Kill or Cure?
In the months leading up to Congress's vote in March 2010 to overhaul health-care coverage, there was one thing that nearly everyone, regardless of political persuasion, could agree on: The U.S. health-care system--at least its financial side--was fundamentally broken. Millions of Americans were without insurance. The cost of health-care coverage continued to skyrocket for employers and for employees. Something had to be done.
The congressional solution--the Patient Protection and Affordable Care Act of 2010 and the Health Care Education Reconciliation Act of 2010, collectively known as the Affordable Care Act--was intended to increase access to insurance coverage, improve the quality of health care and reduce costs.
Will the Affordable Care Act do all those things? Will it do any of them? Key parts of the new law don't take effect until 2014, so answers will be a long time coming. With Republicans-who almost universally condemn the act-taking control of the U.S. House of Representatives in 2011, it's not even certain the law will survive the political firestorms that are sure to break out. "I think there are large pieces of this legislation that will never get funded," says Bill Hutter, CEO of Sequent, a benefits consulting and outsourcing company.
So what should a business owner-or a health insurance executive, or just an ordinary schlub seeking affordable coverage-do now? For most, the short answer is: Wait and see. The slightly longer answer is: Learn all you can about the new law, comply with the parts that are taking effect now, and try to position yourself to benefit from-or at least not get clobbered by-the changes that are coming down the road.
Here's a look at some key elements of the Affordable Care Act, and how some Central Ohio experts think the new law will affect businesses, individuals and insurers.
The Affordable Care Act aims to provide some 32 million more Americans with health insurance by 2014, using both carrots-subsidies and tax credits-and sticks-penalties, fees and taxes. The act establishes state-run insurance exchanges for individuals who can't find coverage anywhere else, and expands Medicaid eligibility while reducing many Medicaid reimbursements.
Some new rules have already taken effect, including:
• Elimination of pre-existing condition exclusions for children under age 19.
• Barring insurers from dropping sick consumers who have made technical mistakes on their applications.
• Extending dependent coverage to adult children up to age 26 (In Ohio, age 28, with some restrictions and no mandate that employers pay the premium for dependents age 26 to 28.).
• Elimination of lifetime dollar limits on health coverage.
• Full coverage, with no co-payments or deductibles, for preventive care.
• Creation of a high-risk insurance pool for people who have pre-existing conditions and are unable to obtain insurance.
In 2014, most individuals will be required to carry health insurance, and businesses with more than 50 workers will be penalized if they do not offer those workers coverage.
Among employers there's much discussion of "grandfathered plans," those in place when Congress passed the Affordable Care Act on March 23, 2010. Among other things, businesses that renew grandfathered plans are not required to offer preventive care and screening for free; provide guaranteed access to ob/gyns and pediatricians; or abolish annual coverage limits.
Think twice before you decide to hold onto that grandfathered plan, however. Because most insurers change coverage offerings regularly, the government anticipates most plans will lose grandfathered status by the end of 2013. "Losing grandfathered status is not tragic," says attorney Jolie Havens, a member of the health care group at Vorys, Sater, Seymour and Pease. "Employers simply need to go in with eyes open and understand that the additional mandates may further increase health coverage costs."
Employers may not want to retain grandfathered status if they have to swallow hefty premium increases to do so. "I believe the possibility of maintaining a grandfathered plan is virtually impossible, because there are changes that carriers must make, and as soon as the carrier makes them, costs are going to rise," says Hutter.
The new rules say employees in a grandfathered plan can never be charged more than 105 percent of the premium they were paying on the day the Affordable Care Act was passed. Over time, that will shift more of the cost burden to employers. Hutter's advice: Drop that grandfathered plan now. "Use a high-deductible HSA [health savings account] model, and train people on how to assume responsibility for their own health care."
Nearly one-third of the uninsured--about 13 million people--work for firms with fewer than 100 employees, according to HealthCare.gov, a U.S Department of Health and Human Services (HHS) website. From 2000 to 2007, HHS says, the percentage of small businesses offering health insurance dropped from 68 percent to 59 percent. By contrast, more than 95 percent of large firms offer employees coverage.
