How Healthcare Reform Is Affecting Coverage Options

Although dogged by delays and uncertainties, the Affordable Care Act is already shaping how companies provide healthcare to their employees.

The sweeping healthcare reform package, signed into law March 23, 2010, is a mélange of requirements. The Obama Administration just announced that the employer mandate—the so called “pay-or-play” rule requiring any company with more than 50 full-time employees to provide healthcare or pay a penalty—would be delayed until January 2015. But that doesn't let employers off the hook for new fees and other deadlines that still kick in over the coming months. (See “Fuzzy Math: Calculating the Compliance Costs,” for a rundown of those fees.)

“I don't think there's any particular provision of the Act that people are looking at and are saying, hey, that's going to be really easy,” says J.D. Piro, senior vice president for Aon Hewitt. “It's 2,700 pages—the biggest change to healthcare probably since Medicare back in 1965. So I think all employers are looking at this and really trying to get a grip on it.”

Even with the one-year reprieve, companies still need to figure out their strategy for the employer mandate. Companies that decide to forgo healthcare coverage and “pay” will face a $2,000 fine per employee, minus the first 30 individuals. Those opting to “play” have to meet new regulations ensuring their plans are affordable and provide the necessary minimum coverage.

“I think the trend for most large employers, not all but most, is still going to be to play. There are very few that are going to opt to exit the marketplace right away,” says Julie Stone, senior consultant with Towers Watson. Many see benefits packages as a vital element of attracting and retaining talent, and soon-to-be-opening health exchanges are still a question mark.

According to Piro, some companies may be looking at how much it will cost to continue to provide health coverage, compared with ending coverage, paying the penalties, and pushing employees into the exchanges. “When you actually sit down and do the math it doesn't really end up being cheaper” to get out, he says. “So some employers are looking at not getting out of healthcare coverage, but instead looking at ways to manage the health and productivity of their employee population.”

The Shape of Plans to Come

While the Affordable Care Act contains measures to rein in costs, those measures are meant to be phased in over 5 to 10 years, while employers “are looking at cost increases now,” Piro says.

Tracy Watts, Mercer's healthcare reform leader, says the most recent Mercer survey showed a large number of employers will move to consumer-directed health plans. “That really is the strategy of the day,” Watts  says. “We've documented pretty significant cost sharing and cost shifting in recent years as it relates to deductibles in particular and a pretty swift movement in the direction of consumer-directed plans.”

Some employers are paring down offerings, while others are adding lower-cost options as a result of ACA. Another main trend is the role of health management programs and wellness programs.

The more specific guidelines in ACA may make it riskier from a compliance perspective to provide some of those wellness programs, says Helen Darling, president and CEO of the National Business Group on Health. “We're definitely seeing a trend away from the easier ones that say if you do something we'll give you an award, say $100 or $200, toward ones that if you don't do something, then you will pay more for your health plan,” Darling says.

“[The Act is] 2,700 pages—the biggest change to healthcare probably since Medicare back in 1965. So I think all employers are looking at this and really trying to get a grip on it.”

—J.D. Piro,

Senior Vice President,

Aon Hewitt

The top concern has consistently been the excise tax on high-cost health plans that will kick in at the start of 2018. Dubbed the “Cadillac tax,” it drops a whopping 40 percent levy on plans valued at more than $10,200 for an individual or $27,500 for a family when it takes effect.

Companies have always wanted to control costs, but with the Cadillac tax on the horizon, they “are more committed than ever,” Darling says.

“They've moved much more aggressively to account-based plans or consumer-directed plans,” Darling says. They will be more aggressive on pushing employees toward generic drugs and will help workers navigate the system during high-cost illnesses like cancer, she adds.

While Darling says human resources tends to move slowly, ACA has accelerated the pace. “We can't just let this come in slowly like we might have done traditionally. If you're not going to pay the Cadillac tax, you can't make that happen overnight. You literally had to begin almost right after the law was signed.”

Companies are looking at their plan design, adding cost sharing, changing co-pays and other features to bring the actuarial value of plans down. Some are switching to vendors and carriers that are less expensive. Those changes are starting to impact union negotiations, Stone says.

“Nobody is going to pay the excise tax,” Stone says. “The trend is to figure out how to mitigate that.”

The New Full-Timer

Second to the Cadillac tax, the biggest concern among employers is the change in the definition of full-time to 30 hours a week, which is lower than what companies typically considered.

“First of all, it's costly to employers to cover more people, but secondly, all the requirements around how you track and measure that will be administratively burdensome for employers,” Watts says.

Healthcare Reform Spurs Novel Partnerships

With the Affordable Care Act ratcheting up financial pressure on healthcare providers, a flurry of complex and novel partnerships are taking place to respond to the reforms, presenting a new set of considerations for compliance officers.

