Update: Shortly after this article's publication, the US Federal Government announced a one-year delay of certain ACA mandates including the "pay or play" component. Visit our January 2014 update. As of February 2014, the component has been pushed back again. Stay tuned for more info.
As employers sift through immediate and forward moving impact of the Patient Protection and Affordable Care Act (ACA, PPACA or “ObamaCare”), we consulted with nationwide ACA experts to provide a quick blueprint of action items, FAQs and debunked myths. In respect to our expert unbiased objectivity, HRS employer clients have been asking us for credible and clear answers on this topic.
Preparation & Timeline
While some employers still believe they have until 2014 to make decisions, a more practical deadline is October 1, 2013, when health exchange notices need distribution to employees. Once these notices hit, employee questions will abound, and the risk of providing inaccurate or unsavory answers will impact employee retention, engagement, productivity and legal compliance. With employee access to health exchange, employer programs will find heightened scrutiny and explanations must be ready. In addition to impact upon talent resources, employer failure to meet ACA guidelines will result in substantial fine. While employers initially pledged to “pay” are shifting to “play,” due diligence is essential to “play.”
With minimum coverage covenants higher than ever before, minimum premiums are expected to increase as well. Employers are encouraged to anticipate this perception gap and to strategically educate employees as to the comparison between employer-sponsored and health exchange coverage. Summaries of benefits and coverage (SBCs) will not be enough to address this topic.
Matthew Weimer, Director of Employee Benefits Operations for Diversified Insurance Solutions, advises employers to prepare for employee surprise once the exchange opens. Weimer advises that many individuals are expecting exchange premiums to be lower than they actually will be, and an opportunity for an employer “win” is present.
Karen McLeese, JD, Vice President of Employee Benefit Regulatory Affairs for CBIZ Employee Services, Inc., advises employers of all sizes to “work with insurers, TPAs, benefit consultants, brokers and other advisors to ensure compliance with all ACA market reforms.” McLeese further advises to be prepared to deliver notices to all employees, not just those covered by the health plan, by October 1, 2013; to be familiar with single source market place applications; to ensure summaries of benefits and coverage (SBCs) are properly distributed; and to properly classify and count workers. HRS, Diversified and CBIZ are addressing these mandates by providing guidance as to crafting exchange notices, counting employees, educating team members and selecting plans to meet affordability standards.
Criticism, Fact Versus Fiction & Recent Developments
The relentless politicizing and profit taking on this topic have created mistrust and frustration among employers, so HRS has stepped in. We have no vested interest in insurance program sales. Our interest and reputation are tied only to accurate top shelf information and legal compliance standards. We have additionally invited adjacent field experts who have responded with transparency and integrity to our news campaign.
While arguments abound, opponents of the Act assert that the “Patient Protection” provisions can be mutually exclusive to the “Affordable” provisions, and employers need to address this concern. Some employees will undoubtedly be forced to buy more coverage than perceived necessary. Whereas the counter-argument is that these forced coverage levels will ultimately decrease overall health care costs, we cannot ignore and must address the initial sticker shock. Along that same line of thinking, Weimer addresses that many of his insured clients are already electively providing coverage levels that exceed ACA standards, and therefore, when employee premiums exceed health exchange premiums, the gap must be addressed to safeguard employee trust and engagement. Under affordability standards the employer must absorb the majority of premium costs, and therefore, while employees may pay higher premiums through the employer, it is imperative that they fully understand the value received and that the employer is absorbing the majority of excess benefits costs.
Employers were justifiably concerned by the initial ACA language which required employer review of “household income” in determining affordability. Not only did this pose an infeasible burden of costly administration but also a grave concern over privacy rights and employee discomfort. Affordability measurements have been thankfully addressed by updated calculation methods to include the W-2, rate of pay and federal poverty line (FPL) methods. These investigations are simpler, less invasive and consider only employee income rather than household income. As the federal ACA regulations shift substantial administrative burden to individual states, HRS urges employers to research state regulations and not just the federal. As the federal regulations do not protect spousal coverage, look to states for spouse and domestic partner rights.
