Spousal Carve Out Still An Option

You might remember reading our May 2012 newsletter on whether or not spousal carve out would be allowed after 2014.  At the time, we were unsure how spousal carve outs would be affected and our debate was centered around two main points: The PPACA requirement that coverage must be offered to all employees and their dependents and the fact that legislative intent does not mandate how the final law is interpreted. Now that we now the PPACA definition of “dependent” specifically excludes spouses, disallowing or charging extra for spouses who have access elsewhere is a good way to make sure employers can continue to offer compensation by way of rich benefits right now.

There are several different options for employers looking to save benefit dollars by implementing some type of spousal carve out.

·    Spousal surcharge – employees are charged a fee each pay period when they choose to enroll a spouse that has access to group coverage from their own employer

·   Spousal Exclusion with a monetary limit – spouses can enroll in coverage only if their own employer sponsored coverage is more expensive

·    Spousal Exclusion – spouses can enroll in coverage if they are unemployed or they do not have access to group coverage from their own employer

As you may expect (and have probably already noticed) more and more employers are choosing to implement one of the options above.  Once an employer decides which type of spousal carve out will best fit their needs, the next question becomes “how do we ensure compliance?” Without a full documentation verification (including a Spousal Affidavit signed by the Spouses Employer AND page one and two of a redacted Tax Return), studies suggest that only 44% of employees will “tell the truth” and comply with the new policy.

Over our five year history of verifying dependent eligibility for employers, we have dozens of working spouse verifications under our belt—we may have even verified a plan for one of your clients. Here, you’ll find three client case studies outlining some best practices and significant learnings. 

Client A: Spousal Surcharge

Operational Goal:

To implement new spousal surcharge as cost saving option in the wake of health care reform.

Business Challenge

As a brand new auto-manufacturing plant, Client A had a benefit program that was appropriately rich for its industry but significantly better than the majority of other employers in the region. Client A wanted to set the stage as a caring and responsible company in the way it treats its employees without becoming the default insurer for the area.

Implementation:

Client A determined that it would offer coverage to working spouses with a spousal surcharge. Spouses with access elsewhere who enroll in Client A’s coverage must pay $46 per pay period, which served to push spouses toward their own coverage while still offering the option to be on the client’s plan if the spouse’s employer plan was more expensive.

Spouses can have coverage without a surcharge if…

·         they are not employed.

·         they are also employed by Client A

·         they don’t have access to medical benefits at their employer.

Verification:

ContinuousHealth’s DA² dependent verification. The audit identifies ineligible dependents as well as informing on spousal coverage using proprietary software.

A spousal affidavit included in each audit packet required sign off from the employee, the spouse and the spouse’s employer. That reduces the likelihood of confusion or fraud, since the spouse’s employer is answering questions about current coverage rather than the spouse. ContinuousHealth also suggested requiring the second page of the tax return to generate more accurate representation of spouse unemployment/employment status.

Results:

As a fully-insured plan, cost savings are greatest when ineligible dependents resulted in tier changes.

○        21.8% of those who were in EE+ Spouse tier changed to EE Only

○        14% of those in EE+ Children changed to EE Only

○        5.3% of those in Family moved to EE Only

       With those tier changes, Client A saw extended savings of $635,000, in addition to any increased plan dollars from the spousal surcharge. After the success of the project, the client decided to integrate the ContinuousHealth software to verify both dependent eligibility and spousal exclusion in-house. This ensured HIPAA-compliance and streamlined the enrollment process.

Client B: Spousal Exclusion with Monetary Limit

Operational Goal:

To implement a spousal exclusion in order to continue to offer an affordable and rich benefits plan.

Business Challenge:

As a well-respected leader in the grain industry, Client B is very focused on providing just business practices, including having a compliant plan, and on treating employees well.

Implementation:

Client B’s consultant walked the client through best options and they decided to offer coverage for working spouses if the employer’s coverage was more expensive than being on Client B’s plan. This would apply only to traditional major medical coverage, which also serves to encourage adoption of the new consumer plan.

