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Human Resources and Surviving Health Reform

As the first snowflakes of change fall on the eve of health reform, HR professionals may soon wake up to an entirely transformed healthcare delivery landscape.  The Patient Protection and Affordable Care Act (PPACA) clearly will impact every stakeholder that currently delivers or supplies healthcare in the United States.

While the structural, financial, behavioral and market-based consequences of this sweeping storm of legislation will occur unevenly and are not fully predictable, this first round of healthcare legislation is designed to aggressively regulate and rein in insurance market practices that have been depicted as a major factor in our “crisis of affordability” and to expand coverage to an estimated 30 million uninsured.  However, fewer than 30 percent of employers polled in a recent National Business Group on Health survey believe reform will reduce administrative or claims costs.

Yet, it is unlikely that reform will be repealed.  For all its imperfections, PPACA is the first in a series of storm systems that will move across the vast steppe of healthcare  over the next decade resulting in a radically different system.  Whether reform concludes with a single payer system or emerges as a more efficient public-private partnership characterized by clinical quality and accountability remains obscured by the low clouds and shifting winds of political will.  One thing is certain during these first phases – inaction and lack of planning will cost employers dearly.

As the U.S. government struggles to rein in an estimated $38 trillion in unfunded Medicare obligations, the private sector and commercial insurance will feel the weight of the government’s efforts to reduce costs and impact our $12T of public debt.  HR professionals will have to act thoughtfully to insulate their plans from the inflationary effects of regulatory mandates and cost-shifting.

So while many HR professionals are getting hit from all angles – finding it difficult to  continue to transfer rising costs to employees, unwilling to absorb double-digit trends, under-staffed to intervene in the health of their populations and uninspired to assume the role of market catalyst to eliminate the perverse incentives that reward treatment of chronic illness rather than its prevention – they must forge ahead to address the intended and unintended impacts on the estimated 180 million Americans covered under their employer-sponsored healthcare plans.

To prevail over the elements, one must have a map and a flexible plan.  It also helps to have a qualified guide.  Consider the following as you brace for the “new normal.”

