Reform Reaches Employee Health Benefits

A recent survey by Kforce Finance & Accounting found that 86 percent of employer respondents believe employee health benefit costs will rise in the coming year.  That fear was confirmed by the 2010 Towers Watson cost survey, which projects an increase of 7 percent in employer healthcare costs this year – which adds to the 28 percent increase in cost since 2005. 

In the current economy, increased costs in any area of business may be problematic for operations.  Costs must be contained and margins kept low in order for business to run as usual, which has many employers looking for ways to reduce benefit costs. 

“Healthcare costs have consistently increased, and employers have consistently tried to temper the magnitude of the increases.  Deductibles, co-pays and employee contributions have been the primary approaches,” said Phil Merdinger, a partner with Mercer, a global provider of human resource and related financial advice, products and services. 

For 62 percent of employers responding to the Kforce survey, shifting more of the cost burden to employees was the most widely-accepted solution, while 19 percent reported no plan of action as of yet. 

Still, while shifting responsibility seems like the smartest business decision, employers may not have considered how this will negatively impact employee morale and job satisfaction. 

“Reductions in healthcare benefits – cost shifting included – clearly has some impact on employee engagement, but has been a necessity, and matter of survival, for many companies,” said Merdinger. 

However, he believes if these reductions in coverage continue they may reach a point where employees lack adequate protection and reach financial hardship, both resulting in dissatisfaction.  Ninety-two percent of employee respondents to the Kforce survey agree with this statement, confirming that if benefits were dropped their overall job satisfaction would deteriorate. 

According to Kathleen Sullivan, executive vice president of business solutions for First Service Administrators, Inc., a leading risk management company providing third-party benefits administration and innovative cost containment solutions to the healthcare industry, employees are currently paying 40 percent more for their healthcare due to the shift in cost responsibility.  This includes higher premiums, copayments and deductibles. 

 “In addition, poor health habits and lack of employee engagement continue to drive employer and employee costs alike,” she adds. 

The Impact of Healthcare Reform
 

Currently, the million dollar question in terms of employee benefits is how the newly passed healthcare reform legislation will affect costs for employers and employees.  While 30 percent of employer respondents believe that reform will not impact their firm, 40 percent expect that their benefits costs will further be increased. 

For employees, many expressed skepticism in a government run healthcare system and fear increased costs will only continue to be placed upon the employee.  Sullivan agrees.

“The legislation will undoubtedly increase the healthcare cost, implode the current system, increase taxes and create rationed care.  We all agree that healthcare reform is needed, but responsible healthcare reform.  Not something that bankrupts the system and rations care for Americans,” she said. 

One reason costs increases are likely is the requirement that insurance companies begin covering people with preexisting conditions and eliminating coverage gaps.  This does not line up with the timeframe in which individuals are required to buy insurance, leaving insurance companies with little choice but to increase premiums to cover the rise in costs related to the newly insured.  In the interim, this increase is forecast to be placed on corporate customers unless insurance companies can make up losses with higher volumes of healthy constituents. 

Other survey respondents believe that the reformed system will allow them to receive better care at more affordable rates.  But despite being signed into law, few people can actually predict what the new system has in store for America.

As it is written now, the law requires firms offering health benefits coverage to help low- or middle-income workers who wish to purchase health insurance on their own.  Companies with more than 50 employees that do not offer health insurance benefits will be required to pay a fee of $2,000 for each full-time employee requiring a government subsidy to purchase health insurance on their own.  Companies must also consider part-time workers when determining whether they must provide insurance or pay a penalty. 

On the administrative side, the law creates an entirely different burden.  Because the new measure sets out various coverage thresholds and allowable cost-to-income ratios, keeping track of premium costs versus income adds another layer of compliance.  For example, the "free-rider" penalty imposes a fine on companies that make employees pay more than 9.5% of their incomes toward healthcare.  This measure will likely also subject companies to federal audits to ensure they are in compliance. 

On the up side, the excise tax on high-value or “Cadillac” plans has been pushed back to 2018, creating the possibility that coverage levels that would trigger the tax will be reset according to standard policy rates at that time. 

Specific employer requirements will vary depending on company size, benefit offerings, employee salary, etc., and could very well change before this portion of the law takes effect on Jan. 1, 2014.  Until then, the debate and speculation will likely continue. 

Regardless, Mercer’s Merdinger believes that, over time, healthcare reform will move toward what he describes as an “integrated approach to benefits.”

“I believe you will see employers taking more of a ‘defined contribution’ approach to benefits to cap their costs and offer employees a wider array of choices that allow them to create a benefit plan that meets their unique needs,” he said.  “Think of this as a continuum of choices ranging from ones fully paid for by the company to voluntary plans fully paid for by the employee, with the middle comprised of choices paid for by both.” 

Healthy Employees, Reduced Costs
 

For many businesses, waiting to see how the law pans out is not an option.  Costs must be cut and contained now.  For the short-term, cost-sharing seems to be the most obvious solution.  It is immediate and, though morale may be affected, it avoids the necessity of layoffs. 

However, immediate cost reductions will have little impact on future cost increases.  For this reason, Merdinger believes that the most effective solution will combine this short-term strategy with other long-term strategies aimed at improving overall employee health. 

“The key to managing healthcare costs over time is to have healthier employees who are smart consumers of healthcare costs,” he said.  “Employers can support these efforts with more focus on wellness and disease management programs and increased employee access to tools and information.”

FSAI’s Sullivan agrees, stating that employee attitudes and health-related behaviors must change in order to control costs.  This has been proven through the unique service offerings of her company.

“Some of our self-insured clients are using health analytics to understand their employee populations, their unique cost drivers and gaps in care.  They are implementing behavioral-based plan designs, employee incentive programs, health-focused communications, wellness packages, care management programs, health advocates, lifestyle coaching, health risk assessments and other web-based tools to target behaviors that support healthier lifestyle choices,” she said. 

In essence, these employers are creating a “culture of health” in the workplace.  Thus empowering employees to make better, more informed health decisions, reducing future health risk and essentially increasing worker productivity. 

“Many of the longer term health improvement changes have been positively received by employees.
In fact, there are many stories of how these changes have had a material life changing improvement on employees,” said Merdinger. 

Adds Sullivan: “Studies continue to show that healthier employees are happier and more engaged in the workplace.  Companies that implement wellness and health incentive programs create positive outcomes for themselves and their employees.  They enjoy greater productivity, increased employee engagement, less absenteeism and lower employee turnover rates.”
 

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