Many of the changes in healthcare coverage are trends that have been growing gradually anyway — but now they’re mandated, regulated and requiring more paperwork.
The healthcare coverage requirements coming down from the Patient Protection and Affordable Care Act take effect next year, and the most important message to employers is: The time is now for putting plans and policies in place. Knowing the Affordable Care Act’s requirements is only one piece of the effort; effective planning also depends on an understanding of what health insurance companies are offering as well as changes in the business models of the healthcare providers — hospitals and physician practices.
Ruthann Laswick, president of Blue Water Benefits Consulting, who has been a featured speaker on this topic at events nationwide, calls 2013 “the year of the tax.” Says Laswick, “There’s not a lot going into effect that isn’t to do with taxes.” This includes modifications to existing programs, such as the salary deferral plan that has existed for flexible spending accounts now being limited to $2,500, and a new Medicare tax on high earners that employers will have to deduct (but need not provide matching funds for). Employers also need to look at what information they will be required to report to the IRS in 2014 and get the software in place now to collect that information: name, date, employer ID number, certification as to whether the employer offers full-time employees and their dependents the opportunity to enroll in minimum essential coverage, length of any waiting period, months during the year for which coverage was available, monthly premium for the lowest-cost option under the plan, large employer contribution, number of full-time employees for each month during the year, name address and TIN of each full-time employee during the calendar year and the months during which this employee (and any dependents) were covered under any health plans and, as stated in the regulation, “such other information as the Secretary may require.”
With the new law setting 30 hours per week as full-time employment — at which point the healthcare coverage requirement kicks in — some employers may benefit from utilizing the “variable hour” designation. In cases where hourly need may fluctuate, an employer can hire someone as a variable-hour employee and keep track over the course of 12 months to determine whether the position averaged 30 or more hours per week (full time) or fewer than 30 hours (part time). At the end of that year, if the employee is determined to be full-time, he or she can then be put on the usual 90-day wait to get on the healthcare plan. This category especially accommodates restaurants and similar high-turnover employment, explains benefits consultant Bill Weaver, managing partner of Focus Benefits Group.
And there’s that critical number 50. A business with fewer than 50 employees does not need to offer healthcare coverage; a business with 50 or more does. The number does not count only full-time employees but includes “full-time equivalents,” which is calculated by including the hours worked by part-time, seasonal and contract employees.
It’s that number 50 that has sparked heat, and Laswick suggests, “Emotion is overriding good business sense.” She shares a conversation she had with a business owner at a healthcare forum. “He told me he had 48 employees and he was thinking about not growing.” She pointed out he would be hobbling his business for the sake of maybe a $300-a-month premium, and relates his response was to laugh and say, “Yeah, when you phrase it that way, it is kind of silly.”
Attempting to circumvent the coverage requirement by shuffling full-time positions to part-time may also be short-sighted, as payroll (FICA, etc.) is more expensive than benefits. Dropping employees’ hours to part time would likely result only in a company needing to hire more employees to keep the same level of work output. “It doesn’t make sense to drop all your benefits, and drop employees so you can,” Weaver says.
Noting that compliance rules are starting to come out on everything, Weaver warns that the Department of Labor will be auditing for compliance and there are two documents they will ask for: the SPD and the SBC. The SPD (Summary Plan Document) explains employees’ rights under the Employee Retirement Income Security Act and must be given to each employee within 30 days of being hired, and to everyone if the plan changes. Non-compliance can result in huge fines, as it is calculated per total number of employees in the company and for the period of time from the audit back to the date the infraction began.
The SPD requirement has existed for years. New from the Affordable Care Act is the requirement for an SBC (Summary Benefits and Coverage form), intended to enable the healthcare user to better understand and compare benefits. Health plans and issuers must provide this, and employers must document that they gave one to each employee.
It also should be noted that employers who continue to offer a Section 125 plan, which is a pre-tax or flexible spending account, must have the plan onsite and update it every year.
Private Plans and the Health Exchange
“If you currently have a benefit plan, there’s no reason to get rid of it,” Weaver says — as long as it offers minimum essential benefits, is affordable and is not discriminatory (that is, no employees are restricted from joining it). Some plans may have to be replaced, though: those that were created under special waivers available for a short time only to specific employers, such as ones excluding contraception, which ends in August, Laswick explains. Plans must offer, at minimum, a 60-percent value, but this does not mean employers are required to pay 60 percent of the premium.
Employers may choose to offer more than one level of coverage, as long as all plans are available to every employee. Employers are also required to provide information to their employees about the health insurance exchange, which, here in Arizona, will be a federal program and as of this issue’s printing is still being developed. It’s up to the employee whether to enroll in a healthcare plan through the employer or go to the federal health insurance exchange, and the employer will not be fined if employee chooses the exchange.