  • Think Twice When Someone Suggests Dumping Health Coverage– Many smaller and razor-thin margin employers will be tempted to drop medical coverage and pay the $2,000 per full-time employee penalty – essentially releasing employees to buy guarantee-issue coverage through health exchanges, which will be available in 2014.  Aside from impacting employers’ ability to attract and retain employees (consider how many of your employees will fall into the class of individuals eligible for federal subsidies), the assumption that the $2,000 will remain the baseline assessment per employee for those choosing to not offer coverage is a dangerous variable.  While it is clear that PPACA as it is currently constructed creates obvious incentives for employers to drop coverage and allow those eligible for federal subsidies to purchase through exchanges, it is unclear how the government can continue to subsidize proportionate contributions on behalf of those buying through exchanges when costs start to inevitably rise.  The General Accounting Office ( GAO) has already forecasted an increase of almost $500B in cost due to rising costs of subsidies as medical costs trend upwards. The forecasted CBO savings of $140B versus the GAO’s estimates of a $500B increase in costs have yet to be reconciled. Whether the $2,000 penalty was intentionally set low to entice employers to drop sponsored coverage and move America one step closer to a national system, or whether someone from the CBO missed a decimal, we expect the employer penalty for dropping coverage to increase as costs rise.  Employers should be certain to model their own costs to subsidize minimum levels of coverage today against an uncertain future of variable taxes that will only increase to fund coverage subsidies.
  • Pay attention to Section 105(h) now. – Many employers may be unaware that self-funded plans that discriminate in favor of highly compensated employees must comply with Code Section 105(h) non-discrimination rules.  As of the first plan year following September 23, 2010, these rules now will apply to non-grandfathered, fully insured plans.  Insurers may choose to exercise their right to either load rates for potential adverse selection or decline to quote because employers have failed to meet minimum participation percentages.  Section 105(h) testing is critical for industries, such retail, hospitality and energy that historically have excluded various classes of rank-and-file employees or provided better contributions and/or benefits to their top-paid groups. Penalties for not complying with the new regulations are $100 per day per employee.
  • Understand the sources of cost shifting pressure – As Congress and state governments wrestle with Medicare and Medicaid reimbursements and begin to focus on fraud, over-treatment and accountability for clinical outcomes, providers will feel the increasing pinch of reimbursement reform and will pivot in the direction of trying to shift costs to commercial insurance.  Physician hospital organizations (PHOs) and other integrated healthcare delivery systems – wherehealth systems operate primary care, specialty and inpatient care – are accelerating – giving more clout to providers in contract negotiations and increasing commercial insurance unit costs, potentially exacerbating already conservative insurer claim trend assumptions.  HR professionals will need to better track employee utilization patterns for in-patient facilities especially in  high-use urban and rural commercial hospitals that also derive a large percentage of their revenues from Medicare. If a hospital derives 60% of its revenues from government reimbursement and 40% from commercial insurance, proposed fee cuts will impact facility revenues and create pressure to cost shift to private insurance.  An understanding of hospital utilization and consideration of tiered networks can help insulate your plans and drive lower costs.
  • Don’t be intimidated by self-insurance – Many employers underestimate the advantages of self-insurance and overestimate its complexity and risk.  But, in a post reform world, firms with more than 200 employees should give serious consideration to partial or total self-funding.  Aside from the total transparency of commissions, fees, administrative expenses and pooling charges, employers own their own data. The sooner employers get comfortable with self-insurance as a risk financing strategy, the sooner HR professionals can construct loss control programs that can mitigate claims costs. By self-funding, employers may better manage their population’s health risk; may avoid a myriad of state-based mandates legislated to fund potential shortfalls should local exchanges prove inadequate to contain costs; and may increase flexibility with respect to plan design. Be certain to understand the economics of your self insured arrangement.  A cheap third party administrator with weaker provider discounts and limited medical management capabilities ultimately costs you much more than services provided by a national insurer with better discounts.  In other cases, insurers may have more than one PPO network and assign the less aggressive discounts to their self funded TPA based clients.  Make sure you press for the best possible discounts.
  • Forget Wellness – Think Risk Management. – Wellness has become a broad-brush term to describe any sponsored effort at health improvement. Forget wellness. Population risk management (PRM) is the operative term to describe a process of understanding embedded health risks and structuring plan designs to remove barriers to care and keep people healthy. PRM requires access to clinical data, cultural engagement and designs that have consequences for employees who do not engage. If employers do not understand the risk within their workforces, it is impossible to improve results or be confident that plan changes will drive a desired result.  For example, more than 50 percent of claims arise out of modifiable risk factors and as few as five percent of employees drive 50 percent of claims.  The great news is PPACA actually increases employers’ ability to charge up to 30 percent more in premium for individuals who do not actively get and stay healthy.  Also, employers that establish comprehensive workplace wellness programs and (1) employ less than 100 employees who work 25 hours or more per week and (2) do not provide a workplace wellness program as of March 23, 2010 can take advantage of available government grants.
  • You are the “market forces” everyone keeps talking about and you need to use this power to influence on-going reform. – Employers purchase healthcare for more than 180 million Americans – about 60% percent of all individuals who have healthcare coverage, but ironically feel less empowered, informed or in control of their spending or their employees’ behavior as they access the system.  HR professionals must become activists for public health improvement and change – promoting healthy behaviors, transparency and accountability while putting an end to public-to-private cost shifting, overtreatment, fraud, abuse and clinical variability. Congress will only listen to employers because the other stakeholders have a perceived conflict of interest in how health reform is ultimately resolved.  Employers must build up the courage and resolve to begin to reshape the local, regional and national delivery models that result in overtreatment and lack of accountability for poor outcomes.

