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Health Care & Insurance

Employers Are Facing Big Changes with Health Care Reform

As Congress struggles to produce a bill, key elements affecting companies are emerging.

As the largest source of coverage for working Americans, employers have a huge stake in health reform. About 63% of companies offer health insurance to their workers and then pick up most of the tab. According to a recent survey by the Kaiser Family Foundation, employers paid 84% of the premiums for single coverage and 73% for family coverage. And those costs keep rising. Since 1999, average premiums for family coverage paid by employers have increased 119%. Part of those premium increases represent medical costs of the uninsured that are “cost shifted” to those who can pay. Employers also get taxed to help finance Medicare.

While details of an overhaul of the health care system remain in flux, key elements of interest to businesses are emerging. Among them:

  • An insurance exchange. Most proposals include a “marketplace” where companies and individuals would be able to compare plans and buy coverage. More competition is the goal, which should keep premium hikes in check. This should help small businesses, especially, since they don’t have the clout now to bargain effectively over prices. Also, insurers would have to take all comers, regardless of prior health conditions.
  • Employer mandates. This is a real sticking point. Most employers are strongly opposed to this idea, although there are some notable exceptions. Wal-Mart, for example, recently endorsed an employer mandate, as long as it was tied to strict measures to rein in cost hikes. In the Congress, liberal Democrats are insisting on “play or pay” rules for all but the smallest businesses. More conservative Democrats and the few Republicans who are involved in the negotiations prefer incentives to spur employers to offer coverage. Odds favor some sort of required payment by employers. One idea gaining steam is a so-called free rider provision that would require employers to pay for workers who get their health coverage with government help.
  • Less flexibility in designing health plans. Several mandate proposals would require employers to meet the “qualified health plan” definition. It includes a number of broad categories that must be covered (hospitalization, pharmaceuticals, mental health, etc.) but gives wide discretion to the secretary of health and human services to stipulate the terms and conditions of coverage. Employers fear this will take away their own discretion and make them less able to tailor their plans to the needs of their particular workforce. A compromise on discretion is likely.
  • A public option. It’s becoming less and less likely that a plan modeled after Medicare will be offered as an option alongside private plans due to stiff opposition from the GOP and some Democrats. But some compromise will need to be reached in order to garner the support of more liberal lawmakers -- perhaps health insurance co-ops or a plan that is activated only if private insurers fail to hold down costs.

Other ideas in early bill drafts have less of a chance of being adopted, such as:

  • Retiree coverage. Employers would be limited in how much they could alter any health benefits after a worker retires. If this provision were to become law, there would be a stampede as employers cut benefits or eliminate retiree coverage entirely, before the law takes effect, says one health benefits expert.
  • Mental health parity. All employers would have to provide comparable benefits for mental and physical ailments. Currently, businesses with fewer than 51 workers are exempt from this requirement.
  • COBRA expansion. Under this idea, former employees who go on COBRA after the new law’s effective date would be allowed to stay on it until the health exchanges are set up, probably in 2013.
  • OTC drugs items. Tax advantaged accounts such as flexible spending accounts, health savings accounts and health reimbursement arrangements could no longer be used to pay for over-the-counter medical purchases.
  • Taxing employee health benefits. While this proposal would generate much needed revenue to help pay for reform, opposition from the public and President Obama has dimmed its chances for approval. But another idea has surfaced that would tax the insurers who offer so-called high-end “Cadillac” plans. Employers argue that any tax on the insurers would be passed on to employers and employees as part of the premium.

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