BHCG Monitor: Focus on Health Care Benefits - April 2012
 
 

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BHCG Monitor: Focus on Health Care Benefits - April 2012

 

Supreme Court Decision: Full Speed Ahead with Compliance

On June 28 the United States Supreme Court rendered a historic decision that many employers were waiting to hear to put an end to their guessing about health care reform.  In a 5-4 decision, the Court generally upheld the Affordable Care Act (ACA), including the individual mandate and the provisions directly impacting employers. Employers can now turn their attention to the near- and long-term compliance deadlines the ACA imposes. However, with health care front and center in the national conversation, the only thing certain is that more changes will come, thus heightening the need for plan sponsors to stay focused on plan management and cost control.

The decision

The majority opinion, penned by Chief Justice Roberts, upheld the individual health insurance mandate as constitutional and authorized by Congress’s power to levy taxes. The Court rejected the administration’s argument that the individual mandate was justified by Congress’s power to regulate interstate commerce.

The Court also limited the law’s expansion of Medicaid to a substantial degree. While allowing Medicaid expansion, the decision limited the penalties for states that do not comply. Seven justices agreed that Congress had exceeded its constitutional authority by threatening states with the loss of existing federal payments if they did not participate in the Medicaid expansion.

In a ruling that most legal experts agree is the most significant federalism decision since the New Deal, the Court allowed almost all the ACA’s changes to roll forward.  After months of uncertainty about the law’s fate, the landmark decision serves as a wake-up call to states, insurers, employers and consumers about what they are required to do under the law by 2014, when much of the law comes into force.

Impact on employers

In a recent survey (Chelko Consulting Group, 2012), six out of 10 employers felt more confident about their future plan management decisions after the Court’s ruling. However, while many employers anticipated receiving a form of closure with the Court’s decision, the future remains murky at best. For example, upcoming election outcomes may play a role, with Republicans vowing to intensify their efforts to repeal the health care law. In addition, although the ACA was deemed largely constitutional, the issues surrounding the implementation and administration of the Act’s coverage mandates will most likely be litigated for years to come. Most observers agree there will be legal challenges before the effective date of the state exchanges and the individual mandate. Furthermore, the substantial employer reporting requirements of the ACA are only just beginning to be addressed by guidance from the government.

Compliance with reforms and mandates

For now, employers must continue implementing ACA’s multiple reforms and mandates. Advisors stress that employer compliance should be a high priority since the U.S. Department of Labor has begun random audits of employer compliance with the initial requirements of health care reform and will continue to do so as the other requirements come into effect.  

For the near term, ACA requirements include:

  • Summary of Benefits & Coverage and a uniform glossary of terms  for open enrollment periods starting on or after September 23, 2012 (complete information can be found at the Centers for Medicare & Medicaid Services website)
  • $2,500 limit on employee contributions for health care flexible spending accounts (FSAs) for plan years beginning in 2013
  • Non-grandfathered plans must offer contraceptive drugs and devices to female participants on a first dollar basis with no participant cost-sharing effective for plan years beginning on or after August 1, 2012
  • Elimination of retiree drug subsidy tax deductibility effective January 1, 2013
  • Form W-2 reporting of health care value for the 2012 tax year
  • Notification to employees about the availability of health insurance exchanges by March of 2013
  • Expansion of FICA to include an additional 3.8 percent tax on the unearned income of high income* individuals for the 2013 tax year
  • 0.9 percent Medicare payroll tax increase on high income* individuals for the 2013 tax year

*($200,000 if single; $250,000 if married and filing jointly)

The ACA’s major components – the establishment of the state health insurance exchanges, the individual mandate and the employer "pay or play" penalty—all will take effect in 2014. Employers must consider whether they will offer a health plan and if so, what changes will need to be made to the plan to comply with the new rules. Some insurance experts believe that the ability for small businesses to utilize the insurance exchanges and the tax credits they offer will enhance health care access and affordability for the small business market, lowering the indirect costs of offering health insurance for small businesses.

