Wednesday, April 23, 2014

With Cadillac tax looming, employers are scaling back medical plan designs

If you're thinking of making changes to your employees' health plans in anticipation of the 2018 "Cadillac Tax" imposed by the Patient Protection and Affordable Care Act (ACA), you're not alone. The recently-released fifth annual Medical Plan Trends Report from HighRoads and CEB reveals that many employers, in an effort to avoid the Cadillac Tax, are scaling back on their medical plans, resulting in an increasing share of costs for employees. Such increased costs for American workers include more high-deductible plans, a greater number of plans with coinsurance charges, higher out-of-pocket maximums, and increases in emergency room co-pays. HighRoads is a benefits plan management and health care compliance company, and CEB is a leading member-based advisory company.

The Cadillac Tax is a 40% excise tax that will be imposed by the ACA in 2018 on plans with premiums over $10,200 for an individual and $27,500 for a family (indexed for inflation). The 2014 report from HighRoads and CEB shows that companies are starting to evolve their benefits plans to prepare for this requirement.
The report shows a steady increase in the number of medical plans with individual, in-network out-of-pocket maximums (OOPMs) of $2,500 or more. In 2014, 2/3 of plans have OOPMs of at least $2,500. In 2013, it was 58%, and in 2012, it was 49%.  The percentage of plans with high deductibles grew by three percent in 2014 from 23% to 25%.
Also, more plans charge coinsurance for office visits, up to 42% in 2014, from 35% in 2013. Emergency room (ER) And average costs for visits to the ER have been rising slightly, about $3 per year since 2009, with a 2014 average of $113 per visit.

Not all of the trends attributable to the ACA are negative, however. HighRoads and CEB found that there appears to be more generous coverage for mental health, with the average co-pay for an inpatient mental health visit dropping by three percent from 2013 to 2014. There is also greater free preventive coverage, with nearly all 2014 plans covering 100% of patient costs for in-network cancer screenings, immunizations and other preventive services.

"The employer-sponsored medical plan landscape continues to shift in response to the ACA and, as a result, it’s more important than ever for employers to effectively communicate plan changes to their employees," said Cynthia Weidner, vice president, client development, HighRoads. "It’s evident that companies are embracing typical health plan consumerism strategies that encourage a more thoughtful, cost-effective use of medical benefits by exposing plan participants to more of the upfront costs. With plan designs changing and the emergence of new options including both public and private exchanges, benefits management professionals should be armed with the information employees need to make informed decisions on plan choices and efficient benefits usage."

"Our research shows that the changing face of health care plan design will continue to evolve as employers work to meet ACA requirements while avoiding added tax penalties by 2018," said Laura Arpin, Associate Director, Corporate Executive Board. "But, employers must recognize how these changes may be reflected in the health care behaviors of their plan participants. Without strategic communication processes in place on the best practices for utilizing health plan benefits, plan participants may be more apt to delay necessary care due to the uncertainty of its actual cost. By making sure plan participants have cost information, employers can reduce the likelihood of their employees and employee families delaying or rationing care by as much as 50 percent."

To receive a copy of the 2014 Medical Plan Trends Report by HighRoads and CEB, please visit:

Monday, April 21, 2014

Tweaks to Small Business Health Care Tax Credit are analyzed by CRS in new report

The Congressional Research Service (CRS) has published an analytical report of provisions of the Patient Protection and Affordable Care Act (ACA; P.L. 111-148) that are relevant to small businesses. In the report, entitled “The Affordable Care Act and Small Business: Economic Issues,” the CRS starts out by explaining that health insurance and the health care market contain fundamental flaws leading to an inefficient allocation of resources, known as market failure, which, in turn, leads to a mismatch between supply and demand, perhaps necessitating government intervention, presumably in the form of the ACA's Marketplace.
Rationale for employer-sponsored insurance. The CRS states that, from an economic perspective, individuals who lack insurance are more apt to use public resources. The report also highlights the problem of adverse selection, whereby people with greater health care needs seek out health insurance at a higher rate than do the healthy members of the population. This leads to higher costs for health insurance, which then tend to push individuals out of the health insurance market. Having more individuals in the health insurance market spreads the risks and costs of becoming ill, the CRS points out. Employer-sponsored health insurance (ESI) can provide a pooling mechanism, addressing the problems of adverse selection and that of individuals being priced out of the market, as well as reducing administrative costs.

