By Rita Pyrillis, Crain News Service
WASHINGTON (Jan. 10, 2013) — If healthcare reform taught employers anything in 2012, it's that patience is a virtue.
Since the Patient Protection and Affordable Care Act (ACA)—now pretty much referred to as "Obamacare"—passed in March 2010, employers have waited through numerous court challenges culminating with the U.S. Supreme Court's decision last June on the law's constitutionality followed by November's nail-biting re-election of healthcare reform's chief architect, President Barack Obama. But the wait may soon be over as guidance from Washington emerges.
Just before Thanksgiving, the U.S. Department of Health and Human Services released new proposed regulations addressing several provisions of the ACA, including standards related to "essential health benefits" that must be offered to most Americans, and an increase in the maximum financial reward employers can give employees who stop smoking or meet other health goals.
The last time employers received clarifications on the law's complex provisions was in August when the Internal Revenue Service issued its definition of a full-time employee.
Questions abound
It appears that the post-election avalanche of regulations and guidance that many predicted is under way. However, the lessons they will present in 2013 may not be clear cut.
"It is amazing how, over the past few years since the law was passed, how many times we get asked [by clients] what's going to happen," said Dave Almeda, vice president of human resources at Kronos Inc., an HR software firm. "The law is vague enough that it requires a lot of interpretation and rule-making. We were getting a steady diet of that until three or four months ago, and then it stopped. We've been in a hurry-up-and-wait mode for a couple of years."
Employers welcomed the November HHS rules, which includes a provision that gives employers greater flexibility to reward employees who participate in wellness programs designed to help them lose weight or lower their blood pressure.
Under the proposal, the maximum dollar amount of the reward would be increased to 30 percent from 20 percent of the cost of coverage. It would also increase the maximum reward to 50 percent for wellness programs that aim to prevent or reduce tobacco use.
Companies are gearing up for a raft of healthcare changes in 2013 and 2014. Here's an overview of what's ahead:
- Starting in January, employee contributions to healthcare flexible spending accounts must be capped at $2,500.
- In March, employers must notify employees about the status of their state healthcare exchange and their eligibility for federal subsidies if the company plan is deemed unaffordable under the law.
And in 2014:
- Employers with more than 50 employees must offer an affordable health plan or face penalties of up to $2,000 per employee, excluding the first 30 workers.
- Large employers must offer coverage that is defined as affordable and that meets the minimum value standards or face a penalty if just one of its full-time employees receives federal assistance to purchase insurance through an exchange.
- Large employers must offer health plans with a minimum actuarial value of 60 percent.
Compliance issues
Like many companies, Kronos has been working toward compliance as regulations emerge but long-term planning is difficult when so much remains unclear, Mr. Almeda said. "You shouldn't draw conclusions until we have all the regulations. We've done all the things that are required.
"We've covered dependents, addressed FSA limits…but beyond that it's hard to come up with an answer on how reform will impact our healthcare strategy. We're focused on wellness right now. We're in hyperwellness mode."
At Ryan L.L.C., a Dallas tax consulting firm, compliance has been a priority since the law passed. Despite all their preparations, company leaders are still nervous about what the next two years will bring.
"Are there any surprises? Will it harm us financially? Will it put us in a place that we would have to dramatically decrease what we offer our employees?" asked Delta Emerson, executive vice president and chief of staff at Ryan. "We put a huge emphasis on work-life balance. It will be difficult to find ourselves in a situation where we can't meet a need."
Ms. Emerson said that Ryan, which employs more than 1,000 workers at 45 locations in the U.S. and abroad, has been proactive in managing healthcare costs and providing employees with a competitive benefits package. The company began offering a high-deductible, consumer-driven health plan two years ago and recently introduced a health savings account and a supplemental insurance plan. It offers premium reductions to employees who participate in biometric health screenings and maintain their goals.
The company would like to do more, but right now its primary focus is healthcare reform compliance.
"Before Obamacare, we felt freer to be creative in looking for ways to manage costs and provide comprehensive benefits, but we're not as enthused about what we can do next," Ms. Emerson said. "Right now the focus has shifted away from that to survival. It's about avoiding a hit on our balance sheet."
And some employers, especially those with large hourly populations—like retailers and restaurant chains—are finding ways to sidestep costs associated with the reform by cutting hours for full-time employees to less than 30 hours a week.
In October, Darden Restaurants Inc., which owns Red Lobster and Olive Garden, announced plans to cut employees' time to 28 hours a week, thus avoiding penalties.
