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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FMLA, ADA, Disability and PTO (Paid Time Off) leaves require proper sequencing in avoidance of fiscal waste, unlawful activity and costly confusion. While there are certain acceptable conditions under which paid leave can be substituted for FMLA, HRS recommends sequencing leave with clear consistent policies. As it is unlawful to penalize an employee in any way based upon his or her proper execution of legal rights or benefits, keep it clean and risk free. Beyond PTO and where permitted by law, leave concurrency should be clearly stated and practiced with consistency.
In terms of medical and disability leave, employers are strictly accountable to FMLA and ADA according to company size, location and unique definition of “undue hardship.” Employers must create a distinctive policy whereby employee receipt of disability benefits does not necessarily constitute approved disability leave. Consider the elective disability policies available. While these may be a smart purchase for employees, employers must be consistent with available leave and need not recognize these private purchases as employer mandates. A few sentences in the employee handbook and a consistent practice accomplish these goals quite nicely. Workers’ compensation lost time is treated in accordance with FMLA, ADA, DOL, EEOC and company leave policies.
Customize a PTO policy which addresses your company’s unique needs. Consider benefits for using PTO during company preferred times such as periods of less activity. Contemplate blackouts for PTO during bottleneck activities. Take into account the minimum and maximum length of absence preferable, and structure a written policy in advance accordingly. Having created a custom policy that appropriately addresses unique company wishes, many employers will find value in requesting use of PTO prior to any unpaid leaves. Remember that legally entitled leaves require certification. That is, when you have a finite amount of leave certified, this needs not extend the total leave amount, and everyone wins. Most employers will find the following sequence most beneficial: PTO >> FMLA >> ADA Extension (if applicable) >> Company Elected Medical or Disability Leave (if any). ADA extensions are still being shaped by case precedents, whereby 30 days beyond FMLA was recently determined a maximum.
Any company elected leave not legally mandated should be titled as such, creating clear distinction as to what is legally mandated and monitored and what is not. It is most definitely a lost opportunity to create company elective leave without proudly announcing this generosity of this benefit to treasured team members. This announcement can optimize engagement and employer brand equity.
The legal compliance professionals at HRS are on call for policy establishment and implementation guidance. Please consider us a valuable resource to any of the topics mentioned herein.
Jessica Ollenburg - Monday, July 30, 2012
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Fueled by ADA, FMLA and countless ever-changing statutory concerns, employer confusion has sparked over-generosity. Employers are giving against their will and caving in beyond necessity. While competitive offerings remain critical to attracting, engaging and retaining the right talent, benefits that reach the greatest number of top performers are most valuable. Disability benefits may or may not be integral to that mix, specific to the overall company offerings and keys to success. Disability leave, disability law and disability insurance are each distinctively different topics. Accordingly, we have taken time to debunk the myths and blueprint the actual requirements.
ADA Leave: Recent legal precedents validate that employers need not provide “indefinite leave” nor any disability leave that produces “undue hardship.” According to circumstance, four weeks beyond FMLA entitlements has been a typical benchmark for ADA leave.
Employee Paid Disability Premiums: Where the company does not pay premiums or administer benefits, such disability insurance plans may be exempt from company benefit rules. While it is unlawful to penalize employees for the allowable use of company benefits, benefits not provided by the company may be carved out. Written distinction is mandated through a well-crafted policy.
Advance Notice: Wage, hour and employment laws are quite clear that while an employer may be granted certain latitude in practice, advance notice to employees is critical to legal compliance. Burden rests upon the employer to provide clear advanced notification of policies. Again, a well-crafted proactive policy satisfies this requirement.
Benefits During Leave: The company needs not pay benefits during leave not legally mandated. In fact, the same is true during certain legally mandated leave. Employers may craft policies that stipulate leave to be employment separation. Such leave can then have its own consistently applied definition, eligibility for rehire and seniority recaptured, if so desired, upon rehire. Employees are eligible for COBRA as of the employment separation date, which becomes the qualifying event.
As with most employee handbook policies, one size does not fit all here and legal compliance can be complex. HRS is available to weigh situations on their own merit and customize policies to unique company practices.
Jessica Ollenburg - Monday, August 29, 2011
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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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Sending wholehearted gratitude to those and their families who paid the ultimate price defending their country against socialism, the false propaganda in this country threatening blind allegiance and subserviance to socialist principles needs also to be defended against. Some proponents of the universal health care movement are now using socialism labels… and this is an unnecessary extreme to create the much needed change. Nations choose their political systems carefully and defend them tenaciously. The US has fought tenaciously as well and shouldn’t easily abandon longstanding beliefs.
Those who think they understand socialism need to visit a socialist nation and spend time truly analyzing its affects. Socialist principles can be altruistic and often attractive in theory. Like many political systems, the rollout of socialism yields outcomes completely contradictory to its perceived intention. In the US we are entitled choice, and in that, let’s please remember that for which our founding fathers and millions of US military have shed blood. Hitler and Mussolini also are also connected with socialism. Think carefully.
In the US please consider rejecting all programs cloaked with the word “socialism” and “socialized” unless you really believe pure socialism is the answer... and you believe the US needs to reject its longstanding principles and overturn that for which many have given their lives. There are many things to attempt here in the US short of socialism before overturning our guiding principles in such an extreme. Many believe through research that true socialism simply eliminates the middle class… making the rich richer and the poor poorer.