The report points out that small employers may experience the same types of pricing issues as individuals seeking insurance, especially if their costs rise as a consequence of having at least one employee with a serious and expensive health problem. Community pooling and a requirement that most individuals have health insurance could induce more low-risk individuals to purchase health insurance, CRS theorizes, lowering overall risk profiles and subsidizing the higher price of more high-risk individuals.
The Small Business Tax Credit. Under the ACA’s Small Business Tax Credit, businesses with fewer than 25 employees and with average wages less than $50,000 could receive a credit of up to 50% of the employer’s payment toward health insurance premiums for two consecutive years, starting in 2014, as long as the employer pays at least 50% of the premiums. Tax-exempt entities could receive up to 35%. Small employers may use the Small Business Health Options Program (SHOP) exchanges to purchase insurance for their employees starting in 2014, although SHOP exchanges do not have to offer more than one plan until 2015.

Effect of employer penalty. The CRS concedes that, for some firms, paying the ACA’s employer penalty may be more desirable than providing insurance, but adds that any exemption from the employer penalty could create disincentives for adding workers, particularly because the ACA imposes the full penalty at a specific level. Phasing in the penalty as the number of employees increases would make costs rise more gradually, and any disincentive for hiring at a specific point would be smaller, according to the CRS.
The CRS also reports that there has been a lack of understanding among small businesses with regard to the employer penalty. It points to a March 2013 survey of employers with between two and ten employees who would not be subject to the penalty, which showed that 32% of respondents believed that they would be required to provide group health insurance in 2014. Twenty-four percent thought they would have to pay a penalty for failing to provide group coverage.

The CRS points out that data from the Census Bureau’s 2011 Statistics of U.S. Business (SUSB) show that most firms will be exempt from the employer penalty simply due to their size. For example, 96.2% of firms had fewer than 50 employees in 2011, and those businesses account for 27.6% of all workers. In addition, assuming that firms offering health care benefits continue to do so in 2015, less than 0.2% of all employers firms are likely to be subject to the full employer penalty. Also, although 72.4% of all employees in the U.S. work for firms with more than 50 employees, only approximately 1.8% of all employees work in larger firms that are not currently offering health insurance.
Tax credit. The Small Business Employer Health Care Tax Credit is supposed to encourage coverage to benefit low-wage workers and firms small enough to avoid the employer penalty. The average credit received in 2010 was $2,748, but, although about 4.4 million taxpayers were potentially eligible to receive the credit, only 228,000 claimed it.

The reason for this, according to the Government Accounting Office (GAO), was because: (1) many businesses felt the incentive was too small to start offering health insurance; (2) some employees declined coverage because they could not afford their share of the premium; and (3) claiming the credit was too complex. The CRS adds that President Obama has proposed simplifying and expanding the credit. Small businesses might be more likely to offer health insurance to their workers in the near future, however, since the SHOP exchanges are intended to address some of these problems by offering access to affordable health care plans with less administrative complexity.
CRS analyzes potential revisions to employer penalty. The CRS report includes an analysis of various proposed revisions to the ACA’s employer penalty, including eliminating the penalty completely. The penalty is designed, however, to encourage employers to offer or maintain coverage. It also provides a disincentive for firms to decrease the range of coverage or to increase employees’ share of premium costs, CRS points out.

There have also been various bills introduced in Congress to change the ACA’s definition of full-time to 40 hours per week, instead of 30, but CRS posits that such a change could actually provide an even greater incentive for firms to not offer health insurance to their workers, and it could create an even greater disruption in the work force, since most American workers work at least 40 hours per week. More employers would be tempted to shift their employees from 40 hours to 39, to avoid the penalty, because such a reduction in hours would have a minimal impact on productivity, compared to reducing hours from 40 to 29.
Another proposed revision has been an exemption for employers with more than 50 employees who employ primarily low-wage workers. Many of those workers would be eligible for premium subsidies in the Marketplace, which could trigger the employer penalty. However, the CRS points out that the ACA includes an option for states to expand Medicaid for households with incomes up to 133% of the Federal Poverty Line. Employers in states that have not expanded Medicaid could, the CRS recommends, reduce their number of new hires, reduce wages if employees are not already earning the minimum wage, or, as some businesses have apparently been doing, provide a low-cost health plan that does not meet all of the ACA’s requirements to at least reduce the severity of their penalty. The CRS also suggests that possible modifications to the penalty could include an alternative payroll size exemption or a higher exemption for certain industries.

