ObamaCare it is now the law of the land. Officially it’s called the Patient Protection and Affordable Care Act (PPACA). It may change with pending constitutional challenges, but the time has come to for broker, employers, and benefit vendors to plan ahead and prepare for a very different future.
Individuals and businesses must consider what this legislation means, discover what options they have, and what actions are required under the law. Businesses have two major needs. First, senior management must be alert to the many changes that are still likely to happen that may alter their strategic benefit planning. Second, managers need to know what to do tactically today and tomorrow in order to prepare for the next product implementation, cost projections, and open enrollment.
It will be hard to create a multi-year strategic plan. There are many uncertainties. The legislation, developing regulations, and interpretations of the law will take years to write, understand, clarify, and litigate. Aspects of the law start in 2010 and go through 2018 and beyond. The tactical day to day work efforts by benefit and vendor managers will be defined by senior management’s strategic decisions and a focus on the effective dates for the various initiatives as set by the law. The key is to stay flexible.
For strategic planning, there are four major phases to consider: Legislation, regulation, compliance and litigation.
Legislation.The confusing and sometime contradictory language of the law will likely require a large “technical corrections” bill. In Washington, technical corrections are not limited to a layman’s understanding of the words “technical corrections.” Politicians and special interests can use a technical corrections bill to pass entirely new provisions not a part of the original law. For example, the public option could return as a “technical correction.” Look for a technical corrections bill this summer or fall. Stay alert, the devil is always in the details.
Regulations.The Departments of Labor and Health & Human Services (HHS) have hired over 700 new staff to write the regulations for the 2700+ page law. Their interpretations will not necessarily match a layman’s understanding of the bill’s language. The regulatory process is likely to include delays, missed deadlines, and confusing interpretations. In the bill there are scores of references to decisions to be made by the Secretary of H.H.S. Major areas of implementation and coverage determinations for “essential benefits” are left to the discretion of the Secretary.
Lobbyists from every provider and self-interest group will converge on the HHS to have their services included through regulation. Ultimate coverage mandates are likely to go beyond what employer plans typically consider as medical/surgical benefits. We saw this in 1993-94 as part of the ultimate demise of HillaryCare. Back then, the plan details were debated as part of the legislation. This time the Congress deferred to HHS those controversial decisions and the benefit cost implications. As of today, nobody knows what will be included as “essential benefits.” Therefore, no employer can know what the cost of coverage is ultimately going to be.
Look for added social welfare requirements, potentially including expanded transportation to/from office visits and daycare services for children while parents seek care. Areas of added coverage may include additional home health services, school health services, and personal care coverages. Mandated wellness and preventive care may be expanded by regulation to include medications, tests, diagnostics, and lab work beyond anything employer health plans previously considered medically necessary, appropriate or cost effective.
For example, the Early and Periodic Screening, Diagnostic and Treatment (EPSDT) service is Medicaid’s comprehensive and preventive child health program for individuals under age 21. Federal Medicaid regulations provide for early and periodic screening and diagnosis of recipients under age 21 to ascertain physical and mental defects, and provide coverable services to correct or ameliorate defects and chronic conditions found even if the service is not otherwise provided under the medical plan. The intent of the program is to enable providers to assess a child’s health needs through initial and periodic examinations and evaluations, and also to assure that the health problems found are diagnosed and treated early, before they become more complex and their treatment more costly. Look for these types of benefits to ultimately make their way into the essential benefits mandates.
Compliance.Consultants and lawyers will find an expanded need for their services. Insurers need to determine if they are in compliance with the products, pricing, and coverages they market. They need to assure their policyholders that the coverages provided are in compliance with the new laws and regulations. Employers not in compliance will be subject to large penalties and fines. Self-insured employers will need compliance audits to assure required essential coverages and mandates are included. Each employee contribution will need to be measured against the government’s “affordability standard.” Each year will likely produce new regulations and changes that must meet with compliance standards or employers will suffer penalties and fines.