Spouses can have coverage if…

·         they don’t have access to major medical at their employer.

·      they have access, but the least expensive single plan offered costs the spouse more than $190 per month.

·         they are also employed by Client B.

·         they are unemployed.

·         they are on secondary coverage and are enrolled in their own employer’s coverage with no contributions to an HSA.

Verification:

ContinuousHealth’s DA2 dependent verification. The audit identifies ineligible dependents as well as informing on spousal coverage using proprietary software. A spousal affidavit included in each audit packet requires the employee, the spouse and the spouse’s employer’s signature and proprietary technology notes all results.

Results:

The audit identified 9.2% of dependents on group plan as ineligible for coverage, a first year savings of $658, 000. That represents 3.8% of Client B’s total annual budget for health care. Spousal verification identified that 11.3% of spouses are only eligible for secondary coverage and about 8% are only eligible for dental and vision, based on the response of the spouses’ employers.

Rather than burdening Human Resources with the project after the initial verification ended, Client B decided to continue using ContinuousHealth to verify dependent eligibility and spousal exclusion. Ongoing costs are minimal compared to an initial project, and the transition to ongoing was seamless.

Client C: Spousal Exclusion with Employer Premium Percentage Limit

Operational Goal:

To find a third party solution for current spousal exclusion practices.

Business Challenge:

The Architecture and Planning company had tried to do a dependent verification last year with a well-known audit company, but Client C had been displeased

Implementation:

Client C had a policy in place that offered coverage for working spouses only if the employer portion of spouse’s premium was low.

Spouses can have coverage if…

●        they are not employed.

●        they don’t have access to group coverage at their employer.

●   they have access, but the spouse’s employer’s group plan requires that the spouse contribute more than 50% of total annual premium.

Verification:

ContinuousHealth’s DA2 dependent verification. Client C was interested in feedback about ContinuousHealth’s responsiveness and educate/assist approach, something it had not found in the last firm. The process would identify ineligible dependents while streamlining the current working spouse verification. A spousal affidavit included in each audit packet requires the employee, the spouse and the spouse’s employer’s sign off.

Results:

The audit identified 7.70% of dependents on the group plan as ineligible for coverage. Despite the recent verification with the other audit company, 4.4% of the dependents were self-identified as ineligible once the plan requirements were outlined to them with the offer of amnesty. Employees opted out 8.4% of the spouses on the plan after reviewing the spousal carve out requirement, even though these were known requirements that had been in effect for over one year.

After the success of the project, Client C decided to continue using ContinuousHealth to verify both dependent eligibility and spousal exclusion on an ongoing basis.

If you’re working to implement a working spouse policy for one of your clients, let us know if we can help. We would love to talk through the options with you and help you serve your client through that transition.

Follow ContinuousHealth on LinkedIn or on Twitter @chealthupdate for interesting articles, industry insight, and a first look at new products and services.

Need to provide medical coverage to everyone over 30 hours? Maybe not.

Who is a full-time employee? The answer might be worth millions of dollars.

On August 31, regulators issued long awaited guidance for employers on who must be treated as a full-time employee under the employer responsibility provisions of the Affordable Care Act. With over 700 employers on our CHROME Compass Platform, we are able to provide an initial assessment of the impact of this guidance on employers in various industries. The bottom line? At first blush, it appears that these regulations continue the trend of being "employer friendly". The mandated expansion of coverage to all employees above 30 hours a week has been the single largest budget issue for employers. This is especially true in multi-site retail, hospitality, staffing, and non-union manufacturing. The Look Back\Stability Safe Harbor outlined in the latest regulations potentially provides a means for employers to mitigate the costly effects of expanding coverage through at least the end of 2014. Like so many other things in the ACA however, navigating the most successful strategies to accomplish a particular outcome may be more complex than they appear.  In the same way that we have proven "Play or Pay" analysis to be an overly simplistic and largely unhelpful approach, a simplistic view of this latest regulation may leave employers with a strategy that is sub optimized (or even inconsistent) with their human resources and compensation strategies for segments of their population. Our Certified CHROME Compass Consultants are uniquely positioned to help their clients and prospects take advantage of the nuances created by this latest regulation. Let's take a brief look at several of the issues and definitions that create potential opportunity for many Employers for whom expanding coverage creates a budgetary challenge.