Strategies & Caveats
Employers will choose plans based upon overall compensation scheme, labor intensity and workforce demographics. Benefits should be tailored to unique team attributes and perceived needs. Several HRS clients are employing primarily young, entry level, and therefore typically healthier teams who prioritize basic health but would rather receive other forms of compensation over benefits plan upgrades. For these employers we suggest consideration of a Minimum Value (MV) plan offering optional buy-ups. By deploying this strategy, the employees see premiums competitive to the exchange but also see their employers willing to absorb costs toward employee-elected upgrades. Employers who determine to trade plans down without proper employee education will likely find disaster rather than reward by this practice. “Design your health plan in such a way as to facilitate attracting and retaining your employees. Design the program to maximize personal engagement.” advises McLeese.
Some of the most common pitfalls will likely be linked to employer size, affordability and minimum value coverage. Small businesses (less than 25 FTEs) are offered conditional tax credits but not for business owners. Large businesses (50+ FTEs) will be fined for offering inadequate coverage. Minimum Value (MV) and Actuarial Value (AV) are impractical to calculate for most employers, and therefore working with insurance brokers and carriers you trust becomes more important than ever before. Safe harbor rules allow employers a small margin of error. Weimer advises employers to look to carriers for proper disclosure of MV and AV data. He tells us Diversified is overseeing these calculations for insured clients. McLeese adds that employers should properly classify employees as a new hire routine and to “work closely with a payroll provider who can assist in these recordkeeping requirements.”
Matt Weimer, Karen McLeese and HRS are all addressing proper FTE calculation methods. Weimer and Diversified have released a webinar rich with affordability calculators and employee counting rules. McLeese adds to these metrics a few cautions, including proper classification of employees versus independent contractors. HRS advises that improper 1099 classification is suffering more scrutiny and penalty than ever before, and not just with regard to ACA guidelines but also overall taxation and FLSA compliance impact. McLeese summarizes “Determine which employees are full-time, part-time, variable or seasonal. Decide whether to take advantage of a look-back (measurement) and stability period, and if you're not using a measurement/stability period, analyze status each month.” “Know your shared responsibility risk. How many full-time employees are offered minimum essential coverage? Is it affordable? To avoid a penalty risk, offer adequate coverage at an affordable rate. It is the offer, not the take-up rate, that matters,” continues McLeese.
McLeese recommends to “Establish a wellness program that promotes health and well-being; and ensure it is compliant with new ACA rules. If a wellness program currently exists, review it to ensure compliance with new ACA rules.” The ACA addresses wellness programs, and Weimer adds that wellness, HRA and HSA programs are under current review for their rightful position in coverage ratio calculations.
ACA guidelines will continue to address access and will require annual open enrollment for employer-sponsored plans. Employees will need to be offered health exchange notice within 14 days of new hire following group notification by October 1, 2013. Many employees will not be eligible to purchase insurance on the exchange but must be advised by employers as to availability for application.
HRS is addressing the Affordable Care Act with three new dedicated initiatives: 1) PPACA News Campaign, 2) Individualized Employer Workshops, and 3) Employee Education Tools. We remind that much of law is based upon case precedents rather than statutory language. Look for PPACA to be taking shape for years to come. Please consider us a resource, and stay tuned for more information.
Article by Jessica Ollenburg, HRS Senior Executive Consultant & CEO. Summary bio.
Matthew Weimer is Director of Employee Benefits Operations for Diversified Insurance Solutions. Matt’s extensive insurance industry knowledge and leadership helps to keep the entire benefits department abreast of legislation. He is Diversified’s Health Care Reform onsite expert and sits on the Board of Directors for the Independent Insurance Agents of Wisconsin (IIAW) along with several other industry and legislative committees. Matt has served on a number of advisory councils for the Wisconsin Office of the Commissioner of Insurance and still meets regularly to discuss state and federal insurance regulations. Matt holds a Bachelor of Arts degree in Business Administration and Marketing from Carthage College.
