What the McKinsey Report on Health Care Really Reveals

Originally published at Executive Street, a Vistage International blog.

Unless you were living under a rock this summer, you probably know that McKinsey & Company published a report titled “How US health care reform will affect employee benefits.” Amongst other findings, the study claims that 30% of employers polled plan to cut their group health care plans.

This caused a stir throughout the political arena, as Republicans cited the report as evidence of the negative consequences of Health Care Reform, and Democrats blasted McKinsey for not releasing their methodology. The real issue lies deeper, and is related to a topic about which I wrote previously on the Vistage blog, Executive Street. 

The Real Revelation

A June 24^th, 2011 editorial in the Wall Street Journal got me thinking about the root issue with the McKinsey report and most other media buzz about Health Care Reform. The editorial claims, “The furor says less about McKinsey than about the politically damaging reality of the new law.”  I’d go a different route.  I think the furor over the report reveals that across the board, decision makers don’t know anything (or at least enough) about Health Care Reform.

Upon release of the methodology, expert critics of the findings say that the survey was push polling, feeding questions to executives so as to cause them to give the right answer. Conversely, a Forbes blogger and many others feel that the survey was rigorous, prepared by a creditable research company. 

A Distraction, Not a Solution

Talking about “Shutting up McKinsey” (as the Wall Street Journal editorial stated) is, like so many things in the discussion about health care reform, a distraction. Whether or not the McKinsey results will be an accurate prediction of executive behavior, or if the survey did or did not meet the standards for academic rigor, might be newsworthy, but they miss the most important point. It is inconsequential until executives truly understand the implications of health care reform.

Our company works with senior executives every day to help them optimize their investments in employee benefits.  In doing so, we see that, across industries, regions and sizes of business, business leaders don’t have the most basic working knowledge about the new structures and incentives embedded in health care reform—and many don’t want to, as we mentioned in our last Vistage post when we referenced a survey that the WSJ’s CFO blog covered in May. That Journal article stated, “Of the 151 CFOs and executives of mid-sized companies… only 1 in 5 said they have actually given a great deal of thought to the health-care overhaul.” The backlash on the McKinsey report shows that statistic is probably accurate nationwide.

It is critical that executives do understand the implications of Health Care Reform in 2014 and beyond.  To quote the last paragraph of the now infamous McKinsey report:

Whether your company is poised to shift from employer-sponsored insurance or will continue to offer the same benefit package it does now, health care reform will change the economics of your workforce and benefits, as well as how your employees value coverage. Understanding these changes at a granular level will enable your company to gain or defend a competitive advantage in the increasingly dynamic market for talent [emphasis is mine].

Leading beyond 2014

It is irrelevant if McKinsey did or did not lead executives to a particular answer.  The fact remains that if you can be led, you don’t know enough.  If you want to know how your business (and your employees) will be impacted by health care reform, get some help. As Doug Elmendorf of the Congressional Budget Office testified before Congress on March 30, 2011, “Moreover, many of the effects of the legislation may not be felt for several years because it will take time for workers and employers to recognize and to adapt to the new incentives.” Leading employers will not be the last to know. If they are, they will no longer be leading employers.

Thanks for reading,

Eric

For more information about Health Care Reform or Dependent Eligibility Verification Audits, follow ContinuousHealth and Vistage member Eric Helman, CEO of ContinuousHealth, at @CHealthUpdate or visit www.continuoushealth.com. ContinuousHealth is an independent organization located in Atlanta Georgia that uses proprietary technology to help employers optimize their investments in employee benefits programs.  ContinuousHealth has performed over 250 Dependent Eligibility Verification projects. ContinuousHealth distributes its products through an exclusive network of certified Brokers and Consultants. 

Early Results are In: HCR may increase the Number of Ineligible Dependents

Originally published at Executive Street, a Vistage International blog.
While Health Care Reform is currently a much-discussed item in the media, the Wall Street Journal recently reported that the majority of CFOs are not considering the repercussions for their companies. The following study proves the fiscal responsibility for corporate leadership to research the effects of the Patient Protection and Affordable Care Act (PPACA) on their health care plans.

Ineligible Dependents:  Previously 5-12% of Dependents on Group Health Care Plans

Many experts believe that the number of ineligible dependents on a company’s health care plan will decrease as the mandates of the PPACA take effect. Nationwide, prior to PPACA, between 5-12% of group plan participants were typically found to be ineligible. The early results are in for a study showing that wider eligibility criteria may, in fact, directly correlate to higher percentages of ineligible dependents. 

