Assignment Help

w1art.pdf

Home >Business & Finance homework help >Management homework help >Assignment Help

www.financialexecutives.org FinancialExecutive • MARCH 2013 29

For nearly 70 years, employer-based cover-age has been a cornerstone of the United States health care system and health care ben- efits have been a core component of total rewards used to attract and retain talent. The health care tax exclusion has been the “car- rot” to provide health care benefits and the lack of a functioning individual health market has been the “stick” to prevent widespread change in this reality.

However, with the 2014 changes result- ing from the Affordable Care Act (ACA), em- ployers have never had a better opportunity to reexamine their role in providing health- care coverage.

Once viewed as a tax-efficient way to re- ward employees, health care costs are now infringing on many corporations’ efforts to compete globally. Compared with other in- dustrialized nations, on average, the U.S. spends twice as much on health care per capita and 50 percent more as a share of GDP, as cited by The Commonwealth Fund Commission on a High Performance Health System in January 2013.

In fact, the employer share of payroll

going toward health insurance costs was 12.8 percent in 2010, up from 8.2 percent in 1999. New mandates, taxes, fees and administrative burdens imposed by the ACA are further shift- ing the economics of employer-sponsored health care. Employers will see higher costs, at least in the medium term, due to many fac- tors, including the following ACA provisions: � Broader coverage mandates (e.g. covering dependents up to age 26, minimum coverage and eligibility standards, removing lifetime and annual dollar caps, providing at least 60 percent actuarial value plans and covering preventive services with no cost-sharing); � Limits on employee premiums and out-of- pocket costs; and � New fees, including a three-year “tempo- rary reinsurance fee” on insured and self-in- sured plans starting in 2014 at approximately $63 per covered individual.

And, with health care entitlements driving the ongoing budget crisis at both the state and federal level, employers are concerned that cost-shifting from these programs will only accelerate in the future. Entitlement costs could double over the next 30 years as per-

The New Economics of Health Care Benefits By Amy Bergner and Michael Thompson

This month’s feature article is the required-reading for FERFPros Xxxxxxxxxxx [segment #1 of FMN-Xxxxxx 2013]

Health Care

Though corporate

health care decisions

have traditionally been

an HR and benefits

function, financial

executives must be

increasingly focused on

these critical issues —

especially now as

companies face rising

costs, increasing

government involvement

and regulation and

economic uncertainty.

This month’s feature article is the required-reading for FERFPros Health Care: Calculating Your Decision This Year [segment #1 of FMN-March 2013]

cent of GDP and deficits are likely to loom for the foreseeable future as the baby boom generation retires. Reforms are essential but any reforms that do not fundamentally bend the cost curve could result in unprecedented shifts to employers.

The fiscal crisis could also threaten to repeal or amend the health care bene- fits tax exclusion. The tax preference for employer health benefits is the largest single tax expenditure in the federal budget ($163 billion annually). While there may be an emerging movement to limit tax rates and broaden the tax base, the elimination or capping of the health care tax exclusion would further weaken tax incentives for offering benefits.

Looking Ahead — a ‘Glass Half Full’ There is a “glass half full” side to health reform — but only if employers understand and maximize their oppor- tunities in this new environment:

In 2014, ACA brings guaranteed issue coverage, elimination of pre- existing condition exclusions and gov- ernment subsidies for the poor and many in the middle class, boosting access and affordability for those without employer-based coverage. Almost 30 million previously unin-

sured Americans — an indirect bur- den to those providing coverage — are expected to be newly covered.

States, working independently or with the federal government will set up exchanges — new marketplaces where individuals and small businesses (those with fewer than 100 employees) and ultimately, large businesses — will be able to buy insurance without many of the barriers that exist today. (The fed- eral government will run exchanges in states that opt out.)

At the same time, new private ex- changes are developing to take advan- tage of the changes in the market and enable employers that want to shift from traditional health benefit models to more of a defined contribution ap- proach to health care.

More hospitals and physicians, health management companies and the federal government are organizing in integrated systems of care and embrac- ing shared risk arrangements that pay for

30 MARCH 2013 • FinancialExecutive www.financialexecutives.org

Once viewed as a tax-

efficient way to reward

employees, health care costs

are now infringing on many

corporations’ efforts to

compete globally.