Karen R. McLeese, J.D., is Vice President of Employee Benefit Regulatory Affairs for CBIZ Employee Services, Inc., a division of CBIZ, Inc. McLeese serves as in-house counsel with particular emphasis on monitoring and interpreting state and federal employee benefits law. She follows and analyzes trends and provides information and technical support in response to technical questions regarding employee benefits. McLeese is a member of the Employee Benefits Committee for both the Kansas City Metropolitan Bar Association and the Missouri Bar Association. She is also a member of the Health Law Forum and the Labor and Employment Law Section of the American Bar Association. She has spoken professionally on wide variety of topics related to employee benefits, including HIPAA, COBRA, Welfare, Medicare, FMLA benefits. McLeese serves as an editorial board member for the publication Benefits Law Journal and is a graduate of Notre Dame and Duke Universities.
Jessica Ollenburg - Wednesday, June 26, 2013
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If you want to understand why anything happens in health care simply follow the dollars.
After having spent 35 years in the health care cost management field I am convinced that this is a true statement. The dollars influence and in some cases dictate hospital expansion, physician carrier choices, additional technology, administrative systems, insurance company plan designs, employer benefits and any other aspect of the health care field. This being the case, influencing the dollars will drive solutions to the industries problems.
As evidence of this, look at the expansion of PPO type plans over the past 20 years. Offering employees a benefit incentive to use one doctor or hospital over another has resulted in the largest change in buying habits ever recorded, with over 90% of today’s health care being provided through PPO type plans. Even HMO’s have re-packaged their services into PPO type plans.
There are three changes that can be made to the existing system that will reduce costs, significantly limit cost increases, improve quality, improve access, streamline administration and expand insurance coverage. All three changes are made in the private sector and require no government intervention or additional taxes.
1. Price Transparency:
Today we do not know the true cost of even the most routine procedure (normal deliveries). As a result of multiple PPO, HMO and government contracts the price has been distorted. In Milwaukee 38 procedures represent 65% of the dollars spent at the hospital. The price range of each procedure among Milwaukee hospitals is at least 100%, with 300% and 400% variances common. Each hospital should be required to disclose the average private sector revenue for the top 20 procedures. Because this is an average confidential contract pricing is not disclosed.
2. Change the PPO and HMO contracts:
In the mid 1990’s most hospitals were reimbursed a set dollar amount per day of hospital stay. As a result the cost increases for benefit plans in 1995 and 1996 was virtually “0” according to the Mercer study on health care costs. In the latter 1990’s competitive pressures and improved hospital negotiating skills resulted in a move to a percentage off billed charges. The control of the cost of health care was turned over to the providers. From the late 1990’s to about 2006 cost increases were in the low to mid teens each year. A return to fixed pricing is essential to controlling costs. Both hospitals and physicians should be reimbursed according to a fee schedule.
3. Change Benefit Plan Designs:
Price transparency and a change to schedules under contracts allow the designers of benefit plans to create plans that embrace the schedules. The cost of this service ranges from $1000 to $4,000. The benefit plan will pay $2,500. These are the providers who will accept this price or less.
4. Create Global Services:
Fixed pricing allows the formation of Global Services. Under these services all of the parts of a procedure are contained in a single contracted price. For example a Global surgery would include the surgeon’s fee, assistant surgeon (if necessary), anesthesia, radiologist, facility, drugs, tests and any other items required to provide that service. This is the way that health care is provided when benefits are not involved. Most cosmetic surgeries are presented to the patient set fees are patient (who is going to pay the bill) as a single fee with all the necessary parts included.
These four changes would result in an immediate cost reduction (fixed prices are used and providers have an incentive to control costs since it will increase their profits), improve quality (the main differentiation factor is now quality of care and patient satisfaction), improve access (if providers know they will be reimbursed they are more likely to offer services in areas they might otherwise ignore), streamline administration (more efficient administration increases profits) and expand insurance coverage (better priced insurance products can be afforded by more companies and individuals).
These changes can be implemented by the end of this year with no government intervention or expense. If consumers demand better benefit plans they will be delivered.
On the flip side the current proposal of a government sponsored “public plan” will increase Medicare taxes by 20% to 30% within two years.