The CRS also proposes that, in order to encourage small businesses to offer health care coverage and to help them avoid the penalty, the tax credit could be expanded, an option set forth in President Obama’s fiscal year 2014 budget, which recommends increasing the eligibility from 25 to 50 workers and simplifying the credit’s calculation. This provision would reduce revenue, though, by $10.5 billion between fiscal years 2014 and 2023, according to the Treasury Department.
CRS points to two bills pending in Congress to amend the tax credit. The Small Business Health Care Tax Credit Improvement Act of 2013 (H.R. 3046) would increase the cap on average annual salaries to $28,500 from $25,000 and would increase the maximum number of full-time employees from 25 to 50, for an employer to be eligible to receive the credit. The Small Business Tax Credits Improvement Act (S. 1325) would also increase the maximum number of full-time employees to 50 but it would increase the maximum wages cap to $37,500.


Friday, April 18, 2014

Has ACA affected employers’ retirement benefits strategy? Many say yes

Forty-three percent of employers report that the Patient Protection and Affordable Care Act (ACA) has affected their current retirement benefits strategy and spending, and 45 percent believe the ACA will change their retirement plans in the future, according to a LIMRA Secure Retirement Institute (LIMRA SRI) study. Of those who believed the ACA has changed their retirement benefits strategy, 55 percent said they are spending less money on retirement benefits and shifting costs to employees and 42 percent said they are spending less time evaluating their retirement benefits (3 percent report other changes).

"Employers have limited resources to use to manage their employees' comprehensive benefits package. The added complexity and costs of health care are definitely taking a toll on employers' ability to manage their retirement savings plans," said Alison Salka, corporate vice president and director, LIMRA SRI Research. "As a result, employers are looking for more support from the industry to help them provide a comprehensive retirement savings program for their employees."
Access to savings plan. Prior LIMRA SRI research has shown that access to a retirement savings plan at work has a significant positive impact on a worker's ability to systematically save for retirement and ultimately, their retirement readiness. The research shows that among employees with defined contribution (DC) plan access through their current employer, 95 percent have at least some household retirement savings versus 73 percent of those with no DC plan access. LIMRA SRI research also finds workers with access to an employer-sponsored retirement savings plan are more likely to feel confident that they will be able to achieve the retirement lifestyle they desire compared to those who do not have access (43 percent vs. 34 percent).
Benefits budget. Cost-shifting was more prevalent with employers that offer both a defined benefit plan and defined contribution plan (67 percent vs. 48 percent). In addition, employers report dedicating more of their benefits budget to health care diminishes the dollars spent on their retirement plans. Of those employers who think the ACA will affect their retirement plan strategies and spending in the future, 63 percent believe it will mean less money spent on retirement plans.
"For many American workers, their employer-sponsored retirement plan is the primary way they save for retirement," noted Salka. "Our findings about the impact of the ACA underscore the opportunity for plan providers and advisors to help employers better manage the challenges associated with their retirement plans."

Wednesday, April 16, 2014

Plans that don’t conduct standard transactions should be exempt from certification of HIPAA compliance, group suggests

Controlling health plans (CHP) that are not engaged in standard transactions should be exempt from the certification of Health Insurance Portability and Accountability Act of 1996 (HIPAA) compliance, according to recent comments from the American Benefits Council (Council) on the Department of Health and Human Services’ (HHS) proposed rule on administrative simplification.

The Council also requests that employee benefit plan arrangements, such as flexible spending arrangements (FSAs), health care reimbursement accounts (HRAs), and health savings accounts (HSAs), be exempted from the certification requirements under the proposed regulations even if they otherwise meet the definition of a CHP.

