Employers, Be Strategic In Implementing Health Care Reform

The Affordable Care  Act (ACA) is here to stay, commentators all agree. There might be some adjustments at the margin – possibly Congress will eliminate the medical device tax; maybe Congress will permit Flexible Spending Accounts and Health Savings Accounts to be used for over the counter drugs.  But the essentials of the ACA will remain, including the individual and employer mandates.

The purpose of this post is not to detail the many compliance issues that employers must satisfy under the ACA. Suffice it to say that employers of all sizes need to be aware of their obligations in 2013, and the even greater obligations facing them in 2014, when the major provisions of the act become effective. Employers should consult their legal counsel, brokers, and other benefit plan experts to determine what they must do to comply with the ACA.

Instead, this post is intended to provoke employers to think strategically about how they want to structure their health insurance plans for employees.  I recently participated in an Aon Hewitt conference call in which their healthcare experts advised that compliance and corporate strategy are two different things, and employers need to focus on both.

Many corporate leaders deplore the need to be experts in health insurance and plan design issues, because it detracts from their focus on their companies’ products and services to customers. Nevertheless, most executives recognize how important the health and engagement of their workforce is. As they implement the ACA, companies will become more involved in healthcare decisions, not less. Wise employers will deal with the problem strategically.

HR, Finance, and other executives at companies of all sizes should discuss:

• Do we want to build unique health insurance plans designed specifically for our workforce? What are the major healthcare needs of our employees? What employee behaviors are driving our healthcare costs, and how can we incent healthier behavior?
• Do we want to build or join a private healthcare exchange to provide our employees with more  choices? Would we rather push employees into state or federal healthcare exchanges to reduce our involvement in structuring healthcare plans?
• Should we structure our jobs to maximize the number of part-time employees for whom we do not need to provide health insurance? What will the implications be for employee satisfaction and for our operational efficiency?
• How do we segment our health insurance offerings and our communications for various groups within our workforce?

Now that the ACA has survived the Supreme Court and the electoral process, employers must focus on their roles in its implementation. But they shouldn’t ignore their companies’ strategic needs as they do.

Complying with the ACA is one thing. Making the right strategic decisions for your workforce is another. Be sure you do both.

More Perspectives on Health Care Reform

Last week we heard the Supreme Court’s decision on the Affordable Care Act (ACA). I admit to being one of the more than 800,000 people following the SCOTUSblog live coverage of the justices reading their opinions and the follow-up commentary by politicians and pundits.  SCOTUSblog did a phenomenal job of posting accurate information in real time, and I highly recommend this site to anyone interested in the Supreme Court.

In April 2012, right after the arguments before the Supreme Court in the ACA case, I posted on my many perspectives on health care reform – attorney, former benefit plan administrator, corporate executive, consumer, and conservative. All those perspectives came into play again this week as I followed the coverage of the Supreme Court decision.


1. Limits on the Commerce Clause; No Limits on Taxes – Does the “Tax” Label Matter?

In my earlier post, I said that as a conservative I wanted the Commerce Clause to be limited.  Well, five justices of the Supreme Court limited it.  But the ACA survives anyway under the taxing power of Congress.

I always believed that Congress could have passed health care reform using its taxing power, but in 2009-2010 the President Obama and the Democrats in Congress specifically said the ACA’s penalty for not purchasing health insurance was not a tax.  Turns out it was.

This weekend, I argued with supporters of the ACA whether this mischaracterization of the penalty as "not a tax" matters. The President’s supporters claim that, because both the House and Senate properly passed the statute and the President duly signed it into law, it doesn’t matter what label was put on the penalty. But I firmly believe – as do other conservatives I have talked to – that some Democrats who voted for the ACA would not have done so if the penalty had been labeled a tax. In my opinion, labels do matter, because they impact the political process.


2. Uniform Benefit Plan Laws Unlikely

I said in my April post that as a benefit plan administrator, I believe uniform national laws are a huge simplifier for multi-state employers. Although the ACA is a national law, the Supreme Court decision does nothing to help businesses with simplicity.

I have listened to what benefit plan consultants like Aon Hewitt  and Towers Watson are telling their clients about compliance with the ACA. They say that, although the Supreme Court’s decision does mean that employers need to move forward with compliance, the devil will be in the regulatory details.  This 2,700 page act has already spawned more than 12,000 pages of regulations, and reams more regulations will be published before we really know what the law entails.

And different states and different employers will choose different paths to compliance.  Some states will expand Medicaid, others will not.  Some will develop their own healthcare exchanges, others will not.

Some employers will continue to offer group healthcare insurance, others will work with healthcare exchanges in states that adopt the exchanges, and some employers will decide that paying penalties is less costly than providing insurance to their employees. Also, some employers may decide to re-structure their workforces to reduce the number of full-time employees who must be covered.

Change in the employee benefit arena will continue for many years to come, and plan administrators will be dealing with the upheaval for at least a decade.


3. Equitable Taxation of Health Care Expenditures and De-Linking Health Care from Employment

The Supreme Court decision, of course, did nothing to fix the inequities between employer-provided healthcare insurance (premiums paid with pre-tax dollars, and employer contributions not taxed) and individual healthcare insurance (all costs paid with after-tax dollars).  I remain of the opinion that healthcare insurance should be totally separated from employment, and there is no movement in that direction. But at the very least, the tax treatment of employer-provided and individually purchased insurance should be the same.

