Health Care Reform: Key Observations & Direction for Plan Sponsors September 9, 2010

With the passage of the Patient Protection and Affordable Care Act (PPACA) in March of 2010, plan sponsors have begun the task of taking action relative to the immediate plan requirements (the first plan year beginning on or after September 23, 2010) and planning for the provisions that become effective between now and 2014 (and beyond).

Requirements range from plan design, to plan eligibility, to administrative and reporting responsibilities. The following outline of observations and direction is not intended to summarize each and every provision of health care reform, but rather to offer a summary of the significant parameters by which to incorporate health care reform into a successful plan design and progression management process. Clearly, it is expected that the marketplace will maximize the opportunities and limit the liabilities of this legislation. It will do so by investing in increased business value and improved employee health. Look for safe harbor eligibility, minimum benefit and ‘percent of pay’ contribution strategies to gain significant momentum. Employers will likely increase focus and investment on improved employee health and Accountable Care Organization (ACO) partnerships for improved community health delivery and outcomes.

Plan Eligibility

For many plan sponsors, one of the key concerns under health care reform is the potential influx of employees, effective 2014, into the group plan who are not eligible under current eligibility guidelines. In 2011, 2012 and 2013 there is no requirement to alter plan eligibility or plan offerings to accommodate those employees not eligible for the plan (or a core plan) today.

Market Adoption Expectation

In accordance with the expectation created by the definition of Minimum Essential Coverage associated with health care exchanges and employer-sponsored plan coverage (60% actuarial plan value), a ‘new’ competitive benchmark has been established by which to compare competitive plan value. A plan valued at 75 or 80% (for example) is considered ‘rich’ when compared to Minimum Essential Coverage, and thus significant opportunity exists relative to savings on employer plan costs by way of plan design adjustments. Plan sponsors have an opportunity, between 2011 and 2013, to progress from the value of the current plan toward a 60% actuarial value in 2014 or thereafter, driven by government guidance.

Avoiding Employee Subsidy & Free Choice Voucher Situations

To avoid non-compliance with the Minimum Essential Coverage requirements (thus resulting in employee subsidy liability) and the requirement to provide Free Choice Vouchers (both of which become effective in 2014), plan sponsors must adhere to the following:

• All full time employees (those working ≥ 30 hours per week) must be eligible for the core plan offering(s).
• The actuarial plan value must be greater than or equal to 60%.
• Employee contribution methodology must be structured in a fashion in which no employee contributes more than 7.99% of his/her income in the form of employee contributions for the core benefit option.

As a result of the defined structure of the employee contribution thresholds dictated by PPACA, employee contribution methodology is expected to progress towards a ‘percentage of pay with a cap’ structure (example: the employee contribution for single coverage under the Core Plan is 6% of salary, with a monthly cap of $200).

Increased Emphasis on Health Promotion and Wellness

The impact of plan design changes made within the scope of traditional plan design cost management will be greatly minimized as a result of the plan costs associated with the PPACA plan design requirements and the increased administrative and reporting requirements. The outcome and the directives of the new law further emphasize the critical importance of employee health and well-being as an effective means to manage plan cost. The new law will further promote the movement to wellbeing-centered reward strategies.

Requirement of a Robust Online Enrollment & Eligibility System

PPACA creates increased plan reporting requirements, a potential increase in eligible plan population, and an emphasis on health promotion and wellness. These factors reiterate the significance of a robust online enrollment and eligibility system as a requirement for effective plan administration and management. Integrated technology applications may further reduce administrative costs as well as provide a single point of access to encourage employees and providers in the active management of improved health and well-being.

Impact of Individual Coverage Exchanges on Employer-Sponsored Health Care
Employer-employee plan value (economic and well-being) for the employee will expand, increasing significantly in many cases. The exchanges will be expensive, with the addition of employee tax and adverse selection cost burdens. Expect small employer-employee plans to benefit from community Accountable Care Organization (ACO) options which, over time, directly compete with traditional insurance health plans. Such programs may be structured as self-insured plans or shared ministry plans (not insurance) purchased by individuals under §125 Cafeteria Plan arrangements, as applicable.

Impact of PPACA, PPACA Modification or Repeal

Although the Clinton-Care initiative failed in 1993, significant market-driven reform did result from this effort. If PPACA is significantly modified or repealed, expect the marketplace to embrace the advantages and opportunities stimulated by PPACA while judiciously avoiding any and all liabilities associated with the law.