The regulation introduces several new definitions which will necessarily cause employers to thoughtfully reconsider their eligibility guidelines. In a nutshell, the regulations allow the employer to establish a Standard Measurement Period during which they will evaluate whether or not the Variable Hour Employee worked, on average, more than 30 hours a week. The Standard Measurement Period can be not less than three months or not greater than 12 months. If it is determined during the Standard Measurement Period that the employee worked more than 30 hours a week they must be eligible for medical benefits (or the employer is subject to a penalty). Furthermore, they must be offered benefits for the entire length of a Stability Period that is at least six months but not less than the total length of the Standard Measurement Period regardless of the average number of hours they work during this subsequent period. If they don't work more than an average of 30 hours a week during the Standard Measurement Period, then they can be excluded for coverage during the length of the associated Stability Period without the Employer being subject to a penalty – even if the employee enrolls in subsidized coverage in the Public Exchange during this period. Confused yet? Additionally, the employer has the ability to insert an Administrative Period that may neither reduce nor lengthen the Standard Measurement Period or the Stability Period. This Administrative Period can be up to 90 days.  The rules are slightly different for ongoing employees and newly hired employees after January 1, 2014.

Now that we have this guidance, what should an employer do? As we have continued to say since the passage of Health Care Reform, there is no single right or wrong answer. Rather, there are a number of viable strategies to implementing this provision, which need to be evaluated in light of the actual makeup of the employer's workforce and their human resources and budget objectives. Of particular interest to human resources executives will be the desire to balance between administrative simplicity and cost optimization. At least one of our CHROME Clients has already observed that they are likely to adopt a simplistic approach primarily driven by the fact that their existing benefits administration technology is not capable of tracking these issues.  But is the simplest answer the most correct answer? In what we feel is a departure from the apparently "one-size-fits-all" spirit and intent of the Affordable Care Act, this latest regulation allows the employer to use Measurement Periods and Stability Periods that differ either in length or in their starting and ending dates for different categories of employees. While the allowed categories are limited, it is interesting that one of the categories allows an employer to have different rules for employees of different entities or employees that are located in different states. Based upon our initial analysis with several existing CHROME Compass employers, we believe this provision creates some "opportunity" for employers to customize their eligibility guidelines to more specifically meet their human resources and cost objectives. The degree of customization will necessarily increase administrative complexity but the trade-off may be well worth the effort.  We have been making the observation for quite some time that Health Care Reform will place new requirements on employers’ benefits administration platforms, this regulation appears to highlight some of those new requirements.

What actions do employers need to take now? First of all, not all employers have a "Fair Access Index" exposure. Said another way, many employers are already offering coverage to all employees who work more than 30 hours a week. Over half (54.8%) of the employers on the CHROME Compass platform offer acceptable coverage to all of their employees above 30 hours. But for employers who don't, this regulation suggests some immediate analysis, and perhaps some changes in 2013, may be warranted.

The analysis begins by applying a dynamic computer model to hour and wage data for all likely variable hourly and seasonal employees over a 24 month period. Because ongoing employees and new hires can be treated differently, the model must perform analysis that segregates the current employee population by hire date. The dynamic model then illustrates the impact of different length measurement periods and stability periods for each population.  Because of the ability to analyze the employee data in separate categories, consultants also need  the ability to analyze the information to determine whether different periods by employee category might be worth the increased administrative complexity. Depending on the outcome of the analysis, it may be prudent for the employer to make some tactical changes in the way they classify employees in 2013, in order to better reinforce the position they would like to take of the Variable Hour Employees on January 1, 2014.

