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.

Dealing with the Effects of PPACA

We think it’s pretty important to stay on the forefront of the research, and we like it even more when the research parallels what we’re finding in our day to day work with your clients. Last week, the International Foundation of Employee Benefit Plans (IFEBP) released results from the third survey in a series dealing with the effects of PPACA on single employer plans. The responding 968 employers were asked questions about the actions they’ve already taken and anticipate taking in the next two years as a result of PPACA. We reviewed the results and would like to share some of our insights.

Eliminating Coverage

A key finding was that only 1% of respondents stated they will definitely not provide coverage to all full-time employees in 2014, with 95.3% at least somewhat likely to continue to offer coverage. This is a dramatic shift from the 30-50% of employers likely to drop coverage reported in the June 2011 McKinsey Quarterly and more consistent with what we’ve seen from the over 600 employers on our CHROME Compass platform.

Doing the footwork

Curiously, employers have shifted their view on offering benefits coverage but many have not conducted an analysis on the impact of health care reform on their organization. The findings in the survey are somewhat conflicting with a reported 47.2% of respondents stating they “have conducted an analysis on how health care reform legislation will impact their health care plan costs,” but only 24.9% of respondents stating they “have modeled the impact of reform on our organization.”

Regardless, even in a best case scenario, slightly more than half of all employers have done nothing to anticipate the impact of health care reform. 

Nearly 70% of respondents expect increased benefits costs in 2012 due to health care reform, and even more interestingly, “those reporting their organizations had analyzed costs are slightly less likely to predict a cost increase”. In other words, slightly more than two thirds of employers surveyed are expecting a cost increase, but those expecting an increase are more likely to have not conducted a cost analysis. Perhaps this is because, in our experience, if employers do the math at a very granular level, they gain insights about health care reform that might actually allow them to lower their health benefits costs. Employers who have not done the analysis are influenced by the political debate instead of the facts as they apply to their particular situation.

Anticipating the Costs

Also consistent with what we have seen, respondents are already making changes to deal with increased costs, either thru increased contributions or plan design changes, and if they haven’t, they are planning to do so in the next two years.

The most popular strategy currently in use is increasing participant premium contributions (23.1% of employers). In the next two years, the most popular strategy employers plan on using is increasing contributions for dependent coverages (20.1%).

Despite the popularity, or perhaps because of it, we do issue a caveat on that strategy alone: PPACA has provided employers with new benchmarks as to what is considered “affordable” contributions. With somewhere between only 24% and 47% of employers having conducted an analysis, some of these employers may be making shifts blind to the impact it will have on their plans in 2014. While their decision to increase contributions may be the correct strategy, if they have not conducted the analysis, they might not fully appreciate the implications in light of the affordability benchmarks of PPACA.

Extending coverage to adult children (up to age 26) was identified as the top cost driver by 38.7% of respondents, more than any other one driver. Three major carriers recently stated that, regardless of the Supreme Court’s decision, they will continue to allow coverage for adult children, putting pressure on employers to continue to offer this popular and costly benefit to their employees.

Employers are also taking other measures to contain costs such as plan audits or analyses, with the most popular tactic being dependent-eligibility audits. Of the employers surveyed, 18.7% had already conducted a dependent audit and 14.7% are planning on conducting one in the next two years. These findings are consistent with the growth in dependent audits we have seen at ContinuousHealth:  100% growth year over year in initial audits, and nearly 200% growth in ongoing audits since PPACA. As we mentioned a few weeks ago, contrary to the pervasive belief that PPACA has decreased the need for dependent audits, we’ve seen average rate of ineligibles grow from 6.5% to 7.99%. Survey results seem to indicate that employers see this continued need as well.

Proactive, not Reactive

Based upon the current law, the major changes established in health care reform will take place in 2014, but employers have to make changes to their benefit plans now as a response to continuing price increases in excess of inflation. For most employers, there are still two open enrollments left before the bulk of the changes become effective. This survey highlights the fact that the majority of employers are making tactical decisions about their benefit plans without informed analysis regarding the single greatest external event to affect employee benefits in our lifetimes.

As Mark Bertolini (CEO of Aetna) said recently in a Wall Street Journal interview, PPACA has provided a catalyst to change the conversation around employee benefits. While not all employers will specifically change their strategies based upon healthcare reform, feedback from our clients leads us to believe enough employers will make adjustments. These adjustments are likely to influence the overall marketplace.  We believe the employers who “sit this one out” will be at a disadvantage as they attempt to align their investment in employee benefits with their recruitment and retention programs.

