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The next steps in health reform

What it means for you and your company

By Mike deVaux

If you are like most employers, you are wondering where the health reform roller coaster is going to take you and your company’s medical insurance plan next. You would also not be alone.

The question of, “What actions do I need to take as an employer to comply with health reform” is frequently asked, but the unfortunate reality is it is not very easy to answer. With 26 states in a lawsuit against the constitutionality of the Patient Protection and Affordable Care Act (PPACA), better known as health reform, that is to be heard by the Supreme Court this spring, the future of health reform remains uncertain.

If the Supreme Court rules the mandate unconstitutional, it doesn’t necessarily mean the entire health reform will be reversed. A change in the presidency and the Senate in 2012 also don’t guarantee complete repeal, with many of the reform measures already incorporated into our medical insurance plans remaining.

Regardless of which side of the debate you are on, the issue for many companies remains how to best deal with the changes that have already occurred and the changes to come. Most of the early aspects of the health reform were not favorable to lowering the cost of the coverage.

Components such as no policy maximum, dependent coverage to age 26, 100% coverage for preventative care and no pre-existing conditions for under age 19 dependents are all good features to have in a policy. The bottom line, however, is they add to the cost of the claims incurred by the carriers, which means health reform isn’t going to lower the cost of coverage for employers.

What’s next for health reform?

In 2012, the big item implemented was the requirement for employers to report the cost of employer sponsored health coverage—which only applies to employers who produce more than 250 W2s per year. (For information on this requirement, reference IRS Notice 2012-9.) In 2013, all employers will be required to report cost of health coverage on W2s.

The next big event in health reform will be the implementation of the exchanges. Without getting into too much detail, the exchange concept was created to provide a marketplace to make insurance more affordable and easier to purchase for small employers and individuals.

By 2014, every state is required to provide an exchange to allow the comparison of cost and different types of benefits for employers and individuals to purchase insurance. If your state chooses not to implement an exchange, then you will have access to a multi-state exchange.

Like many aspects of health reform, the exact rules and regulations haven’t been finalized. With state budgets being tight, not many states are proactively spending the money to develop exchanges and the likelihood of the exchanges being ready for a roll out in 2014 is highly questionable.

One thing is for certain: If the exchanges do come about, the only way to claim the Health Insurance Premium Tax Credit for your employees that qualify will be through insurance purchased through the exchanges.

What to do as an employer?

You can’t control what is going to happen with health reform. One thing you can do is not worry about it until the next aspect of health reform is implemented, more than likely sometime after the Supreme Court ruling and the elections of 2012.

If your company is on a fully insured plan, your insurance company will help you keep your plan in compliance.

As far as saving money goes, health reform is not going to bend the medical insurance cost curve for you and costs will continue to go up as they have in the past. The national medical trend rate (i.e., medical inflation rate) is 10% to 11% and will most likely continue to be a starting point for your renewal rates.

Prior claims and demographic changes will be factored around the medical trend factor to determine your renewal rates.

How to control costs

Now that you know health reform isn’t going to lower the cost of health insurance, what can you do to control costs?

To contain and reduce costs, you need to change the way you look at health insurance. There are some businesses that have had low claims years but still received double digit renewals, but why?  There was components of their health plans they were paying too much for.

Bottom line: your company is most likely overpaying for first-dollar insurance company benefits that most of your employees never use.

Statistics show that:

•88% of your employees will spend less than $500 per year on health care;

•93% of your employees will spend less than $1,000 per year on health care; and

•Tower Perrins studies show that 80% of your claims will come from 20% of your enrolled.

To cut unnecessary cost, remove overpriced components of your health plan that very few employees actually use. You can also stop pre-paying insurance companies to administer benefits that are not cost-effective.

If providing first-dollar coverage is essential to your business and employees, then incorporate a Health Reimbursement Arrangement (HRA) and a high-deductible strategy to have the money available for employee use, but only send to the providers when services are utilized. If services are not utilized then the money stays with the company and not the insurance company.

Finding a solution

Health insurance is never going to be free and health reform certainly didn’t provide a solution to make it less expensive. The health insurance market will continue to be a very fluid environment.

The only solution to managing medical insurance costs is a proactive approach on the part of the employer working with their broker to build a cost-effective and comprehensive medical insurance program that provides protection for your employees and their families at the best possible cost.

Mike deVaux is a Registered Health Underwriter and Managing Partner of Keystone Benefit Group, an employee benefits consulting firm in Jacksonville. Keystone Benefit Group serves clients throughout the U.S. helping them develop, implement and manage employee benefit solutions. He can be reached at mdevaux@kbgllc.com, 904-464-0888 or by visiting www.YourInsuranceKeystone.com.


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