The fiscal cliff isn’t the only issue agitating employers. The Patient Protection and Affordable Care Act, or Obamacare, also has them scrambling for answers.
Those who attended the recent Grand Rapids Area Chamber of Commerce/Blue Cross Blue Shield of Michiganhealth care summit, held at Thousand Oaks Golf Course in Plainfield Township, received some welcomed insight.
Topics for discussion that took center stage included which employers will be required to provide health insurance to their employees, the cost of fines if they don’t, how chronic disease is the major reason for the steep climb in health care costs and what can be done to abate those ever-rising expenses.
Speakers at the conference were James Haveman, director of the Michigan Department of Community Health; Dr. Joe Schwarz, former congressman and chair of the Michigan Partnership to Fight Chronic Disease; Jim Ruvolo, principal of the Toledo-based public affairs and political consulting firm Ruvolo and Associates; and Mary Bauman, partner with Miller Johnson who’s also chair of the firm’s health care reform team.
Bauman said 2014 appears to be the effective date of state exchange and individual and employer mandates, despite efforts to push back such directives another year.
“Officials from the Obama administration have indicated that they do not intend to push back the 2014 effective date,” said Bauman. “Some costly items may be scaled back to help address the fiscal cliff.”
Policy wonks are still sifting through the details, but what’s coming to light is Obama and Congress seem willing to scale back some of the more costly items of the law in light of the looming fiscal cliff.
“For example, the premium credits for low-income individuals to obtain coverage on the state exchanges may be reduced,” said Bauman.
Other changes may be made to address what Bauman termed “fairness issues.”
“Insurers on the exchanges and in the small group market can base premium rates on age, but can’t charge more than three times as much for coverage sold to an older person than to a younger person,” she said. “Since most states currently allow a 5 to 1 ratio, this has been challenged as an unfair method of shifting costs from older individuals to younger individuals.”
According to Bauman, other changes will include:
• Employee pre-tax contributions to a medical flexible spending account will be capped at $2,500 per participant, per year.
• Beginning in 2014, health plans may not impose a waiting period of longer than 90 days for newly eligible employees.
• Beginning in 2013, employers must provide individuals with a notice regarding the availability of the state exchanges, which must be in place by 2014, and the premium credits and cost-sharing subsidies available to low-income individuals if they enroll in coverage on the exchange.
• Also beginning in 2013, employers will be required to interact with the state exchanges to verify employees’ eligibility for employer group health coverage in order to administer the potential financial assistance for low-income individuals applying for exchange coverage. Gov. Rick Snyder has proposed Michigan’s exchange be a nonprofit corporation (Senate Bill 693).
Perhaps what could be considered the elephant in the room is: Which employers will be required to provide health insurance to their employees?
Bauman said beginning in 2014, employers with 50 or more full-time employees must report to the IRS whether they offer minimum essential coverage to employees, or pay a “rider fee” penalty. The federal government defines “full-time” as those who work 30 hours or more a week.
If the employer does not offer a health plan and at least one full-time employee enrolls in health coverage through the exchange and becomes eligible for the premium credit, the employer must pay a penalty of $2,000 per full-time employee per year, Bauman said. The penalty is determined and assessed on a monthly pro-rata basis.
If the employer does offer health coverage but has at least one full-time employee who is enrolled in health coverage through the exchange and receives the premium credit, the employer is subject to a penalty of $3,000 per individual receiving the credit (or $2,000 per full-time employee disregarding the first 30, if less).
Bauman acknowledged some employers may decide to trade the $2,000 per full-time employee penalty in exchange for the “cost” of maintaining the health plan, while others may reduceemployee hours to fewer than 30 per week, outsource certain business functions, or introduce a low-cost medical option with a low employee premium for single coverage.
She pointed out the actual cost of discontinuing the health plan would cost more than the $2,000 per full-time employee penalty.
“If an employer provides additional compensation to employees in lieu of health coverage,” said Bauman, “it may permanently increase the wage base, increase payroll taxes, increase the cost of compensation-related benefits, such as disability and life insurance and retirement benefits, and may actually disadvantage lower-income employees if the additional pay causes them to lose eligibility for premium credit.”
Plus, the cost of maintaining a health plan is a deductible business expense and the $2,000 penalty is not, said Bauman.
Haveman said many trends are emerging in health care. He noted 75 percent of Medicaid recipients have five or more chronic diseases. He believes within five years Michigan will have only four or five major health systems and noted that electronic medical records are a push in the right direction but too often such records are not synced to provide health care providers with a seamless, reliable set of records regardless of where patients receive their care.
Haveman urged employers to see health and wellness as the wave of the future to cut health care costs. That will require reducing many people’s body mass index.
“We’re the fifth-fattest state in the nation,” he said. “Thirty-two percent of Michigan is obese. It costs us $3 billion a year to treat obesity.”
Schwarz said 76 percent of Medicare’s expenditures are due to treating people with chronic diseases, such as diabetes, chronic obstructive pulmonary disease and heart disease.
He said chronic diseases are the No. 1 cause of death and disability in the United States; patients with chronic diseases account for 75 percent of the nation’s health care spending; the doubling of obesity between 1987 and today account for nearly 30 percent of the rise in health care spending; and finally, the vast majority of cases of chronic disease can be prevented or managed.
“Eighty-four cents on every dollar goes toward treating chronic diseases,” said Schwarz.