According to a publication released by the office of outgoing House Speaker Nancy Pelosi, small biz health-care costs have increased 129 percent since 2000. On average, small employers pay about 18 percent more than large firms for the same insurance policy. Many provisions of the Affordable Care Act are aimed at making coverage better and less expensive for the country's small employers:
Tax Credits - Through tax year 2013, a business with 25 or fewer employees, who earn average annual wages of less than $50,000, may receive a tax credit for a percentage of health insurance premiums paid by the employer, as long as the employer pays at least half the premium.
The highest credit--35 percent--is available to employers with 10 or fewer employees and average annual wages of less than $25,000; the credit phases down as firm size and average employee wage increases. (Nonprofits can qualify for credits up to 25 percent.) An estimated 12 percent of small businesses qualify for the credit, according to the Ohio Department of Insurance.
Easier Access - As of 2014, insurers may no longer use workers' health status as a reason to turn down a small employer's application for coverage. Insurers must make available to all small employers any plan they make available to any small employer in the same state. If dependent coverage is offered, employees or family members with pre-existing health conditions cannot be excluded.
Exchanges - By 2014, state exchanges will be available to individuals and to small businesses with fewer than 50 employees. The exchanges will expand in 2016 to employers with up to 100 employees; in 2017, states may allow businesses with more than 100 employees to participate.
The exchanges are intended to enable small businesses, the self-employed and the uninsured to pool their purchasing power and gain access to plans of the same quality available to large firms, with more stable pricing and lower administrative costs.
Beginning in 2014, small businesses that purchase coverage through a state exchange and pay at least half the employees' premiums may receive a credit of as much as 50 percent (35 percent for nonprofits).
The White House estimates 4 million small businesses will qualify for the tax credits. The National Federation of Independent Business (NFIB) says it'll be more like half that number because many won't have employees at the right level of average pay, or won't be contributing enough to premium costs to qualify.
Will some businesses curb their growth or start outsourcing work, just to stay eligible for the tax credit? Accountant Bernie Ostrowski, a partner at Plante & Moran, says that's not a smart tactic. "It would seem to me that if somebody is teetering on that 25, 26 employee number, they would want to grow as much as they can," Ostrowski says.
Attorney Lisa Han, a partner at Squire, Sanders & Dempsey and a member of the firm's health-care and life science group, agrees: "The growth of business should not be dictated by only one factor."
Costs & Penalties
The Affordable Care Act doesn't mandate that businesses provide health-care coverage, but businesses that choose not to do so may pay a stiff price beginning in 2014, when health insurance becomes mandatory for most individuals. A business with more than 50 employees that does not offer health insurance will be assessed $2,000 for every full-time worker on the rolls (excluding the first 30) if even one full-time employee receives a subsidy to purchase coverage through an exchange.
Low- or middle-income workers with an income between 133 percent and 400 percent of the federal poverty level ($10,830 for a single person in 2010) may purchase coverage on the state exchange if their share of an employer's health premiums would be 8 percent to 9.8 percent of their income. In such cases, employers would not have to pay a penalty, but would be required to issue a voucher equal to what the employer would have paid to provide coverage under its plan. The voucher will be used to offset premium costs for the state exchange plan in which the employee is enrolled.
Also starting in 2014, companies with more than 200 employees that offer health insurance are required to automatically enroll employees in their plans, unless the employees specifically opt out.
Dollars and Sense
One purpose of the Affordable Care Act was to slow the increase in health-care costs, but you'll have a hard time finding anyone who believes that will actually happen. Since 2000, according to HealthCare.gov, employer premiums have doubled. The price of health care "keeps rising, and employers have a finite, or perhaps smaller, revenue stream as this economy continues on," says Carrie Haughawout, director of health care and small business for the Ohio Chamber of Commerce.
A May survey of more than 650 mid- to senior-level benefit professionals by the global professional services company Towers Watson found employers had little hope the new law would help them. "Indeed, most employers are convinced that health care reform will lead to increased costs and a stepped-up exodus from employer-provided retiree medical coverage," the survey found.
