Employers Hurry to Adjust Health Benefits

CU360
May 27, 2010 | COMMENTS

As Congress labored over the last 14 months to enact broad health care reform, U.S. businesses watched and waited to modify their benefits plans until the outcome was decided.

Employers will now have to scramble to comply with provisions that go into effect for the 2011 plan year. Among them are requirements to cover employees' adult children up to age 26 and remove lifetime dollar limits on coverage.

The reform bill penalizes employers who don't offer coverage and whose employees must use federal subsidies to buy insurance on state exchanges. It does not, however, force employers to offer their own plans.

Nonetheless, the final bill, which ran about 2,800 pages, contains numerous provisions that companies must now digest as they design their 2011 benefits. Companies have to determine how the benefits they offer stack up against congressional requirements.

“Employers are going to have to buckle down and very quickly go through a strategic planning process,” Anne Crumlish, senior consultant at Hewitt Associates, tells Workforce.com.

Benefits changes going into effect next year will have the potential to impose higher costs on employers. Removing the lifetime benefits cap, for example, could make insurance coverage a riskier proposition.

Companies are “going to face more volatility in their claims experience,” Crumlish says. “They won't be able to limit their exposure to high-cost claims.”

Another change that will go into effect on January 1 involves the purchase of over-the-counter drugs. Such non-prescription transactions will no longer be reimbursed through flexible spending accounts, health reimbursement arrangements, or health spending accounts.

That change will cause employees to put less money in such plans, which will result in higher taxable income for employees and higher payroll taxes for employers.

Other provisions that will go into effect on January 1 will require changes in the way the companies determine eligibility, enroll employees, and report information about their plans. They must, for instance, establish an internal appeals process and disclose on W-2 forms the total value of each employee's coverage.

“From an administrative perspective, it will mean more work,” says Tracy Watts, a partner at consulting firm Mercer.

More onerous provisions of the reform bill have been pushed off for several years:

• Beginning in 2014, companies with more than 50 employees must provide health insurance that pays for at least 60% of benefits covered by the plan, with an employee's contribution being less than 9.8% of household income.
• Companies that don't offer insurance will be penalized $2,000 annually for each employee who requires government assistance to purchase a plan on a state exchange. A company's first 30 full-time workers are exempted.
• Another provision will start in 2018, when a 40% excise tax will be imposed on coverage that exceeds $10,200 for individuals and $27,500 for families.

Some of the provisions that go into effect later could provide momentum to efforts employers have made to curb health care spending. For instance, in 2014, wellness incentives can increase from 20% to 30% or more of a plan's premium.

“We'll see employers use more incentives to drive healthy behaviors,” Watts says.

Although the focus on wellness could save companies money, the health care reform measure doesn't do enough to lower medical costs, according to experts. Subsidies to low-income households, expansion of Medicaid, and cuts to Medicare could lead to the private sector picking up more of the health care tab.

Business groups and other advocates will have a chance to shape health-care guidelines as the rules that implement it are written during the next few years. For employers, the definitions arrived at during the regulatory process will be significant, as virtually all the terms that trigger or define the employer mandate will be fleshed out.

This article was orginally published online by CU360, an online portal for benchmarking tools, market insights, industry data, and analytical information at cu360.cuna.org. Reprinted with permission.