What You Don’t Know about the Financial Effects of Healthcare Reform on Your Organization

With the first anniversary of national healthcare reform behind us, you’ve likely survived your first employee benefits renewal implementing the 2010/11 healthcare reform provisions affecting your organization, or you soon will. Thus, it is likely that you have a good idea of the initial cost impact on your organization.

But what you may not realize is that you’ve just scratched the surface. As it stands now, the next eight years will require unprecedented organizational review and discussion of employee benefits. This includes recognizing and reacting to new internal and external costs; increased responsibilities from different functional areas and external vendors; implementing healthcare reform provisions in a volatile benefits environment; and performing an in-depth examination of the future of employee benefits within your organization.

Welcome to the new world of employee benefits!

The Financial Impact of the Key Healthcare Reform Provisions

No doubt you realize that healthcare reform will result in increased benefit costs over the next few years. But are you aware of the magnitude of such costs, when you’ll incur them, and the financial analyses associated with each? The table below answers these questions for some of the key provisions. Every organization’s plan is different, so the exact cost implications will vary.

* Do not need to introduce while deemed “grandfathered”

** Will become effective when regulations are released.  Could be earlier than 2014.

In addition to addressing the cost implications of these key provisions, there will be significant financial and operational analyses associated with the employer “play or pay” provision as we head towards 2014. This provision will prompt your organization to seriously review the cost/benefit value of continuing to provide health coverage to your employees. With such crucial outcomes, it’s imperative that you work with qualified experts who can provide comprehensive and reliable financial modeling and guidance to help you make the right decisions.

Building Cross-Functional Teams

Human Resources cannot implement healthcare reform alone. They will rely on peer functional areas for help in executing requirements that fall into their respective areas of expertise. That means you will face new budget decisions associated with adding staff and resources not previously engaged in the introduction of new benefit initiatives. Thus, it’s more important than ever to have operational efficiencies in place to make the road ahead manageable and affordable. Healthcare reform implementation is a marathon, not a sprint, and failure to manage the implementation process could take a serious toll on your company. Creation of a dedicated task force is one reasonable strategy to create efficiencies.  In addition to Human Resources, consider including staff from each affected functional area, such as:

• Finance and Accounting for the provisions with a financial impact
• Payroll, Legal, HRIS, IT, and Communications for the provisions requiring new reporting and plan testing
• Communications, HRIS, IT, and Legal for the provisions requiring increased employee communications
• HRIS, IT, and Communications for the provisions requiring benefit system modifications.

If you currently use external vendors for any of these responsibilities (e.g., administer your payroll or manage your HRIS systems), be prepared for additional costs associated with the healthcare reform provisions, especially the new plan testing and government reporting requirements (e.g.,

non-discrimination testing and Form W-2 benefits information) and any benefit system modifications.

Determine which Human Resources staff will lead the implementation of the healthcare reform provisions within your organization. Because many Human Resources teams have grown leaner as a result of the recession, you may find that you must fill voids to meet upcoming challenges. Be sure you turn to a solid benefits advisor or consultant who can provide strong guidance as well as hands-on support.  This will most likely result in additional costs.

Dangerous Turns Ahead

In just one year since its introduction, you have already seen the volatility of the Affordable Care Act through pages and pages of legislative guidance, carrier interpretations, state actions, and substantive changes to future provisions. Postponement of the Form W-2 benefits value reporting requirement and the non-discrimination requirement for fully-insured plans are prime examples. Awareness and respect for every resource and functional area involved will be critically important as these continual twists and turns will impact your decisions even after they are made. It’s simply the nature of such intricate legislation.

Uncovering the Silver Lining

While it’s a given that you and your staff will be consumed with the costs and operational requirements associated with healthcare reform within your organization, the legislation provides some inherent opportunities for cost savings and reasons to consider tabled benefit initiatives.

There are a number of cost-saving provisions within healthcare reform, including a small-employer tax credit, an early-retiree reinsurance program reimbursement, and small-business wellness grants.  You will want to take a look at these opportunities as well as any others introduced in the future to offset some of your costs.

In addition, now is the time to reconsider benefits initiatives that can offer cost-saving opportunities. For example, many employers are seriously looking at introducing employee wellness programs to not only mitigate increasing health insurance costs but to ensure that employees take better care of themselves—especially if you decide to not offer health insurance in a few years.

Opening the Door to Human Resources

Human Resources will no longer knock at your door twice a year—once to review the annual health insurance renewal costs and the other to request money for that one-off benefits project budget. Healthcare reform has raised the Human Resources Department to high-profile status given the fact that they are responsible for leading the charge to incrementally implement a significant number of healthcare reform provisions over the next eight years in a very volatile environment.  Each decision comes with significant financial implications and legislative maneuvering that will constantly change the rules for managing benefits programs. As such, prepare yourself for a much closer relationship with your Human Resources leadership, including monthly encounters that will require nimble decision-making.  You and other forward-thinking executives must be ready and receptive to answer the door when Human Resources teams come knocking, again and again.

ABOUT ED BRAY AND BURNHAM BENEFITS INSURANCE SERVICES:

Ed Bray helps corporate clients establish and maintain regulatory compliance for their health and welfare benefit plans. Prior to joining the Burnham companies, Mr. Bray spent 12 years managing and directing employee benefit programs at major national employers.

Ed brings his experience as an attorney to the complex regulatory environment that defines the field of employee benefits.

Ed has served as an expert on the California Chamber of Commerce’s Health Care Policy Committee and as an appointed member to the U.S. Chamber of Commerce’s Employee Benefits Committee. He is a frequent speaker on the topic of employee benefits, having presented at the 2010 National Healthcare Reform Conference.  He has also been a featured guest on radio shows.

Ed attended Providence College and holds a bachelor’s degree in business management. He earned a JD from Western New England College School of Law and an MBA from Auburn University.

Based in Irvine, Calif., Burnham Benefits Insurance Services, Inc., is one of the largest employee benefits brokerages in Southern California and one of the few to specialize solely in employee benefits. Kristen Allison, President of Burnham Benefits and a 30-year industry veteran, acquired the firm in 1995 from John Burnham Insurance Services, an Orange County mainstay for more than 50 years. Boasting the in-depth industry knowledge and Fortune 500 resources of a large firm, Burnham Benefits prides itself on retaining the flexibility, creativity and consultative service of a boutique. After steady growth of 20 percent annually for the past 10 years, the company serves more than 300 corporate clients throughout the United States and manages more than $300 million in premiums. Working with its colleagues at Burnham Gibson Financial Services, and having the added expertise of an in-house underwriter, compliance officer, and communications specialists, Burnham Benefits provides an integrated approach to managing a client’s full spectrum of employee benefits. The company has three offices in California: Irvine, Los Angeles and Santa Barbara; as well as offices in Oregon and the Washington D.C. metro area