Penalties revolve around the tax credit. If an employer does not offer any coverage as required, and at least one employee purchases healthcare through the exchange and then gets a tax credit on that premium, the employer will be levied a fine. The employee’s eligibility to receive a tax credit hinges on his or her earnings being 100 to 400 percent of poverty level (this, it should be noted, is a “safe harbor” change made last summer to a calculation that had previously looked at the employee’s overall household income). However, as long as the employer offers an “affordable” plan, the employee cannot get a tax credit.
The amount of the penalty is calculated per a formula that counts the number of employees in the entire company, at $2,000 each. “For companies with 51 employees, it would be cheaper to pay the penalty,” Laswick says, but points out that, for larger companies, it can save millions of dollars to offer a benefits plan rather than suffer the penalty — which is not tax deductible, nor can an employee waive it off.
Many details of the new healthcare regulations are still being defined, including “minimum essential plan.” One of the recently defined terms is “dependent.” For healthcare insurance, the requirement that coverage be available to the employee’s “dependents” refers to children under age 26; it does not include the spouse.
Of concern to Jeff Stelnik, senior VP of strategy, sales and marketing with Blue Cross Blue Shield of Arizona, is the possibility that the federal exchange will not be catered to Arizona but be one-size-fits-all. He shares that BCBSAZ has spent hundreds of hours internally, developing a product portfolio catered to Arizona residents that will meet critical cost considerations but also be compliant with a “tsunami of additional regulation brought on by the law.”
Observing, “The law has a lot of benefits,” Stelnik cites simplicity of coverage levels — designated in the Affordable Care Act as bronze, silver, gold and platinum — as one of them. “The language helps simplify the purchasing process for an individual or a group.” A trade-off is that it restricts choice, and he further points out that currently in Arizona, many employers’ healthcare plans are below the minimum bronze level.
Changes in Providers’ Business Models
Healthcare providers are also being impacted by the Affordable Care Act — not only are their reimbursements shrinking, but they, too, are employers who must meet the Affordable Care Act’s requirements. Consolidation has been one response, enabling them to achieve an economy of scale as mid-sized businesses rather than operating individually as small businesses. Explains Michael Urig, M.D., president of the board of Arizona OBGYN Affiliates, “One way to provide good healthcare and reduce costs is to join together. We reduced costs at the supply level and IT support.” The affiliation was founded in 2007, bringing together five practices into one with multiple branches and organized to minimize variance between the branches but allow each to retain autonomy on day-to-day operations. Another dominant trend, according to Daniel Lieberman, M.D., president of the Maricopa County Medical Society, is physicians leaving private practice for employed practice with hospital chains or private money-type of firms (although the latter, he says, has a long track record of not working). “Twelve years ago, when I started my practice, 90 percent of physicians were self-employed and 10 percent were [other]-employed. Within the next five years, we should see the exact opposite of that,” Dr. Lieberman says.
Hospitals, for their part, are purchasing physician practices as well as building up more multi-hospital systems rather than establishing individual hospitals, says Pete Wertheim, spokesman for the Arizona Hospital and Healthcare Association. “The general acute-care hospitals of the past that don’t employ a physician group outside the hospital will have a difficult time in the new payment methodology,” he says.
The old payment methodology was based on number of patients consulted and number of tests performed. The new methodology coming out of the Affordable Care Act replaces that with an outcome-based reimbursement system. It’s a change of mindset, explains Wertheim, from “If we don’t do 30 CAT scans a day, the machine isn’t profitable” to “If we do CAT scans efficiently and as needed, and not duplicate them, we will save money.” Among situations that give rise to duplication of tests, for example, is a doctor sending a patient to a hospital and attempting to send along scans he’d had performed as part of his care of the patient; some hospitals have not had any protocols for accepting such outside scans.
“The Affordable Care Act has accelerated it, but this change was under development — but at a slow process,” says Wertheim. Offering a viewpoint also iterated or alluded to by everyone else interviewed for this article, Dr. Urig observes, “Fee-for-service isn’t working; it can’t sustain itself.”
Under the change, explains Wertheim, a heart attack patient would be treated under the payment code and the provider would make a profit, but if the patient relapses and must be readmitted — that is, if the outcome is unsuccessful — the hospital is accountable and may be subjected to lower Medicare payments in the future for all patients until outcomes improve. This approach is built into Medicare and is moving into Medicaid, says Wertheim, also noting the community health insurance market is changing. “If we have true accountability on the part of the employer, the provider and the payer throughout the system, we can develop a true, working, wellness model.” And results can be built into the premium when it’s time to renew the healthcare insurance.