Employers will need to continuously assess the financial alternatives of directly providing medical coverage versus shifting employees to the government exchange. The employer penalty for not providing coverage in 2014 is $2,000 per full time worker and is indexed in future years. Employee subsidies available in the new health exchanges may make it advantageous for employees to get coverage through an exchange, and financially attractive for employers to pay the penalty rather than provide medical benefits.
If the employer offers qualified health insurance coverage but at least one employee declines the insurance coverage, and uses a tax credit premium subsidy to buy health insurance through an Exchange, then the annual penalty is the lesser of (a) the $2,000 penalty outlined above, or (b) $3,000 times the number of full-time employees who received a tax-credit to buy insurance through the Exchange.
Already compliance issues are in play. By 3/31/2010 employers had to file any changes impacting their financial conditions with the Security & Exchange Commission. Employers providing retiree prescription drug benefits with a government subsidy (subsidies from the 2003 Medicare Modernization Act) to support continuation of retiree drug benefits were immediately impacted by the PPACA removal of that subsidy.
At least 15 companies have announced non-cash charges of $2.8 billion as required by the Federal Standards Accounting Board ruling 106 (FASB 106). More hits to employers providing retiree coverage may be on the way. If the required essential benefits package is richer than existing benefits and those benefits are carried into retirement, employers will face additional FASB 106 charges. Those charges must be posted as a liability as soon as the change is known.
Litigation. In the end, courts will decide what the language of the law’s 2700+ pages mean. New laws require a period of adjustment that can take decades to sort out the meanings and conflicts of legal interpretations. Given the national impact and financial consequence of any single coverage requirement, every self-interest group wanting to be included in the essential benefits package will push litigation to add or solidify their coverage demands. The never ending cycle will then repeat itself, as new laws will be passed to respond to court decisions and off it goes again to repeat the four phases of legislation, regulation, compliance and litigation.
The insights and warnings above are to help HR executives and benefit managers understand the potential changes and the importance of strategic planning. During these periods of uncertainty, it is more important than ever for benefit managers to directly share insights and understandings with other benefit managers. Consultants will have plenty to do, but those information channels alone are not broad enough to get the insights and timely information that benefit managers will need.
It is only by working together and sharing experiences that these next years of change may even be manageable. The stress and strain on organizations and individuals will be significant. This is an enormous undertaking of trying to effectively and efficiently move forward towards compliance. No one wants a team from the additional 16,000 Internal Revenue Service agents, who are being hired to monitor compliance with health reform, to show up on their door step.
Healthcare Consumerism – A Good Tactic
The best tactic is to make changes that are beneficial even if regulations are delayed, legal challenges reverse the law, or political control in Washington D.C. changes. Megatrends represent major movements so powerful that the direction of change cannot be stopped. Federal laws can speed up or slow down megatrend forces. But, like dammed rivers megatrends will redirect themselves to achieve the inevitable result. Healthcare consumerism is such a force.
With or without health PPACA the operating megatrend and future is the empowerment individuals with “Healthcare Consumerism.” Healthcare consumerism is about transforming health benefit plans by putting economic purchasing power and decision-making in the hands of participants. It’s about supplying the information and decision support tools needed, along with financial incentives, rewards, and other benefits that encourage personal involvement in altering health and healthcare purchasing behaviors.
Healthcare consumerism is independent of plan design. So it is not dependent on the essential coverage requirements of HHS. Healthcare consumerism includes opportunities for individuals to accumulate healthcare funds and/or receive grants through “shared-savings”. That is, individuals can be financially rewarded for doing the right activities that improve their health and lower costs. Rewards can include activities such as, participation in a wellness assessment, compliance with a condition management program (e.g. taking medications, diet, exercise, office visits), and maintenance of good health characteristics (e.g. blood pressure, cholesterol, nicotine use, body mass index).
For many employers, a popular form of healthcare consumerism has been HSA eligible plans. Insurance with personal savings accounts (HSAs and FSAs) will have some limitations under PPACA. But these are not the only forms of healthcare consumerism. In 2002, health reimbursement arrangements (HRAs) were established by the Treasury Department. HRAs can be used with any plan that the Secretary mandates. Recently, plans with HRAs have been growing even faster than HSA eligible plans. In total, current estimates are that over 23 million lives are covered by plans that include either HSAs or HRAs.