This article was first featured in the June 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.

Surprising Popularity of an Unlikely Benefit

We have to be honest with you. It’s time to come clean.

Despite all the research on the employee satisfaction with pet discount programs… Despite all the positive feedback we received about it…we were still hesitant to offer the CH Complete Card with PetAssure.

We were attracted to the other options instead: to the telemedicine and its logical reward for employers; the travel assist and its appealing offerings; and the fitness club discounts in this age of wellness programs. But pet health care? This seemed frivolous.

Today, let us tell you about how we were wrong, and our experience with this unlikely benefit’s surprising popularity.

Honesty.

It’s been nearly a year since we first rolled out our CH Complete Card with its telemedicine, health club markdowns, and either travel assistance or pet care discounts. The motivations to offer the other non-insurance benefits on the Card were obvious—telemedicine, for example, is proven to decrease both physician visits and non-emergency ER visits by up to 65%. But why pet care discounts? Do employers and employees really recognize pet care as a compensation perk?

Honestly, we weren’t certain of that answer when we were first assembling this product. Despite all the research on employee satisfaction with pet discount programs and despite all the positive feedback we received about it, we were hesitant to offer the CH Complete Card with PetAssure. In fact, we built the Card with an interchangeable option, so that clients can utilize either PetAssure or travel assistance in conjunction with telemedicine and fitness club discounts.

To reference what we’re reading, though, sometimes, in order to see true value, you have to move away from traditional quantitative marketing tools and toward anthropological observation of real employee behavior.

What convinced us

While pet health care discounts may not always appeal to us (or to some C-suite), our consultants have seen it become an instant hit with employees. Sometimes what executives want is not exactly what employees want. These initial client HR teams understood what we failed to immediately recognize: pet health care discounts generate high employee satisfaction at a very low cost.

Plus, any of our lingering doubts were easily put to rest by the quantitative data, which is substantial enough to break down even the strongest C-level argument against it. One of our consultant partners, as you may remember from an earlier newsletter, used the CH Complete Card to drive his client’s conversion to a high deductible plan—using the Card, the enrollment for the HDHP had tripled its enrollment for the previous year and reduced overall health care costs by one percent (even after adding the new employer-paid Card).

A few months after we began offering the CH Complete Card with PetAssure, the Wall Street Journal ran an article titled, “The Dog Maxed Out My Credit Card.” The article highlighted the rise of pet health care costs (rising 47% over ten years for dogs and 73% over ten years for cats… nearly the same rate as human health care costs), as well as some of the new options that individuals have to get pet insurance or discount programs in order to cover those rising costs. Noted in the article was PetAssure, the very program that we had previously debated including in our Card!

Then, a few weeks ago, Employee Benefit Adviser ran a feature of pet discount programs and how they are being utilized by brokers as an additional voluntary offering. Again, it was PetAssure. We don’t offer PetAssure as a standalone option, and, by now, the product had proven itself to us, but it was gratifying to see it highlighted here again: one consultant in the article went so far as to say, “From the producer's standpoint, once you’re in the door, you can talk about anything. [PetAssure] may be the best door opener that we've ever had."

That WSJ article notes, “When asked how much they’d spend to save their pet’s life, 70% of owners said, ‘any amount,’ according to a 2006 survey of VPI policyholders.” What both EBA and the Journal outlined was the conclusion we had already reached: employees want this offering, and they will view this with high satisfaction as a form of compensation on par with other quality voluntary benefits.

Serving you

Since we offer innovative solutions for group benefits, we built the CH Complete Card after looking at it from every angle. The payoff for employers is big, since the Card is an inexpensive new benefit that drives cost savings, but the incentive for employees is big, too. It’s big enough to offset some of the reductions in employers’ major medical programs. It’s big enough to effectively drive engagement of consumer plans, as many of you, our consultant partners, are doing. It’s big enough to get your foot in the door when you’re prospecting for a new client. Big. The reward for our consultants is even more obvious—employee satisfaction equals client satisfaction, and the Card’s low-cost features ease the implementation of other benefit plan strategies.

According to the American Pet Products Association’s 2009-10 National Pet Owners Survey, 62 percent of U.S. households own a pet, which equates to 71.4 million homes. The survey indicated that $12.79 billion is spent annually on veterinary care alone.

So when we tell you we offer a product that bundles telemedicine, fitness club discounts, and pet health care discounts… will you please not laugh? We understand: we laughed once, too. But a Card that offers reductions in claims cost along with features that guarantee high satisfaction levels for employees with minimal cost to the employer—well, that is no laughing matter.

