Posted: August 01, 2010
The Healing Game
Health-care reform spells murky times aheadDebra Melani
If you can muddle through the rhetoric and set aside a rash of crystal-ball predictions surrounding health-care reform, you can find one thing that's clear about the landmark legislation: very little. The massive bill has brokers, lawyers and health-care administrators scratching their heads, as business owners wait idly by.
The best advice for employers: Don't fall asleep.
As unclear as a number of the pending policies and mandates are, with clarifying regulations on a slow drip out of the nation's capital, a few are set to take effect in September. That means many businesses will see (or are already seeing) new requirements at the insurance renewal table this fall, along with those nearly ever-present rate hikes.
One general consensus: Employers should retain a good accountant and health consultant to help them through the mire of tax implications and compliance issues that lie ahead. "Otherwise, you're going to wake up next year and find you are not compliant, and you have a huge rate increase," said Steve Roper, president of Roper Insurance and Financial Services.
Bracing for hikes
Set with a broker she trusts, Lynn Leader, president of Alumni Consulting Group, said she expected to see changes by September. Her employees will be some of the first under the new mandates. "It's coming, and it is what it is. We have to deal with it," said Leader, whose biggest worry is cost and how her IT consulting company will absorb it. "I'm expecting a pretty hefty increase."
Although Leader's concern is nothing new - Colorado employers routinely face double-digit increases - some brokers predict, at least for businesses initially, the Patient Protection and Affordable Care Act will not seem so affordable.
"Premiums are going to go up, and they are going to continue to go up," said Ed Regalado, of HUB International Insurance Services. Businesses should also brace for a big rise in administrative costs, he said. State premium projections are not yet released, but industry experts expect a 10 percent to 15 percent average increase for 2011.
"We've seen it all over the board," Roper said, with some companies reporting as high as 60 percent and others as low as 8 percent." Price gouging is a concern, as some carriers will try to take advantage of the new laws and push the margin, Roper said. "But they are playing Russian roulette with the government."
This spring's Anthem debacle, with President Obama's public flogging of the company for proposing as high as 39-percent rate increases in California, serves as a red flag for any carriers considering large rate boosts, he said.
And carriers beware: The state's guns are also loaded. "I'm ordering my staff, responsible for reviewing rates, to look at everything very carefully," said Insurance Commissioner Marcy Morrison. She added that Colorado has extra "tools in its toolbox," thanks to House Bill 1389, which gives her more leverage than other commissioners to deny premium hikes. Also, the state has applied for a five-year, $5-million grant to enhance its rate-review program.
Acknowledging that initial rate hikes are expected, Lorez Meinhold, the governor's director of health reform, asks businesses to remember the whole picture as they begin navigating the new law. At-risk pools, mandates, and the upcoming exchanges are created to drive costs down and spread risk across larger pools.
"It will reduce costs and ideally enhance competition. That's what this reform is about." With the experience of its Blue Ribbon Commission for Health Care Reform, Colorado is a step ahead of many states, which should ease some of the changes, Meinhold said. "But we need everybody playing."
Keeping a plan
Businesses wanting to delay "playing" for a little while can look at grandfather status. Prompted by Obama's campaign vow that those who like their insurance can keep it, the provision allows employers to defer certain benefit mandates, said Leo Tokar, senior vice president of Lockton Cos. But keeping health plans a company had before the bill was signed on March 23 includes restrictions to benefits changes and cost sharing, he said. So the question is: "Is the juice worth the squeeze?" So far, most employers are finding the answer is no, Tokar said.
Small businesses, which often struggle to provide insurance and are trying to survive a poor economy, will not find grandfather status an option, said Tony Gagliardi, state director of the National Federation of Independent Business. Nearly every year, many of his 7,500 Colorado members are forced to reduce benefits or raise cost sharing to maintain coverage, Gagliardi said. The NFIB has joined a lawsuit to overturn the reform bill.
