HCW Benefits Blog

Contributor:
Joanne Forbes, Consultant
Hill, Chesson & Woody 

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.

For more information, please visit the following links:

• Most Employers Won't Drop Healthcare Benefits (Business Insurance Poll)
• Healthcare Reform is Causing Companies to Drop Employer-Sponsored Health Insurance
• Documents reveal AT&T, Verizon, others, thought about dropping employer-sponsored benefits