PPACA focuses on essential benefits, plan design limits (platinum, gold, silver, and bronze), and pricing restrictions. Many employers have moved to next generation healthcare consumerism with member engagement, rewarding healthy behaviors, and promoting personal responsibility. Plans are now focusing on rewards and incentives. Health Incentive Accounts (HIAs) are a special form of HRA that builds value only from rewards and incentives. These accounts can be added to any existing or mandated plan design. There are many other special use HRAs that are channels for healthcare consumerism.
Healthcare consumerism is a compelling force because it produces lower costs, improved quality, enhanced choice, and expanded access by empowering individuals and reinforcing personal responsibility. It is the force operating throughout our economy and is just beginning to be structured into healthcare and insurance.
The 2009 American Academy of Actuaries multi-year study of healthcare consumerism concluded that first year claims could be lowered by 12-20% with future cost trends decreased by 3-5%. While HSAs may have some new restrictions, employers and insurers would be wise to consider the broader definition of healthcare consumerism as allowed. Under the legislation, financial rewards based on health status are increased from 20% to 30%. The Secretary of Health and Human Services has the authority to increase that limit to 50%. PPACA still allows unlimited rewards and incentives for participation and engagement.
PPACA will produce changes and unintended consequences for individuals, employers, companies, and medical industry stakeholders. Everyone will now begin to reposition their personal and business interests to minimize the damage and maximize opportunities in this new world of PPACA. As some continue to debate the merits and defects of PPACA, the megatrend of healthcare consumerism continues.
The Growth of Healthcare Consumerism
Consumers want more control over decisions involving their life and health. Americans who bank electronically at ATMs, purchase stocks over the internet, buy and sell goods through eBay, maintain their music with iTunes, keep personal videos on Facebook, seek employment through LinkedIn, and control television programming with Tivo. This level of personal involvement and engagement is now coming to health and healthcare.
Released April 14, 2010, a Mercer study for the American Association of Preferred Provider Organizations (AAPPO) showed that insurance with healthcare consumerism now covers an estimated 23 million lives.
These account-based insurance plans give choice, options for care, and key health decisions to patients. There are several types of personal care accounts, but all are growing rapidly. Plans with health savings accounts (HSAs) and Health Reimbursement Arrangements (HRAs) grew 27 percent from 2008 to 2009, up from 18 million to 23 million lives.
For the first time in our history, people are choosing plans that empower individuals and lower premiums without shifting costs to patients. Karen Greenrose, president and CEO of AAPPO said, “At a time when employers are faced with the difficult choice of limiting benefits or raising health care costs to their employees, they are turning to consumer-driven health plans (CDHPs) given the cost savings inherent in these plans.”
Health care consumerism encourages good health and health care purchasing behaviors with support for higher use of prevention, more adherences to medical treatments, greater personal responsibility, and an emphasis on health and health care education.
Health care consumerism is an inclusive concept for engaging plan members. It is good for both the healthy and those suffering from chronic conditions. Health care consumerism is a voluntary system rather than a coercive process. No one is forced to be compliant. Individuals have free choice. The success of this approach is no longer theory. HSA eligible plans, insurance with HRAs, and other consumer-driven options have been proven to lower overall health costs and improve care. These plans work for young and old, male and female, rich and poor, republicans and democrats, progressives and conservatives.
The AAPPO report shows forty-three percent (43 percent) of large employers now offer a health care consumerism plan. The benefits of account based plans are now reaching small employers. In 2009, small employers were the major source of increase in health care consumerism enrollment rising from 9 percent to 15 percent, a sixty-six percent (66 percent) increase.
There are opportunities for healthcare consumerism in PPACA. PPACA emphasizes wellness and prevention. It allows for increased rewards and incentives. The use of bio-metrics to reward healthy behaviors has real potential. Insurers and specialty vendors are gearing up and prepared to help employers implement changes that will work and are encouraged under PPACA. These are aspects of the new law that are consistent with the movement to health care consumerism. The regulatory process is just starting. It can support this movement and let healthcare consumerism flourish. If employers are looking to control costs, healthcare consumerism is still a major opportunity.