With the passage of healthcare
reform, there has been a great deal of conjecture as to the
ultimate impact on employer-sponsored plans. Will
employers continue with their current plan designs, or will
they simply walk away from offering healthcare coverage as a
benefit and send employees to the market to choose their own
program?
To answer this question, one must
first consider why employers have historically offered
healthcare as part of their compensation program. For
decades, employer-sponsored healthcare benefits have been used
to support the recruiting and retention of employees that
ultimately affect the success of their companies. Beyond
this, factors such as social consciousness or paternalistic
motivations can often shape contributions and the caliber of
such programs. But more recently, the justification for
providing such benefits has become based on the condition that
they are not cost-prohibitive for the employer.
The financial burden of
employer-sponsored healthcare benefits has always been a key
factor in plan designs, and now that healthcare reform has
come to fruition, it may be even more significant when
weighing whether to reduce or even eliminate the
benefit. After all, according to the “play or pay”
reform mandate that becomes effective in 2014, penalties will
be levied against employers who do not offer coverage and who
have employees receiving individual subsidies to purchase
through the government-run “Health Insurance Exchanges.”
Yet, even in the pre-reform era, several companies have taken
steps to limit the cost of or avoid offering healthcare
plans. In fact, some companies:
- Offer no healthcare
benefits to employees, resulting in employees
relying on their spouses’ employer’s program, public
assistance (such as high risk pools or Medicaid), individual
plans or the option forgoing insurance altogether.
Under healthcare reform, these companies will be subject to
penalties for employees who receive assistance from the
government in the form of individual subsidies to purchase
insurance through an exchange.
- Create Health
Reimbursement Arrangements (HRAs) that exist to
reimburse a portion of the cost of individual coverage, and
force their employees to fend for themselves in the
individual market. These plans currently on a gray
area in the current law and seemingly ignore clear
provisions and requirements of HIPAA, ERISA, and
COBRA. Moreover, like any defined contribution
structured program, these programs leave a certain
percentage of employees to shop without enough money in
their wallet. Again, under healthcare reform, these
companies will be subject to penalties under the conditions
stated above.
- Carve out employees from
the benefit program, offering benefits to only a
core group of employees, leaving the remaining to rely on
the above-mentioned pre-healthcare reform options for open
market healthcare coverage. The passage of healthcare
reform will soon require all non-grandfathered companies
(self-funded and fully insured) to comply with the Section
105(h) discrimination regulations, which will limit the
ability to carve out employees.
The passage of healthcare reform
with its employer “play or pay” mandates, may very well
transform the above referenced programs or cause these
companies to re-think their healthcare benefits strategy since
the reform law’s penalties will no longer allow companies to
completely avoid these types of healthcare costs. We may
even see an increase in part-time employment positions as
employers attempt to avoid reform penalties. But what of
the other benefit plans, the majority of which are traditional
employer-sponsored programs?
There is a school of thought that
such benefits will continue to be used as a differentiator in
the employment marketplace. Yes, healthcare reform may
have unintended consequences, and some large corporations are
considering dumping their healthcare
plans.
However, if one takes a closer look, the options of limiting
or capping company expenses around healthcare have always
existed, but are not overwhelmingly used.
Companies are still competing with each other to recruit and
retain qualified people; and while that competition exists,
differentiators in occupation-based benefits will be important
to corporate survival.
While it seems difficult to imagine
at this point in time, all employers will become accustomed to
the new regulations, mandated notices, new taxes, voucher
management process etc. But the employers who navigate
healthcare reform effectively will emerge with plans that
benchmark where they need to in order to remain competitive,
manage expenses in innovative ways, and do so with the
confidence that options do exist should the plan ever become
cost-prohibitive.
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