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

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[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.

Fact or Fiction? Health Care Reform Eliminates the Need for Dependent Eligibility Verification

Last week, I was on the phone with one of our broker partners from the Midwest and he made a comment along the lines of “with health care reform, a lot of the appeal of dependent eligibility verification projects was taken away.” Well, at the risk of being argumentative, I shared with him the results of our post health care reform study* that showed, rather convincingly, that dependent verification projects are more valuable than ever.

Since that study was produced, our total number of audits conducted has grown to over 1,100. We have completed twice as many audits this year as last and the number of clients signing up for our Ongoing Dependent Eligibility Verification Services has risen above 70%. Moreover, we are now executing projects where the client has already conducted an internal audit (or used another firm) and are seeing significant savings. Dependent eligibility audits remain one of the only ways to take 3-5% out of health care expenses without any changes to the plan or contribution strategy. Brokers across the country are using this “weapon” as a way to win new business.

I think you owe it to yourself to do a top to bottom evaluation of your current book to be sure you have gotten them to seriously consider doing a project. And, if you are prospecting during this summer season, incorporate dependent eligibility verification into each sales presentation. Read on to review a reprise of our article on how the rate of ineligible dependents has increased from 6.5% to 7.99% with the passage of healthcare reform. 

*Report originally published on the Employee Benefit Advisor blog and November’s print issue of Employee Benefit Advisor magazine.

Rate of Ineligible Dependents Increases to 7.99% with health care reform

One of the first changes brought on by health care reform was the mandatory extension of health plan eligibility to adult children up to age 26 without regard to student status or other dependency upon the employee. Many experts predicted that the rate of ineligible dependents would decrease after this provision took effect and lower the effectiveness of Dependent Verification Projects.

Based upon a study my firm did in the fall comparing similar populations before and after the implementation of this provision, we can now conclusively state that the experts were wrong. The rate of ineligible dependents in the health plans analyzed in this study post health care reform has actually increased by approximately 1.5 percentage points.

Expectations prior to health care reform

When health care reform passed, many experts analyzed the data coming from dependent eligibility verification projects in order to predict the effect of health care reform on the efficacy of these projects. Using our data as an example, prior to health care reform in a sample set of over 113,000 dependents verified, 48% of the ineligible dependents were under age 20, 23% of the ineligible dependents were between the ages of 20 and 26 (the typical ages of full-time students), and 29% of the ineligible dependents were over age 26. Further investigation showed that half (11.5%) of ineligible dependents in the 20-26 age range were ineligible because they failed the “relationship” test. These wouldn’t be eligible for coverage regardless of their age.

It seemed reasonable to assume that with the dependent age limit increased to 26, about half of those who had been previously identified as ineligible dependents would now pass eligibility verification. The other half would still fail the relationship test and remain ineligible. Our own data led me to agree with the experts’ expectation of health care reform—that the average rate of ineligible dependents post health care reform would drop from 6.5% to 5.75% (a reduction of 11.5%).

That reduction, while significant, would have only partially mitigated the strong business case for an employer to conduct a dependent eligibility audit. There would be some employers, though, who anticipated falling at the lower end of the 5-12% average range of ineligible dependents. This 11.5% reduction may have been enough to discourage them from the project.

The real effects of health care reform

The fact is, our research since the passage of PPACA has proven that the opposite is true.  Using a statistically significant sample of recent audits conducted by ContinuousHealth, we’ve found that the average percentage of ineligible dependents has actually increased to 7.99% after implementation of the Affordable Care Act. 

A 19% increase!

Additionally, we’ve seen a shift in the ages of ineligible dependents. Our sample set had 10% fewer ineligibles under the age of 20 and about the same number of ineligibles between the age of 20 and 26. Ineligible dependents over the age of 26 grew by 11%.

What conclusions can we draw from increased ineligible numbers?

Certainly there were other factors in place during the time period studied.

Part of this shift could be a result of the continued softness in the employment environment. This affects the percentage of dual-earner households and contributes to the rate at which employees might attempt to have non-spouses or other adults added to their plan who lack access to coverage due to unemployment.

The publicity surrounding eligibility changes has been less than precise, even two years later. There is more potential that employees will attempt to enroll dependents that do not meet eligibility criteria. A person the employee calls “family” needs coverage (perhaps due to the softness of the market), and the employee therefore thinks he can cover them on “family” coverage.

With all of that, verification methods have been eradicated for most companies. For 70% or more of employers prior to health care reform, the only dependent verification procedure was full-time student status checks conducted annually or biannually by the health care plan administrator. PPACA’s changes eliminated the only stopgap against ineligible dependents.

A necessary response

Regardless of the root causes for this increase in ineligible dependent rate, I think the call to action is clear.

For years, we’ve seen that unless employers are making arrangements to verify dependent eligibility with a thorough process that includes both eligibility education and document verification, there are going to be ineligible dependents on every group plan, gratuitously driving up the cost of health care.

In fact, I’d say that the need is greater than ever to make sure ineligible dependents aren’t covered. The changes brought on by health care reform allow even more dependents to be eligible, so covering an ineligible dependent has a more significant exposure risk than ever.  With the prohibition on rescissions in PPACA, the financial exposure lands on the employer for ineligible dependents, since employers must prove employee fraud before exposure for high claims could be passed on.

I want your clients to be protected from the financial and compliance exposure of ineligible dependents, especially since that rate increased by 1.5% since implementing the provision. On top of all that, I’ll remind you again that dependent verification is a cost saving solution that regularly reduce plan expenses by 3-5% with no change in carriers or plan design. Our return on investment guarantee makes it a no-lose situation.  I think you owe it to yourself to do a top to bottom evaluation of your current book to be sure you have gotten them to seriously consider doing a project. And, if you are prospecting during this summer season, incorporate dependent eligibility verification into each sales presentation.