Whether you are for or against more government intervention in our BIG health care problem, socialism is not the next step in progression… and please don’t let much needed hope for betterment allow such a tricky movement to sneak past the great people of this country.
Jessica Ollenburg - Monday, September 07, 2009
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We have the tools to effectively control excessive health care costs and improve the quality of health care. In order to address the damaging impact of these costs it is necessary that we understand the underlying cause of the problem and implement three fundamental changes. The goal is to have health care services of acceptable quality, reasonably priced and available to our citizens.
Where We Are...
Health care costs are one of the largest expenses of many families. In the past few years they have risen to represent the largest source of personal bankruptcy.
For corporations the cost of health benefit plans typically represent the second or third largest expense after payroll and raw materials. Today GM, Ford and Chrysler would not be facing potential bankruptcy if they did not have to sustain health benefits for employees and retirees.
For local, state and federal governments these expenses are forcing the increase in taxes and limitation of other services.
In all cases these expenses represent the most inflationary expense typically increasing from 8% to 15% or more. They are several times the increased cost of other goods and services.
Why The Problem...
Volumes have been written in an attempt to identify the reasons for health care cost increases. Technology, malpractice insurance expenses, defensive medicine, aging population, administrative inefficiencies, the uninsured, insurance company greed and a medical arms race among integrated health systems have all be advanced as the culprits. These are all symptoms of a deeper and more pervasive underlying situation.
At the core of our health care cost dilemma is an economically dysfunctional system. This system has evolved as a byproduct of employer based health benefit plans and government social programs. These two systems today represent about 95% of health care purchases in the United States. They have resulted in a system where those who need the service are different from those who order the service and both of these groups are different from those who pay the majority of the bill. Each of these groups has different needs and incentives which results in a dysfunctional system.
Let me present an example. Discretionary cosmetic surgery is typically not covered by benefit plans. The doctor presents the services, the risks and the cost, "That nose job will be $5,000." All services, surgeon, assistant surgeon, anesthesiologist, pathologist, lab work, facility cost, pre-surgery care and post-surgery care are included in one "Global" fee. The patient makes the final decision to have the surgery and pays the bill.
This is a normal customer – provider relationship. The patient can compare costs and through references obtain quality information.
If a health benefit plan is involved, a dramatically different presentation occurs. The patient may elect to have the surgery and select the surgeon but the other components are independent and are factored in as the system requires. Each will result in a separate charge which may be aggregated or submitted separately. The patient and the patient’s insurance will not know the cost of the service until the end of the day when all the bills have been submitted. This system has been driven by the nature of the health insurance contract where each component of health care is treated separately.
This is similar to the difference between buying a dinner and purchasing each component of the dinner separately. With the latter the steak is one charge, the potato another, the peas are a third and determined by how many peas you want, if you want a plate… that is additional, as are the knife and fork. The napkin is considered unnecessary and will not be covered by insurance.
Add to this confusing system two other elements. First, each service is subject to a discount which will most likely vary between insurance company, PPO, HMO and government contracts. A service may have a 60% discount from billed charges for Medicare, a 50% discount for one HMO and a 40% discount for a PPO. Even patients without insurance get a discount. No one pays billed charges anymore.
Second, the price of a single service will vary widely from provider to provider. In 1984 prior to the Medicare program moving from cost plus 5% to Diagnostic Related Groups (DRG), the price variance was about 10% in a given metropolitan area. Today, of the top 38 hospital procedures the variance is at least 100% and can reach 400%. A $2,000 service at one hospital will cost $8,000 at another.
What Can Be Done...
There is no other industry in the world where a dysfunctional system of this magnitude occurs. No individual, corporation, industry group, consumer group or government can effectively address this problem. Changing the underlying economic model, however, will result in a thousand responses by the market that will effectively address the problem.
For this to occur, three steps must be taken.
1. Health care costs must be made transparent. In order to not violate private confidential contracts between the health care provider and the payer, an initial report of the average revenue received by a hospital for the top 20 procedures will identify those hospitals that are doing a good job of controlling costs and those that are abusing the system.
2. Where possible, services should be offered on a "dinner" basis. These "Global" fees can be developed for about 85% of the services American’s purchase annually. Their development will encourage the medical community to improve efficiencies and develop mechanisms to report on quality.
3. Insurance plans (both through insurance companies and self-insured) and government plans like Medicare can then be modified to embrace the Global fees. This will result in greater cost control and more efficient payment systems (pay one Global fee instead of 12 smaller bills).
These three actions will change the economic foundation on which we as a society provide and purchase health care services. Costs will be contained and reduced and quality will be emphasized. If quality care is more affordable it will also be easier for various programs to provide care in more challenging inner city and rural areas.
The first step is for state and federal governments or corporations through existing contractual relationships to require average price disclosure (net of all discounts) by each hospital.
This article was contributed by Richard L. Blomquist, Esteemed Member of the HRS Client Advisory Team
Mr. Blomquist's Bio and Contact Info
The Team At HRS - Friday, May 01, 2009
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