As we look out the window, the full force of reform is still swirling somewhere off in the distance.  As we hunker down and adopt this new legislation, the question for many in HR will be – will reform happen for you or happen to you?

Mike Turpin is frequent speaker, writer and practicing benefits consultant across a 27 year career that spanned assignments in the US and in Europe.  He served as the northeast regional CEO for United Healthcare and Oxford Health from 2005-2008 and is currently Executive Vice President for Benefits for the New York based broker, USI insurance Services.

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Gary LampmanExhaustedMDBarry CarolPaolomichael Turpin Recent comment authors
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Gary Lampman
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Gary Lampman

Employer Based Health Care that is the sole responsibility of the employer. Would not be a benefit to the employee as much as a precursor to shed expenses,for the employer. I agree with Margalit; are lives are being manage as if we are livestock. However I will go one step further and say that is exactly true. Employers don’t want the responsibility of deciding the details of Health Insurance and secondly it becomes a buffer of non accountability for employers. I don’t care what they use as a excuse for employer based Health Care. It is not to recruit and… Read more »

ExhaustedMD
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ExhaustedMD

Hmmm, so there are commenters here who do not trust government to provide health care benefits, and there are others who do not trust employers to do same. I agree with both: I don’t trust anyone else but me to manage my health care benefits, including the insurer itself, so that is why I have an HSA now and will manage my expenses unless catastrophic events force access of such insurer coverage, which I am sure I will nickeled and dimed to utilize if such calamity occurs. And there it is, who is best to manage your needs? Yourself and… Read more »

Barry Carol
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Barry Carol

Margalit – There are a couple of differences between the Swiss system and ours regarding how health insurance is priced which I don’t have a problem with but you might. Specifically, insurance premiums are computed on a per capita basis with lower rates for children than for adults. This means that a family with, say, four children will pay a higher insurance premium than a family with one or two kids for the same set of benefits. Second, people who live in a high cost canton (there are 26 cantons in Switzerland) will pay up to twice as much as… Read more »

Margalit Gur-Arie
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“Do you ever wonder what your beliefs would be if you based them on actual facts or experience instead of your political bias?”
Nate, do you ever wonder what your responses would be if you actually read what people write?
We were talking about the Swiss, like in Switzerland, system.
I did say that when it comes to talent, people think about those 1-2 “highly skilled” employees. How about the remaining 198 workers?
Since you mentioned bias, did it ever occur to you that you may have some serious bias yourself?

Nate
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Nate

“There isn’t much competition when it comes to unskilled, or low paid, labor and this is where the problems usually are.” Margalit you make the same liberal mistake time after time. What do you base this comment on? Your years of running small businesses reliant on low skilled workers? You have a political bias that permeates everything you based that has no basis on actual experience, everything you believe is from what your told to believe and you never question it. Have hundreds of small business clients for close to two decades I can say without hesitation that almost every… Read more »

Margalit Gur-Arie
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I would be very happy with a Swiss model, and I would not make the two changes suggested by Barry. The first one will just add administrative costs and the second one will keep the profit camel’s nose under the tent. I understand that the employer based system is deeply embedded in our system, but we have a history of changing deeply embedded stuff when it is the right thing to do. Nate, I do understand your deep mistrust of Government, which by the way is not always run by Democrats. I hope you can understand my deep mistrust of… Read more »

Barry Carol
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Barry Carol

Paolo – Personally, I wouldn’t have a problem with the Swiss model for the most part. Indeed, if it were up to me, I would phase out the employer provided health insurance tax preference completely and offset the tax impact on individuals by lowering marginal income tax rates, raising the standard deduction and increasing the Earned Income Tax Credit (EITC) to ensure that the federal government does not collect any more net revenue than under the current system. The two aspects of the Swiss model that I would change are (1) allow the purchase of a catastrophic only policy, at… Read more »