Background. The Patient Protection and Affordable Care Act (ACA) enacted certain changes under Section 1173 of the Social Security Act. Section 1173(h) requires certification of compliance for health plans and the periodic review of health plans by the Secretary of HHS.

Proposed rule. The proposed rule establishes certification requirements that are intended to align with the requirements and timelines under the Unique Health Plan Identifier Final Rule (HPID Final Rule). Specifically, the proposed rule would require certification at the CHP level. All CHPs must meet the certification submission requirements. The preamble to the HPID Final Rule clarified that self-insured employer group health plans meet the HIPAA definition of “health plan.”

Self-insured group health plans. The Council notes that under the proposed rule, all health plans that meet the definition of a CHP are required to meet the certification requirements whether or not they actually conduct any standard transactions. The rule does not explicitly address the responsibilities of the self-insured plan and the plan administrator with respect to meeting certification requirements in those cases. But in the vast majority of these situations, the self-insured group health plan is not self-administered and does not engage in standard transactions, but utilizes third parties to administer the plan, including carrying out any covered transactions.

“A self-insured group health plan can impose obligations necessary to fulfill the certification requirement only through its arrangement with those third parties that actually carry out standard transactions in the administration of the plan, and the multiplicity of such arrangements could make the effort both time-consuming and burdensome,” the Council wrote.

As such, the Council requests that final regulations clarify that CHPs that are not engaged in standard transactions are exempt from the certification requirements under the proposed rule.

Health spending arrangements. Likewise, employee benefit plan arrangements, such as FSAs, HSAs, and HRAs, typically have no standard transactions between covered entities, by the plan itself or through vendors. The Council requests that such plans also be exempted from the certification requirements. If not exempted, the Council requests that HHS provide specific guidance for how plans are expected to provide a certification and also provide a simplified method for obtaining such certification.

Monday, April 14, 2014

ACA will have little effect on costs or coverage in near term for most people, study says

Approximately 230 million people, about 70% of the U.S. population, will see very little change in their premiums due to the Patient Protection and Affordable Care Act (ACA; P.L. 111-148), according to a  study by the American Institute for Economic Research (AIER). These are mostly individuals who are covered by employer-sponsored health insurance or public assistance programs.
Many of those who purchase insurance on the individual market and the uninsured are likely to see significant changes in premium costs, however. AIER estimates that more than 50 million people will likely face higher premiums, while more than 30 million will likely see lower or very low premiums.
“The Affordable Care Act is one of the most confusing and controversial pieces of legislation in years,” said Stephen Adams, President of AIER. “We conducted this study to provide Americans with an objective, non-partisan analysis of how the law will affect them. The good news for most people is that the ACA will have little effect on their costs or coverage, at least in the near term. But, for those who are affected, it’s important to have an unbiased understanding of what might change.”
Employer plans. Workers who are dropped from their employers’ small or large group plans are likely to experience significant cost increases, the study finds. These people must purchase insurance in the individual market where they pay full premium costs and lose the benefit of sharing costs with their employer. It’s not likely that a large number of people will be in this position because employers who drop insurance will have more difficulty competing for workers, according to the study.
Many small group plans face conflicting pressures from the ACA, the study notes. For many small group plans, the ACA’s stricter limits on medical underwriting will help hold down premium costs. But they also will face upward price pressure from the additional administrative costs associated with complying with the ACA and the costs of higher take-up rates by employees.
Medicaid gap. AIER also estimates that nearly 6 million people will fall into the Medicaid gap, a quirk in the law created when 25 states declined to expand national eligibility standards for Medicaid. This gap includes people with incomes that are too low to be eligible for subsidies under the ACA, but are too high to qualify for Medicaid in their state.

The study provides an analysis of how the law will change insurance costs and a guide to how it will affect people in each health insurance group.

“Implementation of important parts of the law has been delayed, so it’s hard to predict the law’s impacts with any precision,” Adams added. “It’s unknown how many employers will stop offering plans because of the law, for instance, or whether enough people will sign up for individual insurance to keep premiums in check. These are some of the aspects of the law that will need to be monitored over the next few years.”