Employers struggling to stay afloat in the flood of guidance on implementing the Patient Protection and Affordable Care Act will find themselves looking both forward and backward this year. Their challenge: to gauge how the PPACA rules issued so far are affecting their plans while at the same time anticipating the changes that lie ahead in 2012, 2014, and even 2018.
"There were a lot of mandate changes and a lot of notices sent out [in 2010] and people were exhausted after doing all that. Some of it was done very quickly - once you got the regulations, sometimes you only had a few weeks to implement. We're finding that people are going back and saying, 'What exactly did we do, are there things we need to do to fine tune and what are the cost implications for what we did?'" says Kathryn Bakich, senior vice president and national health compliance practice leader at Segal.
Thankfully, plan sponsors received two holiday gifts from the government when two major provisions were delayed until 2012. W-2 reporting on the value of health coverage for the company will be required for 2013. Employers will need to change their payroll and tax systems, an administrative issue. Still, "a delay of one year is welcome," says Tom Lerche, national health reform leader for Aon Hewitt.
Nondiscrimination testing for insured medical plans has also been delayed, until 2012 at the earliest.
"We're seeing a shift in terms of regulatory activity. Now that we are past the provisions that went into effect Sept. 23 or the first plan year after, we're seeing a return to a more usual process by the agencies to develop regulations and implementation guidance. Rather than an interim final regulation, we're seeing requests for information. We just saw one on the value-based insurance design for preventive coverage" in December, explains Kathryn Wilber, senior counsel, health policy, American Benefits Council.
The Department of Labor plans to do the same for the auto-enrollment provision - which, the DOL has clarified, will not take effect until the agency issues final rules.
The IRS is also asking for concerns and more information from employers and other stakeholders concerning the nondiscrimination provisions in the law that apply to insured health plans.
In more welcome news, the agencies are allowing more opportunity for plan sponsors to weigh in before proposed rules are issued, says Wilber.
In general, "they've tried to be flexible," seconds Bakich, as with the prohibition of health debit card use on over-the-counter prescription drugs. Now individuals can use FSA debit cards as long as they are at a pharmacy, under the terms of a late-December IRS ruling.
"I think that as they go through this process, they're going to try to be accommodating," Bakich continues.
The government will give employers more time to implement more complicated things, says Bakich, adding that they will enforce the provisions by encouraging voluntary compliance, not sanctions.
"We're expecting to see a continuation of the regulatory flexibility that we saw toward the latter part of 2010," says Steve Wojcik, the vice president of public policy at the National Business Group on Health.
For example, the mini-med plan waivers will help more than 700 employers and union plans (as of last month) maintain coverage until 2014 when the exchanges come into play. There was also more flexibility for non-grandfathered plans with changes to external review, internal appeal, and preventive services requirements, as well as the delay in the W-2 reporting requirements.
The federal government is reaching out much more to employers for comments to avoid any unforeseen consequences for employer-sponsored plans, says Wojcik. There are extended comment periods for rules coming out before final regulations are issued.
Lerche explains that "the delays weren't because the feds didn't want to do it; it's just that writing regulations is more complex."
Either way, employers now have a cushion of time during which they can focus on the long term.
"Take a deep breath after last fall, when there were so many pieces of guidance issued in such a short time frame," advises Susan Nash, a partner at McDermott Will & Emery. "There's not a lot that goes into effect in 2012, so it's really going to be more clean up of what they already have issued."
One remaining area of confusion is the definition of "essential benefits."
"Though the government is not necessarily behind on guidance, they did drop the ball on defining essential health benefits so as to help employers determine whether annual limits are applicable to certain benefits. This made it difficult to determine levels for 2011 plans, but the HHS has promised to have these out before next year, hopefully before July 1 plan years," says Nash.
"There have certainly been areas where there have been concessions [or rules on timing of grievances and appeals] to make implementation more practical and more responsible, but I don't think it's changed the basic roll-out so far," says Mike Thompson, principal and head of the N.Y.-metro health care practice in the PwC human resource services practice. "My sense is that the basic framework will stay in play, but the regulations that come out will include a lot of technical corrections to make it more practical to employers and other stakeholders to make the rules more sustainable based on the realities these companies face."
Nevertheless, some experts warn that the very core of the legislation is flawed and will harm employers.
"What the law did was expand coverage for the uninsured and change the way insurance companies conduct business. What the law did not do is provide employers with effective tools to lower the cost of care," says Lerche. "For a lot of employers, cost is their biggest problem, and the law in its final product did not provide tools to help lower that cost. That's why it's important in 2011 to revisit their health care strategy because they need to take ownership for designing and managing their plan and the cost that comes out of it."
"They have to do the work themselves," he advocates.
For employers with more than 200 employees, auto-enrollment requirements could be on the horizon, a serious concern especially for industries with high turnover. Plans will need sufficient time to change computer systems and adopt procedures necessary for implementation, says Wilber. The government has indicated that it intends to request information this spring in anticipation of developing regulations or guidance implementing the auto-enrollment requirements, she says.