Nate
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Nate

In regards to the second part of Barry’s comment, if your a liberal, there is no money to misredirect, earmark, or spend for other services. Catostrophic insurance is a very efficent, low margin business. Liberals in the 106 years they have been proposing national healthcare have never truly been interested in national healthcare, they are only interested in all the money spent on national healthcare and all the great things they could do if they had control of it. That is why Medicare turned out the way it did, it was never about what grandma needed, it was all about… Read more »

Paolo
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Paolo

A third solution is well-regulated individual private insurance, similar to the Swiss model. I want to minimize the role of both government and employer in the type of care I get. Employer-based insurance is an anomaly. It’s a historical accident that persists only because of the unfair tax exclusion of health benefits provided by companies. It encourages wasteful over-allocation of resources into health care. It hinders employment mobility. It’s just a matter of time before this form of insurance goes away. Government insurance has left the train station 30 years ago. It’s not going to happen. The future is private… Read more »

Barry Carol
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Barry Carol

The argument between Marglait and Nate as to whether government (taxpayers) or employers (employees as part of their total compensation) should finance the cost of health insurance boils down to the following: Margalit prefers government (taxpayer) financing because she thinks it’s well intentioned, claims to have our best interests at heart, and isn’t trying and doesn’t need to make a profit. Nate wants employers (employees) and the free market to handle the job because if employers (companies) don’t satisfy enough customers and employees enough of the time, they will either go out of business or will find it difficult to… Read more »

Nate
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Nate

” very few things in health care are luxury items” This is an opinion that many people would disagree with. Is spending 100,000s for an extra month of life not a luxury? You know the studies on how much money is spent on end of life care, most of it with no measureable benefit. Stents, what do they really accomplish? All the extra imaging we do? A large chunk of our medications treat conditions that don’t exist or could be better treated with diet and exercise but a pill is easier to take, i.e. a luxory. “You either get the… Read more »

Margalit Gur-Arie
Guest

Nate, let’s talk about food. First, the Government is heavily regulating food, from subsidies to quality and labeling requirements. The subsidies are influencing pricing and, in my opinion, in a way that does not benefit the public. True,the Government is not setting the price for each box of crackers for those over 65 and is not forcing anybody to go to the store and buy a certain amount of food. One difference is that for any given individual basic food needs are never surprisingly unexpected. There is no such thing as a catastrophic need for hundreds of thousands of dollars… Read more »

Barry Carol
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Barry Carol

Nate – I was referring to the big national carriers – the Blues, United, Aetna, Cigna, etc. If I have insurance with a particular carrier and I need a surgical procedure, I might be able to get a range of what the charges might be but not generally precise contract rates. I happen to have coverage through my employer with Highmark Blue Cross. If I don’t have insurance with them, ask a question like that and you’re treated like you’re trying to penetrate a CIA database. The hospitals won’t tell you what their contract rates are either even if you’ve… Read more »

Nate
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Nate

” Government intervention ensures that every person has something to eat” Yes but look how it is done. Do we have government farms? Government grocery stores you are required to shop at? Government mandates that you eat? Or Government mandates that Morton’s feed anyone that shows up at their door? If Government ran healthcare like they do food stamps we wouldn’t be in the mess we are. Farmers and food processors are pretty much free to innovate and deliver as they see fit and government subsidiezes the free market for select individiuals. You can live a lifetime without ever seeing… Read more »

Barry Carol
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Barry Carol

I think it would be helpful if fully insured employer groups had full access to their claims data and it would be enormously helpful if everyone, including both referring doctors and patients, had access to actual contract rates paid to providers, especially hospitals. The insurance industry would oppose both of those ideas but perhaps legislation or regulation could force the issue. As hospitals have consolidated in recent years and bought up many physician practices, they acquired outsized bargaining power vs. insurers and they took full advantage of it. Moreover, even when in house doctors are on salary, their bonus compensation… Read more »