Accountable Care Organizations is a relatively new option for employers. The payer, healthcare provider and patient are all accountable and incentivized. Not only is it a lower premium if patients stay within the system, but ACOs offer a richer array of benefits — more hands-on patient care and connectivity with the provider because the provider has a financial incentive attached to the outcome. “If all you get paid for is a prescription or a test or a visit, the more you order the more money you can make, but there’s no incentive to make sure the patient gets the care,” explains Wertheim.
UnitedHealthcare’s network in Tucson includes an ACO, Arizona Connected Care, and Jeri Jones, president and CEO of UnitedHealthcare, says UHC is working with primary care and hospital groups in Phoenix, as well, to change how they deliver care. The goal is to change the dynamic behind increases in reimbursement rate by moving toward a performance-based component. “They will earn back a rate increase in areas that reduce utilization and, therefore, cost to the whole pool — lower the incidence of infections that people get in the hospital, lower the readmission rate, lower the number of emergency room admissions.”
Speaking as a businessman, Dr. Urig believes transparency is important in the area of reimbursement and that the physician’s practice should share the benefit of reducing cost. “We have clinical protocols that have made a dent in the cost of healthcare, but I don’t think it’s getting passed on [from the health insurance company] to patients, and I know we’re not getting more reimbursement.” Among the protocols are in-office procedures that previously were done in outpatient surgery or in the hospital, but he notes that such a change, while ultimately much less expensive, initially requires the physician practice to expand its offices and hire more staff — an increased outlay that circles back to the need for greater reimbursement.
Physician groups are also finding it mutually beneficial to work directly with employers. Dr. Lieberman’s practice, Surgical Specialty Hospital, offers a bundled payment model to large employers that are self-insured which covers all elements of the procedure: the hospital, the surgeon and assistant surgeon, lab work, pathology and anesthesiologist. “Even if a company is self-insured, it subcontracts through an insurer to get a network of providers. That network is expensive; this is lower cost.” Dr. Lieberman cites Walmart’s contract with Mayo Clinic for spinal care as a similar arrangement.
David Berg, M.D., CEO of Arrowhead Health Centers, has recently taken a model that has worked for his practice and begun offering it to other businesses. “It is generally accepted that 10 to 15 percent of a company’s health plan members will spend 65 to 85 percent of all the healthcare dollars. Identify these people before they get sicker [through low-cost data analytics software monitoring and tracking], give them a personalized plan of action and then the support that they need so that they believe they can actually execute their plan, and keep them out of the hospital, and huge savings result every time,” he says. Citing his practice as example, he says in 2007 healthcare costs were 6 percent of his expenses, with premium increases that had been 20 to 25 percent annually. Since 2007, even with a greater number of employees, healthcare costs have dropped 10 to 20 percent every year and they now account for 1 percent of the business’s expenses. The model, formally launched last month as Redirect Health, of which Arrowhead Health Centers is one of the vendors, also helps companies in the selection of their coverage and plan design. If the business owners and their employees work together, Dr. Berg believes, they can significantly affect healthcare costs. Key to that is improving outcome, and key to that is making sure patients have the resources to follow their physician’s recommendations.
Wertheim notes the Affordable Care Act also offers innovation grants to find what works to improve outcome, and shares a program one local hospital is finding successful: “John C. Lincoln is hiring returning [military] veterans — medics — and, because of the level of respect they receive as war heroes, patients [pay attention when they ask], ‘Do you need a ride to your appointment?’ or ‘Did you take your meds?’”
Other ways Wertheim is seeing to reduce the cost and improve the quality of healthcare are team meetings of physician groups that don’t normally talk to each other, cost sharing and real-time patient reviews. “There’s no turn-key system,” he says. “The biggest challenge is the human element, changing physician behavior and patient behavior and the business model of hospitals.”
Increasing Interest in Wellness Programs
A lot of education effort is being aimed at the ultimate user, whose healthcare practices also directly impact the cost of health insurance premiums — and of healthcare itself. UHC’s Jones cites two important areas: “educating people on how they buy care and use care, and wellness programs to get people healthier to begin with.” In fact, she says, “Wellness programs are becoming more and more a part of the normal thread of health insurance today.”
Jason Paul, whose company, LifeCore Group, offers a comprehensive wellness program, believes wellness programs involve more than the individual’s efforts but need to be integrated into the business environment. An employer’s return on investment ranges, he explains, from the traditional $3:$1, calculated against programs put into place after an employee has registered an accident or illness, to $15:$1, calculated on overall lifestyle choices.
“If we’re going to change the long-term cost, it needs to be the insurance company, the doctors and hospitals, the employers and individuals all coming to the table to try to control excess spending. The best way is to educate and empower individuals to understand the healthcare decisions they’re making,” Stelnik, of BCBSAZ, says.