One of the critical definitions outlined in the regulation is for Variable Hour Employees. "For the purposes of this notice, a new employee is a variable hour employee if, based on the facts and circumstances at the start date, it cannot be determined that the employee is reasonably expected to work on average at least 30 hours per week.  A new employee who is expected to work initially at least 30 hours per week may be a variable hour employee if, based on the facts and circumstances at the start date, the period of employment at more than 30 hours per week is reasonably expected to be of limited duration and it cannot be determined that the employee is reasonably expected to work on average at least 30 hours per week over the initial measurement ."  How does the employer currently refer to job classes that are likely to fit into the Variable Hour Employee definition? Does their current treatment reinforce the employer taking the desired position with regard to the facts and circumstances and the reasonable expectation that these employees will not work over 30 hours over the course of the initial measurement? How will typical employee turnover affect this analysis? What changes need to be made to recruitment materials, employee handbooks, and management training?

As we move closer to January 1, 2014, there will continue to be a series of regulations that we expect will be much like this one. They will provide much-needed clarification around the legislative mandates created by the Affordable Care Act. While these regulations may be complex, we believe they will also create opportunities for leading employers to pragmatically apply them to specifically meet their human resources and budget objectives. A consultant that has laid the groundwork in regards to the conceptual framework and issues brought on by ACA, supported by dynamic financial modeling, will be in the best position to guide their clients’ decision-making over these next 12 months. As always, ContinuousHealth is here to help. We are grateful for the opportunity to deploy our analytic tools across a wide variety of employer environments. Our Certified CHROME Compass Consultants continue to challenge us to provide the most relevant and useful planning platform available. We plan to continue to work tirelessly to be up to this challenge. 

This article was first featured in the September 19th edition of our e-newsletter, Directions. If you'd like to receive that weekly email, contact directions@continuoushealth.com. (Your email will never be shared, sold, or otherwise distributed, and you will receive only the type of content for which you sign up.)

Follow ContinuousHealth on LinkedIn or on Twitter @chealthupdate for interesting articles, industry insight, and a first look at new products and services.

Why Are Your Highest Paid Employees Paying the Least Amount for Their Benefits?

How ACA Turns the Current System on Its Ear

Today, everyone who has employer-provided insurance is receiving a federal tax subsidy. You don’t often think of employee benefits that way, but it’s true. Employers get to exclude their contributions as a business expense under IRC §105, §106, and §162. The employees get to deduct their portion of the premium from their wages pre-tax under IRC §125, reducing their FICA liability. Employers also see a matching benefit under FICA when employees deduct pretax, even not-for-profit employers, who typically don’t get the benefit of deducting benefits as a business expense because their marginal tax rate is zero.

This current system of federal tax subsidy towards employer provided insurance is a significant incentive for employers to allocate a portion of employee compensation in the form of benefits, especially contributions towards medical plans. Because of the current tax system, a dollar of compensation paid in the form of benefits is worth more than a dollar. It is worth more than a dollar for the employer and it is worth more than a dollar for the employee.

Most employers have a single contribution structure for all wage classes. This contribution strategy creates a regressive tax situation. The highest income individuals receive the greatest benefit, because they have the highest marginal tax rates. As a result, your highest paid employees are paying the least amount for their benefits.

    Let’s look at an actual employer on our CHROME Compass platform:

In this example the employee contribution for Employee Only coverage is $150 a month ($1,800 annually). A single employee at 100% of the Federal Poverty Line (roughly $11,000) , would pay $1,460 for that coverage after we account for the benefit of pre-tax deduction. A single employee at 600% of the Federal Poverty Line (roughly $67,000) would pay $1,316 after-tax for the same exact coverage. That’s a benefit of $144 – almost a full month’s contribution.

    

The effects are magnified when we look at family coverage. For the same employer plan, the Family coverage contribution is $480 a month ($5,760 annually). An employee with a spouse and two kids at 100% of the Federal Poverty Line (roughly $23,000) would pay $4,667 for that family coverage, after-tax. An employee with a spouse and two kids at 600% of the Federal Poverty Line (roughly $138,000) would pay $4,283 after-tax for the same exact coverage. That’s a benefit of $384.