And if you are still laughing, at least check out the travel assistance option instead.

This article was first featured in the June 12th 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.

Health Care Reform: Let's Not Wait and See

A March Wall Street Journal Article, “Health-Care Law’s Many Unknown Side Effects,” quotes Paul Keckley, the head of the Deloitte Center for Health Solutions, as saying, “If my competitor drops benefits, I’d want to be out the door just behind them.”

Would your clients agree? Where do they stand with changes that health care reform will bring? Are they planning to make changes once you let them know what other companies are doing, post factum? Are they approaching health reform by watching their competitors? Monkey see, monkey do?

We’ve been stewing ever since we read that March article, which closed with a completely unhelpful warning:

“Beware the facile, confident prediction about what the health-care law will yield. Nobody really knows.”

That line goes against everything we believe about competitive strategy. The health care law has significantly altered the structures and incentives which influence employer benefit plans. The primary tools of reform – where people get their coverage and how much money the federal government subsidizes – are going to be with us for the long haul. As one of your clients recently commented, “I cannot be 100% certain where the cost of cotton is going to be in twelve months either, but it doesn’t keep me from critically looking at different cost models and determining how our strategy should change.” 

The macro trends which have affected employer plans over the past 10 years (excessive inflation, changing tax policy, and changing importance of alternative markets) were with us before health care reform and will be with us regardless of the outcome of the election. Doug Elmendorf of the Congressional Budget Office stated, as he testified before Congress in March 2011, “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.”

Our argument is that leading employers will not be the last to know. If they are, they will no longer be leading employers. We believe that health care reform provides the single greatest opportunity in our lifetime for businesses to rethink how they allocate compensation toward benefits. Leading brokers and consultants are talking to their clients (and prospects) about how they can turn benefits into a competitive advantage, instead of a competitive threat. Cost containment and risk management strategies are still important, but understanding the underlying strategic levers that have been highlighted in the latest reforms provides “real” differentiation. 

So do what we’re doing: counter the “facile, confident predictions” with the arduous but profound work of scenario-based modeling. Get strategic plans in place for each of your clients, because our argument is true for you, too: leading consultants will not be the last to respond to health care reform, and if they are, they will no longer be leading consultants.

Eric Helman

This article was first featured in the June 5th 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

Dependent Audit Case Studies, after PPACA

Client A is a small company in transportation and manufacturing.  Anticipating the changes required after 9/23, Client A modified its policy into a non-grandfathered plan with extended child eligibility to 26 at their 9/1/2010 plan renewal, in advance of the PPACA requirement.  At the time of verification, the company had been following the Age 26 rule for four months.  As a small company that had already implemented the health care reform changes, leadership expected to see low ineligible dependent numbers.  Instead, the Dependent Eligibility Verification found that 14.5% of dependents on the plan were ineligible.

Client B is a large retail chain with mostly white collar employees in a low-income tax bracket.  Its plan renewal was 2/1/11, and under its Ongoing Verification procedures, the company began verifying for the new health care reform categories in mid-January.  Client B implemented a grandfathered policy with an Adult Child Exclusion policy:  if an adult child was eligible for coverage under his or her own employer’s policy, that dependent was not eligible for the policy of Client B.  Open Enrollment numbers showed a 20% increase of enrollees to the policy, which fit with its expectations for the 2011 year. 

The big surprise, though, was the upswing of ineligibles:  during the original verification, between October 2009 and January 2010, the ContinuousHealth Dependent Eligibility Verification Audit found that 1,851, or 16.56%, of Client B’s 11,175 dependents enrolled were ineligible; during the first four months following the implementation of PPACA regulations, the ContinuousHealth ongoing dependent eligibility verification audit found 549, or 30.57%, of the 1,796 newly enrolled dependents to be ineligible for the new policy. This number was nearly double the findings of the original project, when the eligibility criteria were more stringent. Throughout the whole 2011 year, ineligible numbers came down, but were still considerably higher than the findings of the initial project, as between January and December 2011, ContinuousHealth identified that 26.84% of dependents did not meet the requirements to verify their eligibility for the plan. With the change in plan requirements under PPACA, Client B regularly found an increased rate of ineligibility by between ten and fourteen percent.

Client C is a major automotive manufacturing company with a non-grandfathered plan and a February plan renewal.  The company began verifying for new categories in mid-February.  Prior to health care reform provisions, the Dependent Eligibility Verification Audit identified 10.55% of enrolled dependents as ineligible. 