Reform guidelines now require that adult children up to the age of 26 be eligible for coverage on their parents’ group health care plans, regardless of marital or employment status.* Many employers assume that this will significantly increase their enrollment body, and recent news reports confirm.  The enrollment of this age group is even higher than expected, as many as 600,000 new dependents in the first year alone.

Relatedly, many employers believe that investigating ineligibles is no longer necessary. Full-time student verification of that age group was standard practice with most group health care providers, and with this demographic now under mandated coverage, why check at all?

The Effects of Health Care Reform

Statistics gathered from recently conducted dependent eligibility verification audits show the need still exists and is, in fact, greater than ever. Projects completed since the implementation of Health Care Reform guidelines show nearly double the number of ineligible dependents. The average number of ineligible dependents identified on group coverage has risen from 8% to over 15%. 

The same ineligible dependents who existed prior to 9/23/10, excepting non-students, are still attempting to gain coverage from group plans. Dependents typically found who are not eligible for most plans include:

Ø  former spouses,

Ø  non-spouses,

Ø  former stepchildren,

Ø  grandchildren,

Ø  grandchildren over the age of 18 who are not enrolled in school,

Ø  non-child blood relatives and

Ø  non-eligible dependents declared on tax returns. 

Additionally, Health Care Reform has created new potentially ineligible dependent types, namely spouses and adult children who have coverage on other plans.

Prior to Reform, approximately 24% of ineligible dependents fell into the age range of 19-26. Of that 24%, half are unable to prove relationship. Thus, only 12% of typical ineligible dependents were previously non-students and are likely to qualify for coverage as a result of the change in age requirements. To put that into perspective, if a hypothetical employer covers 1,250 dependents and falls in the middle ground of 8% ineligible, 100 dependents would exit the plan. Health Care Reform guidelines for adult children now make 12 of those eligible. The other 88 remain ineligible and underscore the importance of continuing to verify dependent eligibility in a post-Health Care Reform nation. 

While the wider eligibility guidelines of PPACA do result in more dependents on a plan, the instance of and the exposure risk associated with ineligible dependents has not decreased. Rather, early results show that Health Care Reform directly correlates with higher percentages of ineligible dependents and, thus, an increased fiscal responsibility for CEOs and CFOs to recognize and eliminate fraud.

Case Study Results from Recent Dependent Eligibility Verification Audits:

	Client A	Client B	Client C	Client D
Industry	Transportation / Manufacturing	National Retail Chain	Automotive Manufacturing	Hospital Management System - 15 hospitals
# Dependents	350	11,000+	3,500	17,000+
Grandfathered or Non-Grandfathered	Non-grandfathered	Grandfathered:  Adult Children eligible for own employers’ plan were ineligible	Non-grandfathered	TBD; 2 Hospitals under “RomneyCare”
First Plan Renewal	9/1/2011, but implemented on 9/1/2010; Age 26 compliant for 4 months at verification start	2/1/2011; started verifying for HCR in mid-January	2/2011; started verifying for HCR in mid-February	7/1/2011
Results	14.5% of dependents were ineligible, far higher than leadership expected	·  20% increase in Open Enrollment numbers ·  Original project in 2009-2010 found 16.56% of 11,175 dependents were ineligible ·  First 4 months of PPACA showed that 30.57% of the 1,796 newly enrolled were ineligible	·  Original DEVA found 10.55% of enrolled were ineligible ·  Post-HCR DEVA found 27.91% of new enrollees were ineligible	·  Initial project:  10.1% ineligibles ·  2 Hospitals excluded from initial verification because they were under RomneyCare. These did a DEVA after seeing other 13 hospitals’ results ·  Results were comparable: RomneyCare project:  6.34% ineligibles in one and 9.64% in the other
Financial Exposure Reduction	Over $184,960	·  Original project:  $4,995,000 ·  First 4 months of PPACA: $1,482,300	·  Original project:  $1,114,345 ·  First 4 months of PPACA: $1,500,442	Total savings:  $4,165,246

A White Paper detailing final results will be available after all members of the study have been subject to PPACA regulations for six months or more. For more information about Health Care Reform or Dependent Eligibility Verification Audits, reach out to Vistage member Eric Helman, CEO of ContinuousHealth, at ehelman@continuoushealth.com, or visit www.continuoushealth.com. ContinuousHealth is an independent organization located in Atlanta Georgia that uses proprietary technology to help employers optimize their investments in employee benefits programs.  ContinuousHealth has performed over 250 Dependent Eligibility Verification projects. ContinuousHealth distributes its products through an exclusive network of certified Brokers and Consultants.