Currently, individual health insurance does not receive tax favorable treatment; ACA created a system of tax favorability for the individual insurance market. It took this current system, which disproportionately favors higher income individuals, and flipped it on its ear. In 2014, when the largest of the provisions under Health Care Reform take place, there will be a new system of federal tax subsidy towards insurance. The new system will be available to those with household incomes below 400% of the Federal Poverty Line ($44,680 for a single and $92,200 for a family of four today) as long as they meet certain eligibility criteria.

Those eligible employees will receive subsidy in two forms. Premium Credits that will limit the amount they pay for their health insurance and Cost-Sharing Subsidies that will cover some of the out-of-pocket expenses not covered by the health insurance plan. This new system operates on a sliding scale with those at 100% of the Federal Poverty Line, the lowest wage individuals, receiving the greatest benefit.

So, the compelling question is, “so what?” If your clients are in this situation, do they care? Did they do this on purpose or, when presented with this data, are they interested in pursuing a different strategy. We have often said that health care reform presents the greatest opportunity in our lifetimes to get employers to think differently about how they allocate compensation toward benefits. For Certified CHROME Compass Brokers and Consultants, this outcome presents a tremendous opportunity to keep current clients loyal and attract new clients. While some competitors are just now figuring out how to run a rudimentary “play or pay” analysis, CHROME Certified Brokers and Consultants are helping their clients craft intentional strategies that are aligned with their corporate objectives and values.  The journey has just begun.

This article was first featured in the July 17th edition of our e-newsletter, Directions. If you'd like to receive that weekly email, contact directions@continuoushealth.com. (Your email will never be shared, sold, or otherwise distributed, and you will receive only the type of content for which you sign up.)

Follow ContinuousHealth on LinkedIn or on Twitter @chealthupdate for interesting articles, industry insight, and a first look at new products and services.

Turn Health Care Into A Competitive Advantage - Not a strategic threat

As many of you know, CHROME Compass is our proprietary modeling and planning platform providing a strategic framework for employers to understand and evaluate the impact that health care reform will have on their group health plans. In technology terms, it’s a crowd-sourced tool:  every consultant we work with, every ERISA attorney or benefits specialist we engage, introduces new and useful components to the tool. As a result, this predictive health care reform modeling tool is the best in the market. You know this, because many of you have had us analyze your clients’ plans. For those of you who have not yet gotten the chance to work with the CHROME Compass tool, continue reading for a case study that highlights the technology’s capabilities.

Current Direction

A certain de-identified company has 1,203 employees who work more than 30 hours per week, with current benefits eligibility beginning at 32 hours per week. They have 940 employees participating in their single plan, with 140 waiving coverage and 123 ineligible. They have a BCBS PPO plan that is fully insured and considered non-grandfathered. An initial review with the Compass tool revealed that their total plan cost is less than the national average while their employee contributions are higher, especially on family coverage.

Compass Heading

The CHROME Compass pointed the way to a three-year strategy to address plan savings and requirements of health care legislation. CHROME Compass recommended gradually adjusting the actuarial value of the plan to the mandated 60% by 2014, which would reduce possible adverse selection among employees eligible for subsidies. Compass also suggested offering excepted benefits as a way to enhance the overall compensation value despite a decrease in the major medical. They had already added voluntary benefits and employer-paid basic life in 2010, plus long-term disability for the higher paid in 2011. Strategies for “fair” employee access include creating coverage provisions for spouses who have access to other benefits, conducting full documentation verification for dependents added to the plan and moving to eligibility management integration with vendors to reduce theerror (and fiscal consequences) of manual eligibility management.

Results

·         Health care budget reduced by 33^%/3 years

·         21^% Employer/Employee combined savings

In this case, CHROME Compass points to a three

year plan that has potential to reduce the employee

benefits budget by 33% for the employer. Employer

and employee savings combined represent 21%

savings.

The Compass-optimized plan for 2014 would save this company over $1 million dollars compared to maintaining their current plan and nearly $3.5 million compared to terminating.

Competitive Advantage

ContinuousHealth and our CHROME Compass  are here to help turn health care into a competitive advantage for your clients rather than a strategic threat.