"We are advising most people right now that they can't afford it," Roper said. "You have a 60-percent rate increase? It's kind of like holding a gun to your head." As with many areas of the bill, some points about grandfather status remained unclear at press time.
Changes are coming
Employers can, however, expect benefits changes on their next plans, and many of the mandates effective next renewal period apply whether a plan is grandfathered or not, Tokar said. Those include:
• No lifetime dollar maximums on essential health benefits (essential health benefits had not yet been defined at press time).
• Dependent plans must cover children to age 26, without regard to student, marital or dependency status (one exception: grandfathered plans can decline to offer the coverage until 2014 if the children have coverage offered through their own employer).
• No pre-existing-condition restrictions on children under age 19.
• No retroactive coverage rescissions, except in cases of fraud.
Other changes employers will see on the renewal table, which apply to only non-grandfathered plans, include:
• No discrimination in compensation in favor of highly compensated individuals.
• No cost-sharing for certain preventive care services.
• Emergency room treatment of emergency medical conditions must be covered.
• Children must be allowed an allopathic or osteopathic primary-care physician.
• All obstetrical and gynecological care must be covered without pre-authorization or referral.
• A new appeals process will be included, including external review.
Employers who ignore mandates face stiff penalties, $100 per day per affected individual, and in some cases, $1,000 per violation, Tokar said. However, most in the industry say Colorado's focus on health-care reform will make this first round of mandates less painful in the state.
"We have pretty good laws in Colorado," Regalado said. "A lot of these things were already covered," he said, using no pre-existing exclusions for children and fully covered preventive care as examples. Another example: Colorado already had a dependent-care requirement to age 25; now it will be upped to age 26, he said.
That doesn't mean there won't be any fallout, Roper said. The individual marketplace will suffer the hardest hit. "And everyone is going to have to absorb that cost."
Details on the no-discrimination in compensation mandate were not all clear at press time, but it is one to watch, Regalado said. "It will have a big impact on the retail and restaurant industry," he said. In those businesses, top staff members are generally covered, such as owners, managers and chefs. But the majority of workers - generally hourly, low-wage, and high-turnover employees - are "carved out" of coverage, Regalado said. The implication is that all employees must be offered the same plan under the new mandate, which could put already recession-struggling businesses over the edge, he said.
Playing the game
With situations like the restaurant scenario, employers are pondering ways to alleviate the impact of reform on their companies, Regalado said. With the law requiring all companies with 50 employees or more to offer coverage in 2014 or pay penalties, owners are contemplating ways to stay under 50, he said. Some brokers are advising it. "I have one client who says, ‘That's funny. I'm in the office-furniture business. I want businesses to grow,' " Regalado said.
With her firm currently at 40 employees, Leader said keeping her staff under 50 is a real consideration. "There's a lot of fallout that has to happen between now and then (2014)," she said, acknowledging, like most people, that nearly everything can change. "We don't know before we get there." But, as it stands, a lot of the requirements and penalties are imposed based on whether you are 50 or more. "That's kind of counterproductive. Are you encouraging us to grow, or not?"
And larger businesses are creating ways to reap the under-50 rewards, Regalado said. "People are getting very clever about it," he said, referring to talk of firing and hiring back staff. For instance: Maybe a 70-employee company will fire 25 staff members and hire the workers back through an employment staffing company or a Professional Employer Organization, he said.
Between the fact that legitimate PEOs "don't play that game," and that the government is sure to rapidly respond to such ploys, Greg Hammond advises scheming businesses to reconsider. The hire-and-fire ploy has been played out before with COBRA, the Consolidated Omnibus Budget Reconciliation Act, which requires companies of 20 or more to offer extended health care coverage in certain circumstances.
A provision was written into the Internal Revenue Code to prevent such circumvention. "That doesn't work. Those employees are still working for you," said Hammond, the chief legal officer for TriNet, a large PEO.