Compared with other

industrialized nations, on

average, the U.S. spends

twice as much on health care

per capita and 50 percent

more as a share of GDP.

Source: CBO’s Alternative Baseline from the 2012 Long Term Budget Outlook, June 2012. The Alternative Baseline assumes Medicare Doc Fix through 2022, phase-down of Iraq/Afghanistan spending, discretionary spending grows with GDP through 2022 and remains at its historical average share of GDP beginning in 2027; expiring tax provisions are extended through 2022, then revenues remain constant share of GDP. Automatic spending cuts required by the Budget Control Act of 2011 are assumed to not take effect.

www.financialexecutives.org FinancialExecutive • MARCH 2013 31

value rather than volume through new vehicles such as accountable care or- ganizations, patient-centered medical homes, quality incentive payments and global or bundled payments for cases rather than the traditional fee-for-service reimbursement of medical expenses.

Incentives have been strengthened to support and accelerate the movement to more personal responsibility for health and health consumption. Maxi- mum wellness incentives have been raised from 20 percent of premium to 30 percent of premium (50 percent in the case of tobacco use).

And plans with higher cost sharing at the point of care (e.g. consumer-di- rected health care) are not only supported but incentivized as a result of the 40 percent “Cadillac Plan” excise tax scheduled for 2018.

Navigating a Path Forward Though health care cost increases have mitigated over the past few years, organi- zations cannot afford to be complacent with the status quo. To do so misses mul- tiple opportunities created post-health reform and risks missing the window for implementing substantive opportunities for significant change. Senior-level lead- ership will be critical, both to challenge existing strategies and to sponsor the new direction. Some key areas to look at: n Reevaluate How to Play and When to Pay. In 2013, corporate leaders should revisit “pay or play” financial analyses and ask tough questions such as why they focus so many resources on some- thing that is not core to the business. With the exception of companies with very low-wage workers (who would be eligible for highly subsidized and gener- ous coverage in the exchange), most organizations will likely conclude that the math does not add up to stop provid- ing health care benefits in general.

However, there is an opportunity to ask how the organization should provide those benefits and when it might be willing to accept penalties.

Consider: Has the organization evaluated workforce management is-

sues and how health care reform will change those dynamics? Should the benefits approach enable access to subsidized coverage through the pub- lic exchanges for the lowest paid em- ployees to provide for better coverage at a lower cost to the company (even after paying the penalties)? With af- fordable access guaranteed in open market, should the organization re- consider its approach to eligible classes like part-timers, dependents, retirees and others both from a contri- bution and coverage perspective? n Kick the Tires on Private Exchanges. For some, the opportunity to shift health care from a defined benefit to a defined contribution approach appears to be the Holy Grail (parallel to the long-term trend in retirement income benefits). Private exchanges — now being offered or developed by many brokers and former advisers — hold promise to help employers reduce their involve- ment and commitments toward health care benefits over time.

These exchanges have already be-

come very popular for retiree benefits and are starting to gain traction for active employees as well. But with private exchanges, the devil is in the details and hard questions need to be asked independently in evaluating these solutions.

How are rates structured and how will the company’s experience impact those rates over time? How will com- pany subsidies be structured and who will be the winners and losers (this can be significant if rates vary by age and area)? What are underlying cost dynamics associated with insured ver- sus self-insured coverage and how will risk selection between plans and carriers be managed over time? What administrative efficiencies can be gained and at what savings? What will the user/consumer experience be and how will a private exchange solution impact the company’s total rewards and attraction and retention strategies? n Bring Consumerism Mainstream. The most successful strategy that employers have implemented to impact the trend in health care costs over the past decade has been the movement to introduce more consumerism in health care. Creating more transparency and ownership in costs at the point of care and providing tools to help employees and their fami- lies navigate the system, has resulted in some mitigation in health care cost increases. But many employers have only moved part way on this journey.

