Unanswered questions and unknown repercussions abound as regulators continue to flesh out the provisions of the Patient Protection and Affordable Care Act framework. For employers, it is a frustrating time of uncertainty and confusion.
Here's a template for making decisions: Always opt for taking control rather than taking orders. What do I mean? It's simple: You can wait for health reform to happen to your clients, or you can help them take action that will maximize their ability to control their benefits and expenses, regardless of new regulations.
Let's look at a big-picture example to understand the power of this take-control template. Your small or medium-sized clients probably have fully insured plans since conventional wisdom - until recently - has been that employers need to be huge to self-insure.
Fully insured plans put you at the mercy of insurers, who are the No. 1 target of federal regulators. Insurers are raising their rates in response to the few mandates that have already taken effect. As new requirements are phased in, this trend will accelerate - especially if the individual mandate is sidetracked by courts and the law's medical cost controls are as weak as many experts believe.
In short, insurers are being squeezed, but your employer clients are the ones who will ultimately pay the higher costs. Or they can do what hundreds of other employers are already doing: shift to self-funding and take control.
The take-control template works at every level of benefit package planning. For example, thousands of employers took advantage of the retiree drug subsidy when Medicare Part D was created. In a nutshell, the retiree drug subsidy was the incentive the government used to keep employers from dropping their existing retiree drug benefit and dumping their former workers into the then-new Medicare Part D program. Experts have estimated the average value of the subsidy for employers at around $500 per retiree. This was expensive for the federal government, but far cheaper than footing the full bill for Medicare Part D enrollees.
When PPACA was enacted, legislators tucked revenue enhancements in wherever they could to offset the high costs of covering the uninsured. One of those provisions stops employers from writing off on their taxes the 28% of drug costs covered by the subsidy. Also, they can no longer write off administrative costs for complying with the subsidy's bookkeeping requirements.
Towers Watson estimates these changes will cost employers about $14 billion - an average $233 per year for each retiree and spouse.
The Employer Group Waiver Plan (EGWP, pronounced "eggwhip") provides a much better option, with a couple of different strategies to choose from. One common one is to become a prescription drug plan sponsor who deals directly with the federal government for reimbursement. The government uses a nationally based formula to calculate a capitation fee for each plan participant.
Experts put an EGWP's value at about $200 per participant per year more than the retiree drug subsidy. Depending on the employer's circumstances, the federal government ends up paying about 35% of prescription drug costs.
To make this option work seamlessly, employers who sign on as a direct drug plan sponsor partner with a TPA, just as they do when they transition from fully insured to self-insured benefits.
The key is to find a TPA with appropriate expertise and a demonstrated track record of experience with things like enrollment and fulfillment; medical underwriting; claims management; eligibility maintenance; billing and collection; customer service; and records management. Extra services can include auditing analysis, integrated stop-loss insurance and customized products.
In the end, employers need to understand that "doing" instead of being the one that something is "done to" will always be to their advantage. Many are watching the federal government's pronouncements, flip-flops and regulatory creep with the dismayed fascination usually reserved for snake charmers. There is no sense in waiting for the cobra to strike. Instead, take control by exploring your self-insured and EGWP options.
Fleet is the president of AmWINS Group.