Contact us today for more information about this powerful tool:

    Jennifer Riley: (678) 335-0448 

    Rachael Foster: (678) 397-0071

or email: chrome@continuoushealth.com

This article was first featured in the July 17th edition of our e-newsletter, Directions. If you'd like to receive that weekly email, contact directions@continuoushealth.com. (Your email will never be shared, sold, or otherwise distributed, and you will receive only the type of content for which you sign up.)

Follow ContinuousHealth on LinkedIn or on Twitter @chealthupdate for interesting articles, industry insight, and a first look at new products and services.

Hope Is Not A Strategy

It appears as though last month’s SCOTUS decision has not quieted the talk about how we shouldn’t plan for the implementation of PPACA. How are your clients responding to the latest “strategy”? Read on for our thoughts.

 Stay out of the hypothetical and move forward with the tactical

An article in the Sunday issue of the New York Times caused me to reflect on my childhood. Now, I know I’m dating myself, but my earliest education about the legislative process can be traced to Schoolhouse Rock, those catchy ditties interspersed between Saturday cartoons.

I'm just a bill.

Yes, I'm only a bill.

And I'm sitting here on Capitol Hill.

Well, it's a long, long journey

To the capital city.

It's a long, long wait

While I'm sitting in committee,

But I know I'll be a law someday.

At least I hope and pray that I will,

But today I am still just a bill.

The title of the article was, “New Health Law Battle: Insurance Exchanges”. It appears as though last month’s SCOTUS decision has not quieted the talk about how we shouldn’t plan for the implementation of PPACA, because the major reforms planned for 2014 aren’t likely to happen. The current legal challenge will be whether individuals buying coverage on the federal exchanges will be eligible for subsidies. It appears as though the drafters of the legislation made another goof (remember the omission of the severability clause) by explicitly stating that subsidies will be provided to residents of a state to help defray the cost of health plans offered “through an exchange established by the state.”

The opponents of PPACA are articulating a strategy that goes like this: Republican governors should stonewall and not establish state-based exchanges, because, while it is true that PPACA calls for a federal exchange, the drafters did not outline a provision for subsidies on this exchange. Without subsidies, there are no triggers for employer penalties. Without employer penalties, employers won’t have to offer acceptable and affordable coverage to all employees over 30 hours a week, and therefore the “job-killing” aspects of PPACA will be avoided. Conclusion? Employers don’t have to prepare for the implementation of PPACA, because it will never happen.

Hypothetical Strategies

This is where my modified civics lesson comes in: a bill becomes a law. Regulators interpret laws to write regulations, which can either be enforced or ignored. Executive orders can trump all.

The media likes to spend a lot of time talking about what could happen in the never-ending battle over health care reform. As consultants on the front line of helping real-world employers design benefits plans that are affordable, sustainable and attractive enough to meet human resources objectives of a specific firm, you can’t spend too much time on the hypothetical. You need to focus on the most likely scenarios and position your clients appropriately.

As my Dad likes to say (and he wasn’t the first), “Hope is not a strategy.”

Real Solutions

With over 600 employers on our CHROME Compass platform, we see that the overwhelming employer trend is to deal with health care inflation through cost-shifting, while simultaneously attempting to curb consumption through consumer-directed plan designs. (Some critics would say these strategies are redundant.) Offer rates aren’t declining, but take up rates are – especially by low-wage individuals. This trend is creating adverse selection among low-wage populations. Employers with large low-wage populations are challenged to avoid this adverse selection either by limiting eligibility (a strategy made illegal by PPACA) or by lowering employee contributions to “buy” more employees into their plans. Depending upon their starting point, however, the latter strategy consumes even more of the already scarce compensation dollars.

These employers need creative new strategies, not the “hope” offered by the latest scenario of how PPACA will be overturned or never implemented. To not move forward is to maintain the status quo, and the status quo is a continued erosion of the employer-sponsored health insurance system that will put increasing pressure on employers, employees and their consultants. There will be no winners in this game.

