s exchange is being created to meet the state’s specific needs by its own stakeholders, whose numbers have been steadily increasing at the planning tables, Fontneau said. States that banked on a different June Supreme Court ruling will not be so lucky, Lindsay said.
"A significant number of states chose not to proceed with health insurance exchanges, expecting the law would be thrown out, so they’ve done nothing," Lindsay said. States that do not have a fully operational exchange by deadline (January 2014) must take part in a federally run exchange. "So you have an irony. States that didn’t like Obamacare now will be forced to be under the federal purview."
Because of Colorado’s quick action, Fontneau and her team received more than $17 million in federal grants to help set up the exchange.
The exchange has many positives, Lindsay said: Employees will have more choices in plans; it will remove the administrative burden from employers; and it will provide consumers more easily understood information. "But there is nothing, zero, nada, associated with exchanges that guarantees the rates will decrease. They think the exchanges are going to magically save money. I think that’s a ludicrous and, by the way, completely untested, theory."
In fact, Lindsay predicted costs will be as much as 30 percent higher, just given that most employees and employers pay health insurance with pre-tax dollars, and exchange plans are bought with post-tax dollars, he said. Fontneau’s staff, however, said SHOP consumers will have pre-tax and post-tax options.
"I think the concept behind it is that if you provide transparency and additional information to our consumers," Fontneau said, "that our consumers are going to make better and more informed choices, and the spirit of an open marketplace will drive down costs over time." One of the ACA-mandated changes already in effect, which has led to coverage for more than 43,000 young Coloradans since it took hold, allows dependents up to age 26 to remain on their parents health plans.
"That does affect the exchange," Fontneau said. "We want as many young and healthy people in the exchange as we can get." Many industry experts say the upholding of the individual mandate, requiring all legal Americans to be insured, was a boon for exchanges and critical to Obama’s reform success for the same reason: The bigger the pool, the lower the risk; the lower the risk, the lower the cost.
Gagliardi, whose NFIB joined the lawsuit challenging the constitutionality of the ACA mandate, balked at the notion it would lead to lower costs. "Simply enlarging a pool does not lower costs. If you enlarge that pool with sicker people, you increase costs. And with guaranteed issue (another ACA mandate forbidding insurance companies from denying anyone coverage, regardless of medical issues), that’s what’s likely to happen," Gagliardi said, predicting many healthy people will refuse coverage and pay the penalty, until they get sick. "Then they have to be offered insurance."
The Obama administration says that by pooling together, small businesses in the exchange will benefit from insurance with lower administrative costs. And limits on insurance rating, such as on health status and gender, will also lower premiums, it contends.
Regardless of cost, Gagliardi, active in the exchange planning, said he and others are working to assure what’s best for small business owners, who will face many choices in 2014 that they can start considering now. "I think some businesses will find it easier to navigate with their broker, and we are adamantly insisting that if you are using a broker today, you should be allowed to use that same broker, even if you go into the exchange."
All plans offered in the exchange must be offered outside of the virtual marketplace, so business owners need to decide which direction they will take. "Even with Obamacare, businesses are not forced to use the exchange, and that is their right, and we will fight to the end for that right," Gagliardi said.
Deibel echoed what seems to be a consensus: Business owners should stay abreast of changes and involved in planning when possible (all exchange planning is open to the public, and planners are in the midst of critical decisions right now), rather than sitting back and hoping it all goes away.
"I think, as business owners, we need to keep an eye open to our options," Deibel said. The concept of the exchange makes logical sense on the surface, especially for small businesses, which can benefit by participation in a pool, he said. The reality, Deibel said, is something has to change. "We have the highest cost of care in the industrialized world, but far from the best status of health-care outcomes."
Riesberg said business owners not only should stay apprised; they have an obligation to become informed. "This is a recruiting tool; some employers use it to retain people. They have a real responsibility to know enough to be asking the crucial questions and to be sure they are getting the right input."
New rules affecting business owners for the upcoming renewal period include:
• A fee assessed against every employer to cover the cost of comparative value studies on the effectiveness and outcomes of medical treatments, starting at $1 per covered life (including spouses and dependents).
• A $2,500 maximum placed on employees’ medical flexible spending accounts.
Of note: Reduces employees’ backup option for other frequently lacking benefits, such as vision or dental.
• A 3.8 percent tax on investment income
for individuals making more than $200,000
a year and couples earning more than $250,000 annually.
• A 2.3 percent tax on medical device makers (such as artificial hips, pacemakers, etc.).
Of note: Increase likely to be passed along to patients.
• A required 60-day advanced-notice of any health-insurance policy changes.
Of note: Most employers do not receive notice of rate hikes in time to make adjustments and meet the 60-day notice requirement; therefore, they will have to absorb the cost until the notice rule is met.
• A payroll requirement for companies of 250 or more to show the value of health benefit plans on employees’ W-2 forms.
• A requirement to provide a full summary of benefits to each employee.
Source: Lockton Employee Benefits Group
HEALTH REFORM RESOURCES
Kaiser Family Foundation
Colorado State Government
Colorado Department of
(click on Division of Insurance)
Colorado Health Benefit Exchange