Strategizing for 2014 – Now is the time to begin!
Since the Supreme Court decided in June to uphold the health insurance reform provisions of the Patient Protection and Affordable Care Act (PPACA), hardly a day has gone by that I haven't read or heard something about businesses considering no longer offering health coverage in 2014.
Under PPACA's employer mandate, which is effective on January 1, 2014, companies with 50 or more full-time employees will have to either:
- provide all full-time employees (and their dependents) coverage that is "affordable" (i.e., employee contributions cannot exceed 9.5% of household income) and provides "minimum value ( i.e., the plan covers at least 60% of allowed costs) , or
- pay a penalty.
You may have heard of this referred to as the "play or pay decision," and whether an employer continues to offer medical benefits will have significant ramifications for both employers and employees — as well as for the health care system as a whole.
Accordingly, I thought it might be helpful to provide readers with some food for thought as you think about these options. We know that most, if not all, employers, as well as brokers and consultants on behalf of clients, have calculated what it would mean to pay the penalty rather than offer coverage. While there are additional financial considerations that should be thought through, the decision of whether to "play or pay" requires consideration of other important factors including:
- Employer-sponsored health benefits are a significant component of total employee rewards, and the financial value is delivered on a pre-tax basis. Employers may need to provide market value packages to hire/retain employees to compensate for the loss of benefits — especially higher wage earners who won't be eligible for federal tax credits. But, unlike employee benefits, increased wages will be subject to taxation, which will decrease the value of the increased compensation for employees. So the employee could not only end up paying higher taxes due to more compensation but also losing the pre-tax treatment of their benefit value.
- Offering health benefits leads to employee satisfaction, loyalty and productivity — ultimately attracting and retaining talent. A well designed benefit strategy can promote a culture of wellness and personal accountability that benefits your employees and your bottom line.
- Indirect costs from lost productivity due to illness and chronic disease can be significant and should be factored in as well. The implementation of programs that promote a culture of health and wellness are likely to continue to be valued by employers from not only a workforce health perspective but also a financial perspective.
- The penalties for not offering employee coverage may increase over time, particularly if Exchange utilization is higher than anticipated.
As you can see, there are many factors to consider as employers, brokers and consultants determine strategies for 2014 and beyond – and I've only touched on a few.
No matter what happens with reform in the future, we believe that employers will reap near and long term benefits from programs that drive individual engagement and accountability for one's own health and health care spending.
If, as an employer, you are undecided on the "big question," or you are a broker or consultant advising a client, choosing to offer benefit programs that promote these concepts seem like a safe bet. That's consistent with our strategic vision for an empowered health care system that has optimal health as its goal; one that exists to serve and empower individuals by providing access to quality health care, offering a range of affordable coverage alternatives and aligning incentives across the health care system to influence behaviors and life style choices.
Perhaps this is a good time to seriously consider a consumer-directed health plan, or other value-based plan such as tiered benefits. Combined with incentives for completion of biometrics or health assessments, wellness programs, and health education, tools and resources, consumer-directed plans have shown demonstrable success in lowering costs and fostering improved consumer awareness and engagement In their own health care.
To get a feel for how this can work, take a look at the Sixth Annual Cigna Choice Fund Experience Study.
We've continued to enhance our consumer-driven health plans (Cigna Choice Fund) since the initial launch in 2005. Our consumer focused plans provide individuals with personalized, relevant, actionable information, tools and resources so that they can make informed health decisions based on their unique circumstances.
Year over year, the Choice Fund study demonstrates that when individuals are more engaged in actively managing both their own health and their health care expenses, they can also improve their health and lower costs – without sacrificing quality, under-utilizing care or paying more premium. Our Choice Fund offering combined with our award winning Cost of Care Estimator are key drivers of the plan's overall success. Transparency of information encourages health care consumers to become more educated.
Of course, there is no one-size-fits-all benefits strategy. The "right" strategy is driven by a company's culture and philosophy, benefits policy and workforce demographics.
Evaluation of employee populations and current plans for both affordability and value is crucial.
If you identify gaps or opportunities and know you are headed for significant change, initiating the change sooner rather than later will allow employees more time to "ease" into new programs over multiple years!
So, if you haven't started planning a 2014 benefit strategy, now is the time to begin.
As always, we are here to help you evaluate your options.