Fortunately for us at ContinuousHealth, many of you are aggressively attacking the status quo through optimization strategies. You’re implementing several cost reduction programs (e.g. dependent eligibility audits) and making changes to the overall benefit plan design, including decreased emphasis on major medical and increased emphasis on excepted benefits (like the CH Complete Card) to control medical costs while driving increased employee satisfaction. We will continue to work with you to design new products and services that support your tactical endeavors.

Helping your clients focus on business while pundits focus on political wrangling may be the most challenging task of all.

Eric Helman

678.397.0070

This article was first featured in the July 10th edition of our e-newsletter, Directions. If you'd like to receive that weekly email, contact directions@continuoushealth.com. (Your email will never be shared, sold, or otherwise distributed, and you will receive only the type of content for which you sign up.)

Follow ContinuousHealth on LinkedIn or on Twitter @chealthupdate for interesting articles, industry insight, and a first look at new products and services.

Feds Can’t Force Medicaid Expansion – Good or Bad News for Employers?

As many of you know, we try our best to be apolitical when it comes to interpretation of various legal and regulatory updates. There are plenty of other outlets for that. We are focused on the impact on employers and their employees. So when the most significant new development created by the SCOTUS decision centers around Medicaid expansion, we immediately analyzed the potential impact on employers.  Let’s walk through the ruling and the potential outcomes and what it means to you and your clients.

While I was personally surprised with the SCOTUS outcome (and impressed by the nuanced maneuvering around the Commerce Clause issue), I want to focus on the “new” stuff we must now consider because of the ruling. Specifically, will states opt in to the expanded definition of Medicaid? And if they don’t, how will employers in those states be impacted?

In a bit of a surprise, the majority opinion, authored by Chief Justice Roberts, found the Medicaid expansion to be constitutional in part and unconstitutional in part. The opinion upheld Congress’s right to stipulate the conditions under which federal funds are used by states; however, the opinion also found the threat of a state losing all of its existing Medicaid funding if it elected not to participate in the expansion to be unduly coercive. Consequently, the decision maintains the expansion of Medicaid provided for under PPACA as optional to all states, by prohibiting the Secretary of Health and Human Services from discontinuing funds for existing Medicaid programs for those states that choose not to participate in the expansion.

So, what does this mean?

Well, this means that the twenty-six states that brought suit gained a partial victory: they won’t lose any existing funding if they choose not to participate in the expansion. Elected officials for many states have already issued statements regarding the ruling. The governor of Washington, one of the 26 plaintiffs that brought suit, has indicated that her state most likely will participate.

This, however, does not necessarily mean that all twenty-six will choose to participate. Lieutenant Governor Tate Reeves has expressed serious doubt about Mississippi’s likelihood of opting to expand Medicaid. "An expanded Medicaid program would add almost 400,000 new enrollees and cost the state an estimated $1.7 billion over the next ten years. Mississippi taxpayers simply cannot afford that cost, so our state is not inclined to drastically expand Medicaid.” Nebraska Governor Dave Heineman also expressed concerns about the impact the Medicaid expansion would have on other state programs, calling the expansion “unfunded.” As of the date of this newsletter, other participating states, such as Idaho, have not yet released statements regarding the decision. Just yesterday, Rick Scott from Florida said they won’t expand while certain Republican members of the legislature said they would. I guess we are in store for some more wrangling over the next several months.

But back to the point - how will this affect employers?

In states that elect to expand Medicaid eligibility, all individuals with household incomes below 138% of the federal poverty line (FPL) are eligible to receive coverage through Medicaid. When they enroll in this coverage, employers are not penalized.

In states that elect not to expand eligibility, all individuals between 100% and 138% FPL would be eligible for premium tax credits and out-of-pocket subsidies at the Exchange if the employer’s coverage is deemed unacceptable or unaffordable. If an individual receives a tax credit, their applicable employer will be subject to the $3,000 tack-hammer penalty.

So, by not expanding Medicaid eligibility, a state may be increasing the potential liability for their employers. This will especially be true for businesses with lower wage part-time employees such as retail and hospitality.

How will this affect you?

