Businesses Struggle to Adapt Health Benefits Under Reform Law

((Fort Worth Star-Telegram/MCT) -

With about six months to go before significant provisions of federal health care reform take effect, many employers are still busy juggling numbers to see what will work.

Consider Falcon Steel of Haltom City, Texas: Human resources director Cid Kotti said the steel fabricator, with more than 300 employees and annual medical-benefit costs running between $1.5 million and $2 million, is redesigning its program. But some unknowns remain as a result of the voluminous Affordable Care Act.

For example, while Falcon Steel self-insures its health benefits, it also buys “stop gap” or “stop-loss” insurance, which kicks in above a chosen dollar amount to protect it from unusually expensive cases. Federal rules had allowed a rising cap for an individual employee’s medical expenses, but starting Jan. 1, there can be no lifetime cap on “essential health benefits” – doctors, hospitals, prescription drugs and the bulk of what most people think of as general health care.

That leaves Kotti with some questions.

“Stop gap will be challenging in 2014,” she said. Where should Falcon set its threshold: $250,000, $500,000, $1 million?

“I don’t know. I assume the stop-loss insurers don’t know either,” she said.

What she does know is that she’s spending about half her time on ACA compliance, much more than in a routine year.

Jan. 1, 2014 is a big day in the implementation of what has become known as Obamacare, in reference to the president’s championing of the health care reform measure passed during his first term. Provisions going into effect that day include:

  • Opening of health insurance exchanges, also called marketplaces, which are online shopping sites that offer mandated policies and are operated either by the state or the federal government.
  • Employers with more than 50 full-time workers must offer health insurance covering the minimum essential benefits or face a $2,000 annual penalty per employee, with the first 30 workers exempted. The employee’s share of the premium can’t amount to more than 9.5 percent of his or her household income. If an employer’s benefits don’t meet the coverage and cost standards, for each employee that chooses instead to get a subsidized policy through the exchanges, the penalty is $3,000.
  • Individuals are required to purchase health insurance or face a penalty of $95 or 1 percent of their income, whichever is greater. That rises to $325 or 2 percent in 2015, and then to $695 or 2.5 percent in 2016.
  • Employers with more than 200 employees must automatically enroll workers in health insurance plans, rather than giving them the option of opting in. (Employees may still opt out.)

That’s in addition to major provisions already in effect, such as requiring dependents up to age 26 to remain on a parent’s insurance; prohibiting the exclusion of pre-existing conditions on individuals under age 19 and requiring that preventive services be covered without any cost to the patient.

Kotti isn’t alone in her struggle to get her arms around the law. Mercer, a big employee-benefits consultant, in a June survey said 32 percent of the nearly 900 employers it asked “knew little about the actual cost impacts.”

“We’re seeing a lot of different strategies” by employers to adapt to the new rules, said Michael Parks, managing director of financial services at Fort Worth, Texas-based Higginbotham, the state’s second-largest independent insurance broker. “Most of our clients have always offered health benefits,” he said, and he expects few to drop coverage and pay the penalty, even if that tends to be a first response to the new rules.

The $2,000-per-employee penalty is just the start, Parks said. By the time other penalties and tax-related adjustments are made, “it’s more than it sounds like,” he said. He said retailers and restaurants “are the ones really trying to figure out what to do.”

For employers that have decided to offer medical benefits, there’s no single answer.

With about 60 employees, Arlington, Texas-based MCR Oil Tools is at that awkward stage: just over the 50-person threshold that triggers coverage under the ACA, but not really big enough to bargain for the most favorable insurance rates.

Not to worry, however. The engineering and manufacturing company already offers employee medical benefits that meet new rules, says human resources manager Chad Ebert.

That’s not to say MCR hasn’t made sizable changes to its employee medical benefits. For example, it recently became partially self-insured, meaning it will be on the hook for an employee’s medical bills up to a certain limit. In return for shouldering that risk, insurance premiums are lower. Fully self-insured employers also are exempt from some provisions of the ACA.

That’s a trend itself: smaller employers choosing self-insurance, a route more typically taken by larger employers. UnitedHealthcare and Humana expect this year to start offering self-insurance to small employers in some markets, with UnitedHealthcare offering it to firms with as few as 10 members.

MCR also is offering a high-deductible policy linked with a health savings account, another trend. To offset the high deductible, which can be several thousand dollars, employers typically make annual contributions to the HSA, which is used to pay out-of-pocket medical costs.

Weaver, a large regional accounting and consulting firm based in Fort Worth, first started offering a high-deductible/HSA plan about eight years ago, Chairman Mack Lawhon said.

“It can be a hard sell,” as employees balk after decades of relatively low co-payments for office visits and routine expenses, he said. But starting last year, Weaver made it the company’s only benefits choice.

“We’re accountants; we understand how it works,” Lawhon said. “As people learn to appreciate” the trade-offs, including the possibility of an HSA growing into “a really nice nest egg to take you into Medicare” at age 65, Weaver’s nearly 600 employees have grown more comfortable with it, he said.

There’s a wrinkle to HSAs in the new rules, however. In 2014, the maximum allowed annual deductible is $2,000 for an employee, $4,000 for a family.

Parks said that “65 percent of small groups have a larger deductible” than the new ceiling. “So when they renew, they will pay higher rates” to compensate for the lower deductible, he said. He said some insurers are allowing clients to renew their policies on Dec. 1 to give them more time to adjust to the change.

Coupled with “a pretty effective wellness plan” that includes financial rewards for actions such as seeing a dietitian, “we’ve been able to stabilize health costs,” Lawhon said.

Steven Leaman, head of Leaman Container in Fort Worth, said the box maker has fewer than 50 workers but chooses to provide good benefits, paying 75 percent of the premium for an employee only and 50 percent for an employee with dependents. The company is fully insured, and those benefits currently cost about $5,000 per employee, he said.

But he acknowledges that “the new laws do make me consider how important it is to consider if I hit 50 employees.” And he thinks the rules will increase health expenses.

“I would expect an increase above the normal trend,” he said.

Just over half of small employers told the International Foundation of Employee Benefit Plans in a recent survey that they expect ACA provisions alone to raise their health costs more than 10 percent. Larger employers saw less impact, with about 60 percent estimating between 1 percent and 6 percent.

For example, Justin Brands of Fort Worth, which is owned by Berkshire Hathaway, said the only new provision it will implement on Jan. 1 is to remove its exclusion of pre-existing conditions. Nearly 70 percent of its employees who are eligible for company medical benefits choose to participate, and it doesn’t expect that to change significantly next year, human resources Vice President Donna Lasater said in an email.

Lasater said the boot maker’s health benefit costs have been rising about 14 percent annually, and she expects them to rise 10 to 15 percent in 2014.