Consider: How engaged are employ- ees in understanding the plans offered and the impact of their health care choices on their costs? How can designs be modified to align toward more value- based decisions and bring consumer- directed health care to a broader segment of the company’s population? How well positioned is the firm’s health care benefit plans to deal with (and avoid or defer) the 40 percent “Cadillac Plan” excise tax in 2018? n Create Accountability for Wellness and Health Management. The most prevalent health care strategy that employers are focused on is wellness

The fiscal crisis could also

threaten to repeal or amend

the health care benefits tax

exclusion. The tax preference

for employer health benefits

is the largest single tax

expenditure in the federal

budget ($163 billion annually).

While there may be an

emerging movement to

limit tax rates and broaden

the tax base, the elimination

or capping of the health care

tax exclusion would further

weaken tax incentives for

offering benefits.

— asking and supporting people to take better care of themselves with the goal of reducing the demand for health care services and improving the pro- ductivity of the work force. Results to date are clearly mixed with many questioning the impact and few organ- izations able to account for a return on investment on their wellness efforts.

Creating and sustaining employee engagement in programs is part of the issue, but as important is creating a healthy culture across an entire organ- ization. Today, most are “doubling down” on these investments recogniz- ing that improving population health is a critical leg to any comprehensive health and productivity strategy.

Has the company assessed the im- pact of its wellness and health manage- ment programs — both internal and external? Has it created and monitored against performance metrics for these strategies? Should it take advantage of new leeway to increase wellness in- centives to promote participation and achieve better outcomes? � Dial-Up Delivery. Since the late 1990s, employers have moved away from “health care delivery” as a core part of their benefits management strate- gies. But there is reason now to revisit that. With the emergence of multiple efforts around delivery and payment reforms, the opportunity exists to rein- force and take advantage of efforts of providers and alternative vehicles that will deliver higher value care.

There is also increasing evidence

that more coordinated care and cogni- tive care can reduce the burden of health care over time. Has the company assessed the progress of accountable care organizations and patient-centered medical homes in its key locations? Can the company “carve-in” part of the health care delivery (on-site clinics, telehealth, preferred prevention, advo- cacy) to align better with its unique population and productivity needs? Is the company optimizing and aligning its benefit incentives with higher-value providers or provider organizations that

are committed to improving their value over time? � Reassess Compliance. With more than 2,400 pages of legislation, more than 400 separate rules and tens of thousands of pages of regulations, regu- latory risks are high. Employer or health plan violations of ACA rules can result in excise tax penalties of up to $100 per day for every affected individual. With so many provisions for employers and others to worry about, some details have escaped notice.

Particularly challenging are the “shared responsibility” regulations, where rules are highly complex and the potential excise tax penalties are sub- stantial (up to $2,000 times all full time employees). Finance chiefs may want to coordinate staff to check on whether ACA compliance is sufficient. How do you know that your organization and its vendors are compliant with these new regulations? Has an independent assess- ment been conducted?

The next two years will be pivotal for how health care benefits evolve over the next decade and beyond. With so much change occurring in 2014, PwC has found that almost half of employers in- tend to significantly reevaluate their over- all benefits strategy. Some will elect to stay with their current health care bene- fits, perhaps moving to incorporate more consumer ism, improve the accountability for wellness and initiate a more progres- sive approach to health care delivery.

Others will elect to reexamine whether and how coverage is provided or move toward a defined contribution approach through private exchanges. All will need to prepare for a new world of greater regulation and an accelerated pace of change in the economics of pro- viding health care benefits.

Michael Thompson (michael.thomp [email protected]) is a principal in the human resource services practice of PwC in New York City. Amy Bergner ([email protected]) is a managing director in the practice and based in Washington, D.C.

32 MARCH 2013 • FinancialExecutive www.financialexecutives.org

To complete this FERFPros CPE Learning Module: 1] read this article

2] complete this learning module at www.financialexecutives.org/fly/CPE0313

FERFPros is a fee-based subscription program.

For more information visit www.financialexecutives.org/cpe, or contact FEI’s CPE

administrator at 973.765.1049 or email [email protected]

With more than 2,400

pages of legislation, more

than 400 separate rules and

tens of thousands of pages

of regulations, regulatory

risks are high. Employer or

health plan violations of

ACA rules can result in

excise tax penalties of up

to $100 per day for every

affected individual. With

so many provisions for

employers and others to

worry about, some details

have escaped notice.

be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written

permission. However, users may print, download, or email articles for individual use.