States now find themselves in a tenuous situation where, if they choose not to expand eligibility, the lowest income working adults will not have access to affordable insurance, and employers in that state will potentially be subject to higher penalty. For the first 3 years, the eligibility expansion is 100% federally funded, tapering off to 90% by 2020; however, the federal funding is for coverage only and does not extend to increased administrative costs. The administrative burden of handling the new potentially eligible Medicaid recipients can prove costly, as expressed above by Mississippi Lieutenant Governor Tate Reeves.

In short, while the Supreme Court’s decision provided some clarity around the fate of PPACA, it also raises many questions and increases the likelihood of future changes. We anticipate that most states will develop projections to examine the impact of both expanding and opting out, as either decision carries significant impact. Based on those decisions (*Opportunity Alert*), employers will look to their brokers for guidance and strategy. As you would expect, we have already modified our CHROME Compass platform to model the various scenarios and the impact on employers.  Over the next couple of months we’ll discuss strategy and outcomes in more detail.

This article was first featured in the July 3rd edition of our e-newsletter, Directions. If you'd like to receive that weekly email, contact directions@continuoushealth.com. (Your email will never be shared, sold, or otherwise distributed, and you will receive only the type of content for which you sign up.)

Follow ContinuousHealth on LinkedIn or on Twitter @chealthupdate for interesting articles, industry insight, and a first look at new products and services.

The way of business: Adapt or Die

A few months ago, the Wall Street Journal published an article detailing the potential consequences of health care reform. Over the past three years, there’s been a slowdown in spending here, and economists initially thought this may show the effects of health care reform as a cost savings. The Centers for Medicare and Medicaid Services just released a study showing that the legislation would, in fact, probably cause an increase in health spending starting in 2014. After that initial peak, the study predicted the rate would drop but still grow at a higher rate than we’ve seen recently. The thing is, we don’t really agree. Read on to see if you think we’re right.

The actual numbers make the reasons for the drop clearer: current spending has averaged about 4% annual growth for the past three years and is predicted to continue for the next two. In 2014, spending is expected to jump to 7.4% annual growth due to the market flood of participants gaining coverage through government-subsidized insurance plans or Medicaid. Health care cost increases would then level off in 2015 to about 6.2% for the next several years.

The increased spending is attributed to an escalation in routine doctors’ visits, prescriptions, and administrative costs. The article does point out that only 0.1% of the growth would be attributed to new portions of the law, and that most of the issue comes from the increased number of people in the market, particularly aging baby boomers.

The thing is, we don’t really agree.

Businesses have always found a way to circumvent any classic logarithmic equation that would result in increased costs.

Currently, benefits are intrinsically linked to compensation, so, to maintain competitive advantage in hiring, companies must offer competitive benefits. But if health spending goes up, then benefits will change in the private sector. The article even hints at this, though it fails to connect to the future effects—it points out that the reduced spending we’re seeing right now is partially because “employers have trimmed insurance since the U.S. first fell into a recession.”

That is the way of business. Adapt or die.

More aging baby boomers on the plan? Try a working spouse policy—either spousal carve out or surcharge would offset some increased costs. Or a dependent verification, which ensures that the employer isn’t paying for the extra costs of ex-spouses or any other ineligible dependents.

Escalation in doctors’ visits? Implement high deductible plans. They turn employees into consumers, giving them awareness of the costs associated with unnecessary visits. Or include telemedicine as an additional offering, driving down urgent care and emergency visits at the same time.

You see our point. Businesses are adaptable, and they will find a way to not have a 7.3% increase. In fact, you’re probably walking your clients and prospects through some cost saving options right now.

What we can all agree on, though, is that the government probably won’t move so fast.

This article was first featured in the June 26th edition of our e-newsletter, Directions. If you'd like to receive that weekly email, contact directions@continuoushealth.com. (Your email will never be shared, sold, or otherwise distributed, and you will receive only the type of content for which you sign up.)

Follow ContinuousHealth on LinkedIn or on Twitter @chealthupdate for interesting articles, industry insight, and a first look at new products and services.