In addition to the aforementioned 2014 requirements, the following coverage mandates and market reforms will also become effective on January 1, 2014:

  • Employer certification to the U.S. Department of Health and Human Services of whether its group health plan provides “minimum essential coverage”
  • Increase in permitted wellness incentives from 20 percent to 30 percent
  • Automatic enrollment of new employees in a group health plan for employers with 200 or more employees (unknown effective date)
  • 90-day limit on eligibility waiting periods for group coverage
  • For non-grandfathered plans, coverage under certain approved clinical trials
  • Guaranteed availability and renewability of insured group health plans
  • The first phase of the Medicare Part D “donut hole” fix (Part D coverage gap will be completely eliminated by 2020)
  • Prohibition on preexisting condition exclusions for all plan members
  • Complete prohibition on annual dollar limits

In addition, in 2018, the so-called “Cadillac tax” takes effect, imposing an excise tax on high cost health plans. A 40 percent tax will be due on the excess value of a single health plan that exceeds $10,200 or a family plan that exceeds $27,500. Surveys have shown that a majority of employers are genuinely concerned about the excise tax’s impact on their plans and have begun to focus on strategies to deal with this issue. It is expected that consumer driven health plans will continue to grow in dramatic fashion as employers seek to control costs in an effort to avoid the tax.

Medicaid eligibility ruling

In 2014 Medicaid eligibility will expand to include those whose incomes are below 133 percent of the federal poverty level. Given the Court’s ruling as explained above, states may make the decision to forego the ACA’s Medicaid expansion component. In those states, individuals who would have been eligible under the expansion will now be able to obtain coverage under the ACA’s health insurance exchanges and may also be eligible for federal subsidies for exchange coverage.

Under the “pay or play” mandate, employers are responsible for a shared responsibility payment if they do not offer group health plan coverage or offer coverage that meets set quality and affordability standards. This payment is imposed if an employee receives a federal subsidy for enrolling in coverage through a public health care exchange. Therefore, in states that forego the Medicaid eligibility expansion, employers may be at risk for increased exposure to shared responsibility payments. There is also the risk that many low income individuals may continue to go without coverage. Employers in states that opt out of the expansion will continue to indirectly pay some of the cost of that uncompensated care.

Moving forward with core challenges

As employers seek to comply with the ACA’s requirements following the Supreme Court decision, uncertainties surrounding many aspects of the ACA still abound.  However, most advisors agree, what is certain is that employers must move forward with meeting the core challenges that have been on their plates all along: controlling the cost of health care and engaging employees in their own health and health care decisions.

Says J.D. Piro, senior vice president at Aon Hewitt in New York, "Long-term, employers are going to need a health care strategy that reduces costs and improves employee health. That was not part of the decision; employers have to put that into place on their own. They need to determine how to truly get costs under control. Compliance [with] the ACA makes the trains run on time, but strategy tells you where you are going."

As a new population becomes insured with the advent of the exchanges, an overburdened system will seek to accommodate them. This will mean new developments like the growth of limited network plans and tiered products with pricing differentials for providers based on efficiency. It will become increasingly important for employers to carefully evaluate which providers are the most appropriate for their plan members. 

In addition, the continued development of adequate decision tools and consumer information is a must as consumer driven health care remains as a meaningful strategy for employers. Employers will also want to reassess their wellness efforts to take advantage of the larger premium differential the ACA allows for those who participate in wellness programs versus those who do not.

Employers will need to keep an eye on new developments in order to help determine their best course of action going forward. This publication will continue to update you on the ever-evolving issue that is health care reform.

Works Cited

(2012, July 10). Retrieved from Chelko Consulting Group: http://www.chelkogroup.com/Employersurvey.php

Employers can carry on as usual as Supreme Court upholds health care reform law. (2012, June 28). Retrieved from Employee Benefit News.

Health Care Reform Upheld - What Should Employers Do . (2012, July 2). Retrieved from Miller Johnson.

Starner, T. (2012, July). One Healthcare-Reform Mystery Ends, Another Continues . Retrieved from Human Resource Exexutive Online.

Supreme Court Upholds the Affordable Care Act’s Individual Mandate: What It Means for Employers and Plan Sponsors. (2012, June 28). Retrieved from Proskauer.com.

The Supreme Court Speaks. (n.d.). Fidelity Perspectives .

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BHCG Monitor: Focus on Health Care Benefits - April 2012