Well, you can breathe now – whether you are breathing easy is another matter. The Patient Protection and Affordable Care Act (H.R. 3590) was upheld today by the Supreme Court. Benefits already cause consternation for organizations, especially with an aging employee population on the rise. Now, this law ventures into uncharted territory for the United States, and with the law phasing in various mandates between now and 2014, there are plenty of complexities to manage.
The savvy benefits manager has already called his or her legal department this morning. We also know that state legislation will supersede this Act, so States’ response will matter. But looking into my crystal ball, here’s how I anticipate health care law impacting labor costs.
In the ‘more expensive to businesses’ column there are two primary causes for concern: that premiums will rise, and more employers will be required to offer coverage. Premiums may rise because insurers are, over the course of the next two years, mandated to cover more people (through an end to pre-existing conditions and a mandate that all Americans now need to be covered). Additionally, two ways that insurance kept costs lower are being outlawed: limits on care reimbursement and dropping patients on technicalities once a medical need arose.
There are also mandates on how insurers spend their money. Through this Act, insurers are required to spend 80% of premiums on medical care and improvements, and only 20% of dollars derived from premiums on operating costs. Can insurance companies meet the insured's needs yet operate within this equation? Maybe, but it’s unlikely to mean business-as-usual. In the unlikely event that insurers will pay their executives less or lower their profit expectations, what other ways will insurance companies try to bring in revenue or cut costs under this new law? A likely candidate: the increase use of "fees".
In terms of direct costs to business, there are a couple of provisions which may raise employers’ health care costs. For example, small businesses of more than 50 employees are not mandated to offer coverage, but will pay a fine of $2000/employee annual if they receive the federal subsidies designed to purchase insurance. The Act allows college-aged students up to age 26 to stay on family coverage – most likely through their parents’ employers. There are penalties for employers who choose not to offer health insurance benefits. Finally, large employers will be required to report their offerings and coverage to the Feds at their own nominal cost.
However, the legislation has inherent several provisions meant to lower the overall cost of healthcare. For businesses (other than other in the health care insurance industry, that is), these mandates may help you save money. The Feds estimate, through the Congressional Budget Office, savings could be up to 4 percent for small businesses and 3 percent for large business, and up to $2000 per person.
The legislation is designed to drive down insurance costs through market competition driven by their “Affordable Insurance Exchange”. This buyer’s market of health care benefit providers will be organized by each State – work supported by Federal grants. Providers in the Exchange are vetted, namely by keeping premiums low. Think Walmart – in this case, the government is playing the role of a behemoth entity set on driving costs lower through strong-arming the supply side of the equation – how much insurance costs.
The Feds will drive demand by getting as many individuals signed up through the Exchange as possible. On March 1, 2013, a variety of measures go into effect that will drive consumer dollars to the Exchange, rather than through employer-sponsored plans. For example, employers will have to inform employees of the Exchange.
As far as reducing direct costs to businesses, there are tax credits and cost-sharing reductions to be taken advantage of. For employers making contributions to their employees’ health care premiums, they would no longer have these costs if employees’ signed up for an Exchange provider.
The crystal ball sees many a benefits manager moving towards compliance. But there are many other scenarios in which the crystal ball is cloudy; perhaps most importantly, whether premiums will be lowered remains to be seen. Mitt Romney has promised to get the Act repealed if he is voted into the White House. But action can't wait until election day. Health care costs equal big money. HR action now can support the organization's fiscal health as the Act takes effect.