Six months after the Patient Protection and Affordable Care Act, aka "health-care reform," was signed into law, finance chiefs say they still have little clarity on how best to structure their employee health-care plans to comply with the regulations. But they do seem certain that both companies and employees will end up paying more for whatever coverage they have, at least in the short term.
"In order to implement this, we're either going to have to cut other benefits or raise the amount the employee pays," says Richard Kelecy, CFO of WRSCompass, an environmental engineering construction company that self-insures medical coverage for about 400 employees across the country.
Ironically, the direct costs of health-care reform should be minimal this year and next, experts say. The main facet of the legislation that will affect companies in the near term (starting September 23) is the requirement to expand eligibility for employees' children up to age 26, whether or not they meet the current definition of a dependent. Towers Watson estimates that will add less than 1% to most companies' premium costs.
However, insurance rates — both for full coverage and for the stop-loss insurance that self-insured companies typically use — are already going up precipitously, as insurers seek to protect themselves against new and impending requirements. As of this month, insurers are prohibited from imposing lifetime coverage limits or excluding children of covered employees with preexisting conditions. Over time, the preexisting-condition ban will apply to adults as well.
Hard to Reconcile
A recent Milliman survey estimates that group insurance rates will increase by 9% for HMOs and 11% for PPOs next year, which is modestly higher than in previous years. And companies may have to negotiate well to keep increases from rising even further.
Randy Lay, CFO of Lazydays, a recreational-vehicle dealer in Florida with about 500 employees, says the first offers he has seen from insurance companies for 2011 include rate increases of 30%, despite the company having begun to self-insure the first layer of costs last year. "The reconciliation between what you'd like to do for employees and what you can do, given the cost, is not getting any easier," he says.
As Kelecy indicates, such hikes often mean companies will have to shift more costs to employees. According to a recent PricewaterhouseCoopers study, more than 40% of the 700 companies it surveyed intend to increase employee contributions for health-insurance coverage, while an equivalent number plan to increase medical cost–sharing, including higher deductibles and copayments.
Passing along increased costs creates multiple kinds of pain. Besides irritating employees, it can also affect a plan's "grandfathered" status, cautions Dean Hatfield, national health-practice leader for Sibson Consulting. Plans that are grandfathered can avoid certain requirements of reform, including the mandate to fully cover preventive services such as mammograms.
But to maintain that status, companies must operate within narrow limits regarding how much of the cost they shift to employees and minimize their costs, among other things. "You shouldn't hold on to grandfathered status at all costs," says Hatfield, "but you certainly want to think it through."