As you face a mid-market renewal season, propose a Dependent Verification Project with ContinuousHealth. It’ll be worth it.

If you’d like a copy of the original article or the case studies detailing report specifics, email directions@continuoushealth.com.

This article was first featured in the May 29th 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

Who can say if PPACA changed benefits for the better?

Employer-sponsored health insurance market has been eroding subtly and gradually over the past decade. Most employers have noticed the downward spiral in their plans, but they’ve been unable to effectively identify or counteract the issues. Changes to the health insurance market have been (and will continue to be) inevitable, regardless of the decision on health care reform. But many of your clients are now modeling one to three year strategies for their plans, using predictive modeling tools like our CHROME Compass.  These tools that were created as a response to health care reform, but they are also revolutionizing the way that employers see compensation.

Health care reform has changed the way everyone thinks about benefits programs… regardless of the decision.  Hear us out, and let us know if you agree.

While many in the employee benefits business are taking a “wait and see” attitude toward the Supreme Court deliberations and inevitable announcement in late June, others are taking a fresh look at their benefits program in light of the new opportunities and incentives created by health care reform. Is this a waste of time or are they gaining valuable insights leading to strategies that may increase their competitive advantages in their total employee rewards program? Won’t the game change entirely if health care reform is overturned?

Employer-sponsored health insurance was eroding long before health care reform

The rising cost of health insurance over the last ten years has significantly changed where people receive their coverage, how much they pay for it, and how much protection the benefit provides. Let’s start with a brief look at where people are receiving their coverage and how this has changed over the past decade. 

From 1999 to 2010, according to information from the U.S. Census, the number of people in the U.S. grew 10.6%. Surprisingly, the number of individuals who accessed health insurance at their employer dropped by 4.7%. Now, before you jump to a conclusion about changing demographics and the aging population, consider that when we look at the same data for the non-elderly (<65) population, we see an overall growth rate of 10.8% but a reduction in employer-sponsored health insurance of 5.7%. While the overall growth rate is within .2%, the reduction in the number of non-elderly individuals who accessed health insurance at their employer is greater by 1%.

Older people are staying on their employer plans longer. This is surprising, especially in light of the significant migration in benefits away from retiree health programs during this same time period.  Unfortunately, the corollary is that younger employees must be leaving their employers’ plans at a disproportionately high rate, accelerating the impact of rising health care costs on employer plans.

The second conclusion you might want to explore is whether the most recent recession and the reduction in employment is a major contributor to this erosion. Here again, the data says otherwise. Using the same period from 1999 to 2010, the Bureau of Labor Statistics reports the number of employed Americans actually grew from 133.5 million to 138.9 million (4.1%). While this obviously did not keep pace with population growth, it was still positive growth and does not explain the sharp reduction in employer-sponsored coverage over this time period.   

So, if people are leaving employer-based coverage, where are they going?

The answer, in terms of percentage growth from highest to lowest, is Medicaid (+78%), military (+51%), uninsured (+32%) and Medicare (+20%).

And remember, this is without health care reform. 

The erosion of the employer sponsored health insurance market has been both subtle and gradual. For this reason, most employers have been unable to effectively identify or counteract this downward spiral in their plans. Changes to the health insurance market have been (and will continue to be) inevitable as long as the growth in cost outpaces overall growth rates.

Enter health care reform.

In the words of Doug Elmendorf from the Congressional Budget Office, “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.” Employers who were drawn to model the impact of the dramatic reform changes are not only better prepared for health care reform, but they have also gained insights into the erosion they have been experiencing over the past ten years. 

Health care reform changes the mandated eligibility requirements in three of the five health insurance markets (Medicare, employer and individual) while at the same time significantly changing the tax structure in all three of these markets. Among other things, health care reform attempts to reduce the number of uninsured people in this country by offering new opportunities and incentives which affect three existing markets. Health care reform mandates expanded eligibility for both Medicaid and the employer markets. The individual market, too, is significantly reformed with the elimination of medical underwriting and, for the first time ever, significant tax subsidies for individual premiums are equal to or greater than those available in the employer market. 

By analyzing the potential impacts of these accelerated market shifts brought on by health care reform, employers are gaining valuable insights into what has been happening to their plans for the past 10 years. Whether health care reform is overturned or not, these employers are leveraging these insights to plot new strategies that are more proactive and intentional – transforming them from victims of health care inflation to strategic players in the allocation of employee compensation.

The light switch

Over 600 employers are now using our proprietary CHROME Compass planning platform to conduct the detailed analysis required to truly understand the intricate interdependencies of alternative insurance markets and tax policy changed by health care reform. In light of the upcoming Supreme Court decision, we asked many of these customers what insights they are gaining from the detailed modeling around health care reform and what value they see in it if heath care reform is overturned by the high court.

The most common responses we received across our diverse group of clients were:

We had never really looked at where all the dollars were going, especially in the area of favorable tax treatment.

We had been feeling the erosion of our benefit plan over the years, but, with this, it was like someone flicked on the light switch and we saw where we are in an entirely new light.

We now know how to ask ourselves, “Is this where we want to be? If not, how do we begin to work ourselves into a new place?”

These employers were only moved to review their benefits program because of the legislation. Once these tools made them aware of the possibilities in overall compensation strategy, though, their benefits programs will never be the same. The light switch is on.

This article was first featured in the May 22nd 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.)

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