Collaborative ventures between insurers and physicians, informal alliances, co-management models, and ACO-like arrangements are just some examples of the kinds of deals taking place, said Frank Sheeder, a lawyer and chair of DLA Piper's healthcare enforcement and compliance practice in Dallas.

Non-healthcare companies will want to keep up with the different models of service providers and health coverage options. “There are all sorts of transactions going on in healthcare right now, all of which are susceptible to the same kinds of concerns,” said Sheeder, former president of the Healthcare Compliance Association. Even without the ACA, market forces are pushing the industry to collaborate and realize economies of scale.

“The business people are dying to do these deals. They have what I call the urge to merge,” Sheeder said. “There are many, many types of transactions and combinations going on out there that are novel, and that are partners that haven't been together before. Everybody wants to do these cutting-edge deals and they don't really want to pause and exercise the due diligence that is necessary.”

For the healthcare companies involved, the deals can raise complex compliance issues. Sheeder said compliance officers should be involved while deals are brokered, not after, which has not always been the case. For example, if a provider were to enter into an agreement with a doctor, who happened to be coding incorrectly and his reimbursements were 10 percent too high, that could blow the whole economic basis of the deal. The time to find that out is beforehand, not during an after-the-fact audit, he said.

Financial pressure also will mount as the ACA causes providers to add services while their payor mix will change. Some health services will be commoditized, and hospitals likely will lose more money on physician deals as the revenue stream diminishes. “Being under financial pressure sometimes causes people in organizations and agencies to make bad decisions,” Sheeder said. “You've got to have the compliance officer mindful of that in their daily role.”

—Roberta Holland

Stone says there is a lot of technical guidance around how to calculate hours. Some companies have groups of people who have not historically been eligible for health benefits, like summer interns, that now must be covered. There is, however, a 95 percent safe harbor provision for companies.

On that and other requirements like it, compliance officers “can offer real value in making sure that in their organization people have scouted out all the different populations that might be hidden,” Stone says.

While some employers, most notably pizza chain Papa Johns, have publicly talked about cutting workers' hours below the 30-hour threshold, that may not be prudent. “The question becomes whether that fits within your business model,” Piro says. Companies don't want to save on benefits at the expense of their overall success.

Exchanges an Option for Some

Even if they're not expecting to use them, companies were required to notify employees about state-run healthcare exchanges before they opened on Oct. 1. But some states are far ahead of others, and companies are still awaiting guidance on what those notifications should look like.

Getting that information out has become a top priority, says Anne Pachciarek, a partner with DLA Piper. “What is happening now is employers are starting to put together their open enrollment materials and trying to figure out what are the insurance offerings we're going to offer to our employees effective as of Jan. 1, and this notice will be coming in the middle of all of that.”

The first group likely to be moved onto exchanges is pre-65 retirees, who are not yet eligible for Medicare and tend to have higher medical costs, Stone says. Some employers may look to the exchanges for active employees as well, depending on the salary level, especially in industries with a lot of part-time or low-wage workers.

Messaging also will be important for higher-wage workers that they have adequate coverage and shouldn't go to the exchanges. “That will be a pain in the neck for them to have to show evidence every time a state comes and says your employee applied for benefits, and asks: ‘Do you provide benefits and are they affordable?'” Stone says.

The Role of Compliance

At many companies, human resources or benefits are taking the lead on implementing ACA, but compliance should also play a large role in preparing the company. “I can see the need for a lot of coordination among payroll, HR, compliance, and other departments to make sure that if you're subject to the mandates, you're complying or you've addressed how this affects your company,” Pachciarek  says.

                     ABOUT THIS SERIES

Compliance Week's exclusive four-part series on healthcare explores how corporate compliance will intersect with healthcare reform. It examines both the pragmatic and the philosophical sides of healthcare reform for businesses—both public and private—outside the healthcare sector.

Part 1: Fuzzy Math: Calculating the Compliance Costs, Oct. 1Part 2: Healthcare Reform: Prepare for a Reporting Onslaught, Oct. 8Part 3: How Healthcare Reform Is Affecting Coverage Options, Oct. 16Part 4: Meet the Enforcers of Health Reform Regulations, Oct. 22

With so much already on compliance's plate, ACA compliance could be a tall order at most companies. “The economy, at least in the United States, is such that we fear the organizations are going to ask more of the ethics and compliance officer but are not going to give them more resources,”  says Tim Mazur, chief operating officer of the Ethics & Compliance Officer Association. “Except for the very, very largest of organizations, they just see this as another compliance responsibility. The compliance office deals with new laws every year, but this is a very big one. It has above-average level of responsibility for the information they have to track and some reporting responsibilities.”

Mazur added that is has been a challenge for compliance and ethics officers to earn both the budget and respect that are warranted. “We're in this transition time of trying to get executive management to realize that there's more to (compliance) than just making sure you mail a certain form to a certain agency by a certain date,” Mazur says.