The cost curve of health expenses is "absolutely unsustainable," says David Blom, president and CEO of the OhioHealth system. "I don't think the bill dealt with that."
"We felt this version of health-care reform didn't go far enough to address costs," agrees David Uldricks, director of strategic initiatives for Employers Health Coalition of Ohio, a nonprofit that provides group purchasing programs for members. "We felt that cost was the platform on which the administration based its need for reform, yet ... what passed will actually increase costs."
The new law also imposes "paperwork costs" on employers. For example, the value of employer-provided health benefits will have to be reported on employee W-2 forms beginning in tax year 2011, even though it's not taxable income.
A more onerous mandate, many say, is that beginning in 2012 all companies must issue 1099 tax forms not just to contract workers, as has been the practice, but to any individual or business from which they purchase more than $600 in goods or services in a tax year. The new requirement is intended to flag previously unreported vendor income, thus generating tax revenue to offset some of the costs of health reform. But the administrative cost of creating millions of new 1099s may dwarf any new tax collections.
The new law comes loaded with cost cuts and revenue boosts. Medicare Advantage plans will take a $132 million hit; Medicare home health care will be cut by $40 billion, and Medicare payments to hospitals by $22 billion.
On the revenue side, health insurers will pay $47 billion, and drug manufacturers will pay $16 billion between 2011 and 2019. Beginning in 2013, medical device manufacturers will pay a 2.9 percent excise tax. Married couples earning more than $250,000 annually will pay a 3.8 percent surtax on investment income. Employers will pay a 40 percent excise tax on "Cadillac" insurance plans worth more than $27,500 for a family or $10,200 for an individual. And, curiously, there'll be a 10 percent excise tax on indoor tanning--as if skin cancer weren't a high enough price.
All the cuts and hikes are aimed at keeping the Obama administration's pledge that health reform won't explode the federal budget deficit. But not everyone believes the numbers will work. "In my opinion, the economics will not be sustainable," says Blom.
Staying the Course?
Despite the grim predictions, 88 percent of employers surveyed by Towers Watson said they expected to provide health benefit coverage in 2014. Some say good health benefits are key to a happy workforce. In 2011, Webbed Marketing, a Columbus-based Internet marketing company with 18 employees, will add dental, life and disability insurance, plus a health savings account (HSA).
"From a business standpoint," says Webbed Marketing chief operating officer and co-owner Amy Marshall, "we felt that keeping our employees extremely happy is the best thing we can do." The tax credit for small business "helps, absolutely," she adds.
Bruce Lackey, president and CEO of Happy Chicken Farms, an egg farm in Urbancrest, plans to keep Happy Chicken's high-deductible health-reimbursement account. "I don't envision any changes in what we're doing," Lackey says. "It's a valuable program. There's a $3,000 deductible, but we dump $350 a month into workers' accounts."
At the other end of the spectrum, some firms are considering what once was unthinkable: dropping health-care coverage altogether. Compliance costs and penalties for not offering coverage may be far less than the expense of providing the benefit.
"The fact of the matter is, a lot of companies I'm talking to are saying, ‘So, I drop the coverage, I pay the penalty, maybe I give my employees a salary bump, and I'm still better off,' " says Ostrowski.
"Many factors should be considered and weighed in making these decisions," says Havens, "including business culture, employee morale, talent recruitment and retention, the employer's current financial position and the projected costs of health reform compliance."
"There are a lot more questions than answers right now, because much of the law was written with minimal direction, and that direction is forthcoming over the next year or so," says Matt Weekley, a partner at Plante & Moran.
Lackey says the best response to uncertainty may be to follow the advice often given to men diagnosed with slow-moving prostate cancer. "It's like men's ‘watchful waiting,' " he says. "You don't want to act too soon, because you may make some poor decisions."
Jennifer Wray is a staff writer for Columbus C.E.O.
Reprinted from the January 2011 issue of Columbus C.E.O. Copyright © Columbus C.E.O.