The “public plan” is based on fees that Medicare has negotiated with hospitals, physicians and other health care providers. These rates are often 60% below billed charges and according to a recent study 20% to 30% below provider costs. The only reason that the provider community has been able to tolerate these low reimbursements is because they can increase their costs to the private sector. A study by the Lewin organization estimates that if the “public option” were offered 85% of the private sector would move to this option within two years because of the lower cost to companies and individuals. This would effectively kill private sector helath benefit plans.
If there is no private sector there is no one to whom costs can be shifted. Medicare would have to increase reimbursement to at least cost or hospitals and doctors would go out of business. This would require a 20% to 30% increase in Medicare reimbursements and a similar increase in Medicare taxes. It would also result in limitations on services available and probably result in hospitals and doctors opting out of the “public” plan with their services being available to only those who could afford to bay the bill.
We have the ability to control health care costs in a fashion that benefits patients, providers and payers. The question is do we have the resolve to implement the changes.
This article was contributed by Richard L. Blomquist, Esteemed Member of the HRS Advisory Board
Mr. Blomquist's Bio and Contact Info
Jessica Ollenburg - Monday, September 07, 2009
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With the trilogy control of Presidency, House and Senate by the Democrats, we have “thrown the keys” to a single party and allowed them to “fix it.”
For the good of our economy -- and quite frankly our wellness -- the backstabbing, blame-shifting and treasonous undermining of our leadership must cease. Please think twice before resorting to the same ol’ same ol’ belly-aching that has undermined hope and destroyed confident spending over the past 8 years.
We certainly must question the legitimacy of employee free choice actually existing within the proposed Employee Free Choice Act, and we must think globally, creating work ethic policies that allow the US the ability to compete globally while building positive relationships. Let's set an example of diplomacy and respectful disagreement in doing so. Perhaps we can understand that by regularly skewering the important leaders in our country, we jeopardize ability to attract top talent.
We can be empassioned without being destructive. We must discontinue behavior which has adversely affected new generations and created current economic downfalls. We can think twice before "bailing out" employers not likely to thrive and reinvest into our economy. We must stop blaming all CEOs for the greed of a few. We must remember and embrace "free enterprise." We must rreat the USA with appreciative inquiry.
Politically, let me be one of many to say passionately advise our current administration “You’ve got the keys, now FIX IT!” The world is watching with anticipation. Every citizen also has a role and a responsibility in "fixing it." It is most certainly a team effort!
Jessica Ollenburg - Friday, November 28, 2008
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It is most certainly an organizational development question to determine the take home pay of top executives. We can similarly discuss the high compensation for entertainment celebrities and sports athletes. As CEOs can create jobs, impact work-life and stimulate the economy, we should safeguard salaries to CEOs proportionate to their results at such – as we need to attract top talent there!
While CEO “greed” is certainly alive and well, it finds many exceptions and is not necessarily a direct fallout of tax breaks. In fact, taxation needn’t have substantial impact on executive salaries at all. Wherever you find a greedy CEO, you find a CEO who will take whatever s/he can regardless of net profit impact. Compensation in any US company can be more a factor of supply, demand, job retention and market conditions than anything else.
Tax breaks are intended to lure corporate behavior likely to create net positive impact on the economy. These incentives are used to create jobs, stimulate economic spending and increase the many other taxation opportunities which fund our government. Tax breaks to “big oil companies” could be considered in exchange for actions that heal the economy, such as the lowering of fuel costs to the public. With proper structure and surrounding conditions, this tax break could provide a positive net economic impact. Additional discussion on this point is well summarized at this CNN article. While we need to avoid tax incentives as “currency” to special interest group and campaign fundraising, let’s keep the discussion focused on the “how” and “why” we propose tax breaks. Let's also consider the individual taxes paid on salaries, personal spending and economic impact of the personal investments of CEOs. Without that language, we haven’t enough information to comment.