Lerche doubts that auto-enrollment will happen this year, noting that the law didn't specify an effective date for that requirement.
The CLASS Act is a similar mystery. It was supposed to be functional in 2011, but there have been no guidelines and the administration of the program shifted from the HHS to the Department of Aging in December. Lerche doesn't expect it will be rolled out in 2011.
At least one item is on track - the new HHS uniform benefit disclosure form is scheduled for release on March 23, says Bakich. The form is designed to be a standardized benefit summary of no more than four pages. It will be in the form of a template for plan sponsors to use in 2012.
Employers will also have to give 60 days' advance notice for changes to plans, something that rarely is done now, so this will be a big change.
Looking ahead, employers should examine their grandfather status as more regulations and interim rules emerge. Bakich advises employers to look ahead to see if they could lose their grandfather status, and make changes accordingly.
In the short term, the government has pushed back to July the date for internal review for non-grandfathered plans.
Approximately half of Wiber's employer members indicate they will retain their grandfather status, which is consistent with consultants' surveys on this question. Some employers may wait for final rules on internal appeals and external reviews (not applicable to grandfathered plans) to decide whether they will relinquish grandfather status for 2012.
In 2013, the FSA limits will take effect. Also, the retiree coverage subsidy kicks in with tax implications.
2011 as a strategy year
Last year "was a year largely focused on compliance and bringing plans up to code for the new minimum benefit mandates," says Mike Thompson, principal and head of the N.Y.-metro health care practice in the PwC human resource services practice. "2011, I think, will be much more of a strategic year where companies are looking at their plans with a broader focus on where they want to be longer term."
More specifically, they will be focusing on the free rider penalties, health exchanges, employer and individual mandates, and even the excise tax in 2018.
"We're seeing companies go back to basics and better define where they want to be with their plans and understanding what the impact on them is if they maintain the status quo and putting plans into place to mitigate any issues that might hit them as a result of health care reform, particularly the free rider penalties, but also consider what their options are as the overall health care environment changes," Thompson reports. "Now is the time to better formulate where [employers] want to be long term with their benefits programs as well as their overall people strategy around health benefits."
"Now that the first year of health reform has been completed and [employers] have done a lot of the heavy lifting (the changes in the lifetime and annual maximums and the covering of adult children), 2011, because [the W-2 reporting and nondiscrimination testing] were postponed until 2012, is relatively a light year on the compliance side. [Employers] should turn their attention to updating and revising their health care strategy," says Lerche.
He believes that if the medical cost trend is in the high single digits or low double digits, it will be a major concern for the next three to five years. With that trajectory, employers can't continue their current programs as designed, and will need to revamp their plan designs to mitigate costs, he says. Therefore, 2011 will be a time to review and update their health care strategies and work to improve employees' participation and engagement in wellness and health management programs, advocates Lerche.
Many employers are modeling for plans to determine what they will look like when the exchanges are functional, and whether they will incur the excise tax in 2018, says Tom Billet, senior consultant and leader, health and group benefits at Towers Watson.
If they make changes now and plan now, he argues, they can make small changes incrementally, thereby easing their employees into the health care reform overhaul.
Right now, employers should be focusing on the big picture: how to continue attracting and retaining top talent. Most will continue to play (not pay the penalty), says Billet, so they will need to consider how they will improve and present their plans in 2014 after the exchanges are in place. In other words, what will be the differential value of private employer-sponsored health plans once exchanges come into play?
For the health insurance exchanges, the federal government allotted $1 million in grants for states that accepted them to begin work on the exchanges.
"There's been a lot of turnover in the governorships because of the 2010 elections, so in some cases that will slow the design and implementation process," Lerche points out.
Every state has a different story. Wisconsin, a state that formerly had a democratic governor, now has a Republican governor and legislative body, is reviewing and modifying their exchange strategy. Meanwhile, California is moving ahead aggressively.
Other states are cautious and waiting for the congressional debate on repeal and replacement to play out and for the judicial challenges to PPACA to be resolved.
On March 23, the government will dole out the first $1 million grants to states to establish exchanges.
If a state exchange is deemed inadequate or is not created, the federal government will set up an exchange in that state. Do Republicans really want to open the door to a federal exchange program in the states, asks Paul Fronstin, director of Employee Benefit Research Institute's Health Research and Education Program.
No matter the political rhetoric, Wojcik advises employers to plan to stay on course. Last fall's elections and ongoing legal challenges to PPACA won't have an immediate impact on employer plans, and may not have any impact at all. Rather, the fate of the law and its effect on plan sponsors remains to be seen.
In this "environment of uncertainty," employers "have no choice but to assume the law will go forward as is," says Fronstin.
"Certainly pay attention to the debate in Washington, to potential changes in law and the legal challenges," Lerche advises. "But that aside, my strongest recommendation is that an organization should engage leadership in a discussion about the design, value and cost of their employer sponsored coverage. And it's critical that they start that dialogue in 2011 given the ongoing costs of this benefit."
Koster is the online managing editor of SourceMedia's benefits websites.