Other companies could follow suit, according to the National Survey of Employer-Sponsored Health Plans, which is conducted annually by consultancy Mercer L.L.C. More than half of employers that do not currently offer coverage to employees working more than 30 hours a week say that they will "restructure their workforce strategy" creating more part-time jobs.
An overview of the report's findings was released in November, and the full report is scheduled to be published in April 2013.
Small employers and those with a large number of hourly workers will be hit hardest by reform, according to Tracy Watts, national healthcare reform leader at Mercer.
"2014 is huge to them," she said "They may have hourlies who are not eligible today, so now they have to figure out what to give them and how much it will cost."
She cautions employers not to start cutting hours without a thorough analysis.
"There is a trade-off," she said. "If you have a certain number of full-time and part-time employees, there is an optimal mix. And if you move too many into part time, you might save benefit costs but productivity and business potential costs could be five times greater. It's important to know what your optimal staff mix looks like."
Plan options
Grappling with the cost of healthcare reform is a key focus for employers large and small. In addition to a host of major provisions in 2014, employers are bracing themselves for the so-called "Cadillac plan" tax that takes effect in 2018 and imposes penalties on employers that offer excessively rich health benefit plans. Those employers will be subject to an excise tax of 40 percent on plans valued at $10,200 for individual coverage or $27,500 for family coverage.
To avoid it, a growing number of employers are offering high-deductible, consumer-driven health plans and pairing them with health savings accounts in order to shift more of the cost to employees. The effort seems to be paying off.
According to the Mercer survey from November, employers this year saw the smallest health benefit cost increase in 15 years—4.1 percent in 2012 compared to 6.1 percent in 2011.
The report cites employer efforts to move more employees into consumer-driven health plans and to beef up wellness programs as key reasons for the decline.
For now, employers such as Ryan will carry on with their efforts to do just that and hope for the best.
"It's scary," Ms. Emerson said. "You're looking into the dark. Before you were staring into confusion; healthcare is always confusing. But now you can't see where anything is, where the stumbling blocks may be."
This analysis appeared in Worforce Management magazine, a Chicago-based companion publication of Tire Business.
Healthcare Reform Timeline
2013
- Flexible spending accounts—Contributions to FSAs are capped at $2,500.
- Medicare payroll taxes and Retiree Drug Subsidy—Employees making more than $200,000 (or $250,000 for joint filers) will pay a higher Medicare tax. Employers can no longer take an income tax deduction for Medicare Part D retiree drug subsidies.
- Employer notifications—Employers must notify employees of state health insurance exchanges, whether an employer's plan meets minimum coverage requirements and how to access information regarding premium subsidies that may be available for exchange-based coverage.
- W-2 reporting—Large employers must report the cost of employer-provided healthcare coverage on their employees' 2012 Form W-2s.
- Birth-control coverage—Nongrandfathered health insurance plans must cover women's preventive services, including contraception, without charging a copayment, coinsurance or a deductible.
2014
- Employer mandate—Employers with 50 or more employees that do not offer health coverage and that have one full-time employee receiving a subsidy will pay a penalty of $2,000 for each full-time employee, after the first 30 employees. And those that do offer health coverage and have one full-time employee opting out and receive a federal subsidy to purchase insurance on a state exchange will also pay a penalty of $2,000 per employee.
- Grandfathered plans—Waiting periods longer than 90 days for health coverage are prohibited. Employers may offer wellness program incentives/penalties of up to 30 percent of premiums to employees.
- State health insurance exchanges—States must create exchanges to help small employers provide health plan coverage to their employees.
- Individual mandate—Individuals must purchase health insurance. Any employee who earns up to four times the federal poverty level and pays more than 8 percent of their income for the employer-sponsored coverage can buy health insurance through healthcare exchanges.
- Auto enrollment—Employers with 200 or more employees must automatically enroll newly hired or newly eligible full-time employees into a default health plan that provides "affordable" coverage. However, implementation of this provision has been delayed until the various government agencies issue regulations, which is not expected to happen before 2014.
- Employee federal premium subsidies—Large employers that offer health coverage to full-time employees and their dependents are subject to a penalty if at least one full-time employee receives a federal subsidy because the employer-sponsored coverage is unaffordable.
- Minimum values—Employers with 200 or more employees must automatically enroll newly hired or newly eligible full-time employees into an affordable default health plan.
2017
- State exchanges—States may begin to allow large employers to provide coverage through an exchange plan.
2018
- "Cadillac" tax—Employers must pay a 40 percent excise tax on health plans that exceed $10,200 for single coverage and $27,500 for family coverage.
Source: Society for Human Resource Management