As a CEO who does not practice greed, I think and behave like many CEOs who think as shareholders, and I choose to protect company value, the supporting team/infrastructure and my future as the CEO. CEOs are accountable to the shareholders. These strategies are the subject of board meetings and MBA programs. CEOs in large companies may have the shelf life of a pro football player, and if we want to attract top talent to these economy-driving opportunities, as a country we may choose to offer a large incentive package, again proportionate to results. Where publicly traded companies may wish to empower a “celebrity” CEO to drive shareholder confidence, CEOs must be lured from one high paying opportunity to a higher paying opportunity. Done well, this creates overall positive economic impact.
With the pyramid shape of a large company, competition abounds. Power and high compensation are fragile here as many others are grooming and gunning for your spot. If you don’t move up, you move out. Once at the top, it’s far too easy to get pushed off that pedestal. This may be career ending as experience isn’t entirely transferable and few companies wish to pay you for what you did for someone else.
If you don’t believe the disconnect between corporate taxes and CEO salary, then spend a little time researching the high CEO salaries of the many giant companies who post annual fiscal losses – yielding no income taxes paid to the government.
Anyone who has studied business in depth knows these principles to be true. The United States needs first and foremost a President who inspires confidence. It concerns me – no, disappoints me – that a political party would use lack of education as a weapon against the very sector of our population that it pledges to represent – and protect. Less education can be a fallout of less financial resources – the people the Democratic candidate, Barack Obama, professes to support. So why make such wittingly false claims to the people you represent? I love Democratic ideals and am a centrist at heart. I tend to agree with Republican fiscal policies. I tend to vote Republican because I believe in the foundation American principles of capitalism. I believe the answer lies neither at extreme left nor extreme right. I have specific ideals and blueprints for action. I support the working people. I support people who work as hard, and even not necessarily as hard, as I do. I refuse to support those who don’t do their best and look for a payout due to some sense of entitlement. There is no such entitlement. If you don’t believe me, look up “free enterprise,” the backbone of US principles in business.
Jessica Ollenburg - Saturday, September 27, 2008
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Suffering the adjudication of sometimes economically and ethically irresponsible state workers, it becomes more costly to appeal the wrongful award of benefits than to simply pay the wrongful benefits. This in turn erodes not only employee work ethic but also employer confidence in the “system.” A state neglectful in maintaining this confidence misses opportunities to attract and retain tax paying and job producing employers. The unemployment rate simply needn’t be as high as it is, and our economy allows for more gainful employment than currently experienced.
When we fail to hold employees accountable for their choices and reward them for unacceptable work ethic, we behave unpatriotically and simply don’t uphold the free enterprise values of the “working American.” When we award compensation to those who refuse to work, how do we simultaneously advocate that we support the working?
I can’t imagine a better cause than helping those who cannot help themselves. There is nothing more frustrating than being forced to help those who refuse to help themselves. We empower people who either cannot or will not make that distinction. As we look to political platforms that promise “change,” let’s move this need for change to the forefront. Society doesn’t seem to be getting smarter and doesn’t seem to be working harder. While to “work smart” is the goal, we need to focus on both words in that key phrase.
The upshot of awarding unemployment to those who should not qualify is the de-motivation of employers to even attempt to follow guidelines and suggestions of the unemployment compensation adjudicators. Employers understand the futility of attempting to work with standards that, if followed, would put them out of business or at a minimum, force the reduction of jobs offered.
The re-label from unemployment “compensation” to “insurance” is a complete misnomer. Too many are being “compensated” for items completely within their control. With 25 years of operations in the state of Wisconsin, I love my hometown state and have difficulty finding employers who do not support these statements. As HRS continues to expand our bases in Arizona, other states and other countries, data pours in as to why employers choose specific locations, the politics and legislation considered.
Growing up, I recall the joke “National welfare is a bus ticket to Milwaukee.” As a businessperson with clients in many states and countries, I assert this problem is not unique to Wisconsin and goes to the political roots in every state. Let’s please recognize that protecting jobs and protecting wages begins with protecting employers. Let’s also please redefine what “working” means and hold “workers” accountable to their “work.”
Jessica Ollenburg - Friday, September 19, 2008
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