Republicans have said their version of healthcare reform -- after Obamacare is repealed -- would equalize tax treatment of healthcare insurance.  Whether they will get the opportunity to repeal the ACA and pass  their own legislation won’t be determined until after the November election.


4. Tax Increases Coming; Premium Increases Also Likely

As a result of the ACA, higher income taxpayers face additional taxes, quite apart from the debate over whether the Bush tax rate decreases should be extended.

The Medicare tax on salary and self-employment earnings on individuals making more than $200,000 and couples making more than $250,000 in salary and/or self-employment income will pay an extra .9% above the 1.45% we all pay now.

In addition, starting in 2013, individuals making more than $200,000 in adjusted gross income and couples making more than $250,000 will be hit with an additional 3.8% "Medicare contribution tax."

Furthermore, everyone’s flexible spending account deductions for healthcare expenditures will be limited to $2,500 per year, limiting a very popular tax shield.

As a result of these changes, expect a flurry of tax-planning activity before January 1, 2013, arrives.

In addition to these tax increases, it is still likely that health care expenses in the form of premiums and medical products and services will consume an ever greater percentage of family and government budgets. Contrary to President Obama’s promise, the ACA does not adequately bend the cost curve. In my opinion, individuals will need to take more responsibility for their life choices and health care decisions before health care costs can be controlled.


5. It’s Still Not Over 

Many more lawsuits will be fought before we know the full ramifications of the ACA -- already litigation is pending over religious exemptions from contraceptives. Other mandated benefit issues will arise, as will disputes over eligibility for subsidies, state and federal arguments over Medicaid, what providers of medical services and devices should be paid, and a host of other issues.

And I still believe, as I did in April when I wrote my earlier post, that there will be amendments to the ACA before it goes into effect, or when the consequences of the act become too onerous.  The 2,700 pages enacted in March 2010 will not remain inviolate, no matter what happens in the November election.

What do you think? 

My Varied Perspectives on Health Care Reform

This past week’s Supreme Court arguments over the Affordable Care Act fascinated me – as an attorney, as a conservative, as a former benefitplan administrator, and as a corporate executive.

1.      Limits on the Commerce Clause

As an attorney, I was fascinated by the discussion on the limits of the Commerce Clause. In two years, we’ve moved from Nancy Pelosi asking “Are you kidding me?” when a reporter questioned whether the ACA was constitutional to a very serious debate in the Supreme Court over whether the federal government can require its citizens to purchase a product from private insurers.

As a conservative, I want to limit the intrusion of government – particularly the federal government – in the lives of Americans. The Constitution enumerates certain powers for the federal government, and reserves all other powers for the states or for individuals. Where are the limits of the Commerce Clause? We should find out something in June.

2.      The Desirability of Uniform Benefit Plans

However, much as I would prefer to see limits on what the government requires of its citizens, as a former administrator of health and pension plans for a corporation with employees in all fifty states, I recognize that uniformity makes plan administration much simpler.

Using the states as a testing lab for different healthcare reform options – as Republicans have been arguing – complicates plan administration significantly. The Employee Retirement and Income Security Act (ERISA) has a strong preemption clause, which permits companies that self-insure to develop national benefit programs. As a plan administrator, I appreciated ERISA’s preemption clause.

By contrast, companies that have a fully insured product must meet a variety of state mandates and other insurance regulations. Most businesses that have fully insured health plans have very little ability to opt out of state requirements they don’t like or think are too expensive, such as infertility treatments or organ transplants.

One thing to watch as the Department of Health & Human Services issues regulations under ACA is how onerous the requirements will be on all health insurance plans. We’ve seen one situation recently – the inclusion of birth control and abortificants as mandated preventative health care for women. The more treatments that are mandated under ACA, the more expensive health care insurance will be for all of us.

Uniformity is nice, but so is the ability to choose a plan that makes the most sense for the individual.

3.     De-Linking Health Care from Employment

As a conservative and a benefit plan administrator, I would prefer that health insurance not be associated with employment. Obviously, that would have eliminated the Benefits Department where I worked for a portion of my career, but it would have permitted my company to focus its attention more on the needs of the business and less on the rising cost of employee benefits. When the CFOs of companies spend as much time on tweaking their employee health care plans as on financing product and equipment improvements, something is wrong.

On the other hand, I recognize that a major reason that the health care system works today is that employers subsidize their workers’ health insurance. Employers get away with offering the same price to everyone – one of the requirements the ACA attempts to impose – because they subsidize the cost.

Younger employees are willing to buy into employee health insurance plans because of the subsidy which makes it worth their while (and, of course, older employees get an even better deal). In smaller businesses and non-profit employers, which cannot subsidize their employees’ costs to the same extent that large businesses can, employees are less likely to buy into insurance at work. They get coverage through a spouse’s employer or they do without health insurance.

4.     It’s Not Over till It’s Over

So what will the Supreme Court do? What will Congress do after the Supreme Court decision, whichever way it lands?

No matter what, there have been too many questions raised about the Affordable Care Act in the last two years. The 2,700 pages enacted in March 2010 will not remain intact.

What are your predictions?