No one would deny that companies will be looking for loopholes, he said. It's estimated, in fact, that some 4 million businesses will opt to take the penalties rather than offer their employees coverage, he said. From a purely economical standpoint, some businesses are crunching the numbers and finding it's a much cheaper route to take.
"It's hard not to see the logic in that," Hammond said. "But the natural inclination for the government will be to find a way to ratchet up the pressure to get those people in."
Moreover, health-care coverage is not purely a bottom-line numbers issue for many businesses. "That's why businesses come to us in the first place. They want to provide coverage for their employees," Hammond said. It's a philosophical issue and an important element of labor competition, he said. "I doubt very seriously that people are going to walk away from that. Taking the penalty route is a very short-sighted business decision."
Sky is falling
Hammond and others advise businesses to forgo "the-sky-is-falling" mentality and use this time before significant mandates kick in to make long-term business decisions.
"The first step is compliance," Tokar said. "You simply need to implement changes. Then make some business-impact decisions." For instance: Will the tax credit work for you? Should you apply for retirement benefits?"
Next, employers need to look at the big issues. Decide how to structure your work force and offer compensation to work with the new law, Tokar said. "It depends on your priorities, your business culture, the industry you compete in and how the law will impact you specifically."
Businesses need to consider all of the pieces and remember that reform requires everyone to change, Meinhold said. "We know for every $1 we invest in health care, we get a $2.40 return." With $11 billion slated over the next five years for federally qualified health centers, the country will see more job opportunities, she said.
Moreover, reform is a work in progress. "There's a lot of opportunity for all of us to weigh in and make sure this works best for our businesses," Meinhold said. "They are our economic generators."
Other immediate considerations for businesses
Businesses with fewer than the equivalent of 25 full-time employees that provide health insurance might qualify for a tax credit of up to 35 percent (up to 25 percent for nonprofits) to offset the cost of insurance. Average annual wages must be below $50,000.
Stand-alone companies, such as painters or contractors, that provide health insurance could benefit, said Milan Yager, president and CEO of the National Association of Professional Employer Organizations. "The credit is retroactive to Jan. 1, and could be as much as 35 percent, which is huge." The state predicts nearly 70,000 businesses can benefit, although many brokers are skeptical the tax credit will have much effect, saying the requirements eliminate most Colorado businesses.
Check www.irs.gov for qualification requirements.
Employers who offer retiree insurance may apply for funds through a $5 billion Early Retiree Reinsurance Program, a temporary program that went into effect June 1 and will end no later than Jan. 1, 2014. The Secretary will reimburse sponsors for certain claims between $15,000 and $90,000 (with those amounts being indexed for plan years starting on or after Oct. 1, 2011).
For applications, go to: www.healthcare.gov, search "retiree."
(For updates on health-care reform, check: www.healthcare.gov or www.hubhealthreform.com. )
State launches at-risk pool
As many as 4,000 uninsured Coloradans with serious medical conditions will receive insurance from a new high-risk pool funded in part by health-care reform dollars.
GettingUSCovered launched in July and will be funded by private and public money, including a $90 million federal grant allocated over the next three years.
"For sole proprietors and individuals who have been unable to find health insurance because of pre-existing conditions, this offers an alternative until 2014," said Lorez Meinhold, director of health reform for the state. Under the new law, no insurer after 2014 can deny coverage based on a person's current health.
Colorado already had a high-risk pool, CoverColorado, and the new pool will allow the state to reach even more uninsured, said Marcy Morrison, Colorado's insurance commissioner. "Someone looking from the outside in might say, ‘That's a lot of money, $90 million.' But you'll have to remember that these people who will be using it will be people with fairly serious conditions."
Premiums for the plan will be market-rate, and applicants must have been without insurance for at least six months. A partnership with Rocky Mountain Health Plans, GettingUSCovered will offer members access to that RMHP's network of more than 11,500 doctors and 99 hospitals. Benefits include a prescription-drug plan and preventive-care coverage.
Apply at www.gettinguscovered.org.