By Greg Van Ness on August 16, 2013
Confusion and uncertainty about the Affordable Care Act was heightened in July, when the Obama Administration postponed the large-employer health care mandate for one year, until January 2015.
While we don’t yet know what the long-term impacts of health care reform will look like, it’s fairly certain that we will continue to experience change and challenge in this arena.
The U.S. health care industry is estimated to represent 6-7 percent of GDP, and there are numerous politically powerful stakeholders that include employees, employers, insurers, doctors, hospitals and pharmaceutical manufacturers. The large population of aging baby boomers and the unfortunate trends in America toward obesity and other lifestyle-related diseases will continue to drive the costs of medical care upward for years to come.
Despite the temporary postponement of the “pay or play” mandate, business leaders need to make strategic decisions about personnel needs now. Benefits design, costs and tax consequences also have to be taken into account. It has never been more important for businesses to understand the strategic and regulatory issues that come with health care reform.
Which of your options under the law will direct the maximum return to your bottom line, based on the particulars of your unique situation? How will your employees react?
Historically, employee benefits plans have served as an important form of compensation since their beginnings in America following World War II. Many employers purchase group medical insurance and related employee benefits as part of their human capital management strategy, particularly in industries where competing for talent is key to achieving and maintaining a business advantage.
Employers with fewer than 50 full-time equivalents are not subject to the Affordable Care Act requirement to provide benefits under the law, but in order to attract and retain talent many still do. Even though they are outside the employer mandate, smaller businesses still need to make sure that they are tracking all employee hours worked, including part-timers, because that required calculation could push their full-time equivalent, or FTE, employee count more than 50. If so, that triggers the requirement to provide benefits or suffer financial penalties for failure to comply.
A key trigger date for strategic planning is coming up in October. That is when “Covered California” will initiate enrollment in the state’s insurance exchange.
Because of the federal subsidies available to employees whose annual family income is less than 400 percent of the federal poverty line, the exchanges are a potentially attractive option to lower-wage employed as well as unemployed or self-employed individuals who wish to purchase medical insurance.
At the same time, due to the the penalties for large employers that fail to provide adequate coverage, the strategic issues such as plan structure and ways of mitigating the financial incentive for employees to pursue the exchange option are key considerations.
Unless a significant number of the younger, healthier portion of our population become insured in the insurance exchange risk pool, the cost of insurance in the exchange marketplace could increase — perhaps significantly. Similarly, adverse selection of the exchange by those who are sick or are otherwise unhealthy, and who cannot be denied coverage under the law, could also make the insurance exchanges much less affordable.
The federally subsidized portion of the cost of coverage in the exchanges will be borne directly by U.S. taxpayers.
If Covered California is rolled out on schedule, open enrollment will begin on Oct. 1, 2013 and benefits coverage will begin on Jan. 1, 2014. You can learn more about Covered California by visiting the group’s website: www.coveredca.com.
The future of health care reform
Unfortunately, affordability of health care will continue to be a challenge. To mitigate those costs and achieve competitive advantage, savvy employers are already moving their organizations toward wellness-based programs that include biometric screening and “risk-based” cost sharing incentives that drive employees to participate in exercise programs and sound nutrition that lead to longer, healthier lives, and significant reductions in medical costs.
What we know right now is that health care reform impacts everyone, and, for the foreseeable future, it’s here to stay. We believe it is best dealt with proactively and strategically in order to position your company to prosper in the post-healthcare reform environment.
• Greg Van Ness is CEO of Ventura-based Tolman & Wiker Insurance Services, the largest independent insurance brokerage firm between Los Angeles and Monterey. Contact Van Ness at (805) 585-6723 or [email protected]