After enacting the Age 26 requirement and removing a residential requirement for stepchildren, the Ongoing Dependent Eligibility Verification found that 27.91% of new enrollees were ineligible during the first four months of PPACA.  For the 2011 year, Continuoushealth identified 24.1% of dependents on the plan were ineligible for coverage, a slight drop from the first few months.  Overall, Client C has found an increase of more than double the rate of ineligibles since PPACA.

Client D is a large hospital management system with 15 localized hospitals.  The management system did a Dependent Eligibility Verification Audit in 2010, prior to implementing health care reform at their July 1, 2011 plan renewal, with 13 of its 15 hospitals. The two hospitals who did not participate initially were both located in Massachusetts and were excluded because they were covered under “RomneyCare,” a set of provisions that representatives of President Obama have cited as a model for PPACA[1] and which have been called an “ObamaCare preview.”[2]

After the leadership team reviewed the results from the initial verification, the two hospitals in Massachusetts decided to undergo a ContinuousHealth Dependent Eligibility Verification Audit as well. The results were comparable with their non-Massachusetts counterparts:  the original verification found 10.1% ineligibles for hospitals that were not yet subject to PPACA; one Massachusetts hospital discovered that 6.34% of dependents were ineligible and the other found 9.64% of dependents were ineligible under the current plan guidelines.[3]

After the first plan renewal for the entire system under PPACA (7/1/2011), leadership requested that all hospitals undergo another dependent eligibility review.  The hospitals all had similar plan eligibility, all non-grandfathered with no spousal exclusions or surcharges. During that post-PPACA review in fall of 2011, ContinuousHealth identified 21.01% of the active dependents on the plan were unable to satisfy eligibility requirements. Specifically, the two hospitals in Massachusetts each found 10.29% and 16.19% ineligible during the second review. All hospitals saw an increase in ineligible dependents. The post-PPACA verification savings for Client D totaled more than $5 million in claims cost reduction. 

Client E is a national restaurant chain with hourly and salaried employees throughout the US. At the time of review, Client E had been following PPACA guidelines for 12 months. The Human Resources team systematically requested documentation for any new enrollees, but the client had not done full documentation verification. ContinuousHealth identified 6.08% of the plan participants were ineligible for coverage under the non-grandfathered plan guidelines. Ineligible dependents were primarily over the age of 18 years old and may have been added on the plan as “spouses” or “adult children,” though they were, in fact, unable to verify their eligibility as such.

 

	Client A	Client B	Client C	Client D	Client E
Industry	Transportation / Manufacturing	National Retail Chain	Automotive Manufacturing	Hospital Management System - 15 hospitals	National Restaurant Chain
# Dependents	350	11,000+	3,500	17,000+	1,300
Grandfathered or Non-Grandfathered	Non-grandfathered	Grandfathered:  Adult Children eligible for own employers’ plans were ineligible	Non-grandfathered	Non-Grandfathered; 2 Hospitals under “RomneyCare”	Non-Grandfathered
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	1/1/2011
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 ·  2011 showed that 26.84% of the 2,724 newly enrolled were ineligible	·  Original DEVA found 10.55% of enrolled were ineligible ·  Post-HCR DEVA found 27.91% of new enrollees were ineligible ·  2011 showed 24.1% of the 1,229 newly enrolled were ineligible	·  Initial project:  10.1% ineligibles ·  2 “Romneycare” hospitals excluded from initial verification 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 ·  Post-PPACA found 21.01% ineligible overall	·  Identified 6.08% of active dependents were ineligible
Financial Exposure Reduction	Over $184,960	·  Original project:  $4,995,000 ·  First 4 months of PPACA: $1,482,300 ·  2011 verification: $1,462,000 (with a decrease in claims cost)	·  Original project:  $1,114,345 ·  First 4 months of PPACA: $1,500,442 ·  2011: $929,144	Total savings:  $4,165,246	Total savings:  $262,833

---

[1] Carol E. Lee, “White House Again Jabs Romney on Health Law,” Washington Wire, Wall Street Journal, http://blogs.wsj.com/washwire/2011/05/13/white-house-again-jabs-romney-on-health-law, (May 17, 2011).

[2] “National Health Preview:  RomneyCare’s bad outcomes keep coming,” Wall Street Journal, http://online.wsj.com/article/SB10001424052748703864204576313370527615288.html?KEYWORDS=national+health+preview+romneycare, (May 10, 2011).

[3] The hospitals from the original verification were also not doing document checks, while the two Massachusetts hospitals believed their employee document records were up to date, checking student status as well as IRS dependency, per their SPD.