The Affordable Care Act has been in place for 6 years, and it’s time for companies to start gauging the impact these legal changes have made to the overall healthcare marketplace and their ability to offer competitive benefits to employees.
John: Hi, I’m John Maher. Today I am here with Darren Ambler, Managing Director for Insights Employee Benefits practice and today we are talking about the impact of the Affordable Care Act. Welcome Darren.
Darren: Thank you.
Largest Impacts of the Affordable Care Act
John: So Darren, the ACA was signed into law in March of 2010. What are the largest impacts that you’ve seen?
Darren: I really look at this as kind of a story of the good, the bad and the ugly, [and] it depends on perspective. But the really great thing is we’ve dramatically reduced the number of uninsured Americans. About 90% of Americans now have insurance. And here in Massachusetts, it’s actually about 97%, which is you could consider that fully insured because you are always going to have some people in transition, so 97% is really about 100%. We also have better access to coverage for individuals and subsidies for that coverage. Before the ACA, access to coverage was difficult, you had to go direct to the insurer, [and] now we have market places so that employee individuals can always go to those locations and actually sign up for insurance either online, in person, at different locations, or over the phone. We also see lower costs for individuals who don’t have employer coverage. Before, the costs for that coverage was quite high. When you get into the bad, really there was no direct impact on health care costs, the actual cost of care.
John: Right. It just seems to keep going up and it doesn’t seem to affect that very much.
Darren: Exactly. The ACA was really about access to care and insurance. So it didn’t directly impact the actual health care cost. The other things when you really get into the ugly is from the employer perspective. [You have to consider] the increase in the insurer’s cost for employers, the significant new compliance burdens for them, and then ongoing changes to plans that they have to deal with.
Why Has It Taken Six Years to Implement the ACA?
John: Okay, why has it taken so long to implement all of the pieces?
Darren: It certainly had a rocky start. There is just so much to it and it still faces some challenges, but a lot of it has actually been implemented. You really had significant new areas of oversight for health and human services, center for Medicare, Medicare services, [and] certainly the IRS as well. This is all new to them, so it took a lot of time to get implemented. We saw challenges brought before the Supreme Court. I think most of that is behind us at this point and the ACA has stood up quite well to those challenges.
We’ve seen the building of the Federal Marketplace, some call it the Exchange, but really they’ve gone with that Marketplace name. Certainly here in Massachusetts we’ve had the State Marketplace, there are about 15-20 states that have their own State Marketplaces. Massachusetts has certainly had it longer due to mass health care reform, but those took time to build out.
What is the Marketplace?
John: Explain what the Marketplace is really briefly.
Darren: That’s mainly for individuals to go and purchase insurance for themselves. But it does also have an outlet for small businesses to go and purchase insurance. But it’s much like they would purchase insurance directly through insurers. [There’s] not a whole lot of difference between the direct model and the exchange model for small businesses. But it is much easier for individuals to buy insurance that way.
John: Okay what else?
Darren: It’s the implementation of market reforms throughout plans, the creation of regulations for the insurers and the employer requirements. Really, you had a law, but then you had to create all these regulations to manage that law and to manage all the pieces of it. And then it was also a lot of the vendor partners in the Marketplace [who] had to build tools to support this [and] us as a brokerage had to do that. Payroll vendors are very important pieces in this and then you also have this whole new cottage industry of third party software out there to help employers with these programs.
Market Reforms Defined
John: Okay, so you mentioned the term market reforms, what are market reforms?
Darren: Market reforms are a lot of the things that were put in place to help individuals with access to better care and better pricing. We’ve had about Zero Dollar Wellness, we now have no co-pays and no costs associated with our annual preventative care. And that’s across the board for both individuals as well as employer based insurance plans. One of the great things was the elimination of pre-existing condition limitations. Previously, a lot of states had rules that allowed insurers to either deny coverage, increase costs or exclude certain types of care for people with a pre-existing condition. We no longer have that and that’s a great thing.
John: Right, because everybody should be able to get insured, even if they have a condition that is already known.
Darren: Absolutely. Because before they just fell on the state burden, so that has changed. We’ve eliminated the life time limits. Some plans actually limited how much care they could possibly provide for you and then you are out of pocket after that. And that was very difficult for people with significant illnesses. Caps on out of pocket costs on an annual basis were also put in place to limit people’s expenses, so that was a great thing. We also have the minimum central coverage standards. Every plan has to have at least a certain amount of coverage to even qualify as a credible plan. And that’s very important. Because before you saw plans that really left people with significant financial burdens because they really weren’t true insurance.
Darren: And then the medical loss ratio requirements, which were really a cap on profitability for insurers. They made sure that employer based insurance programs and individual plans didn’t have too much profit built into the rates. And those were implemented as well.
Biggest Challenges of the Affordable Care Act for Employers
John: Okay. What are some of the biggest challenges then for employers?
Darren: Yes. This is where we really get into the ugly part from the employer perspective. It has increased cost for employers. I don’t really want to put a number on it, because there are so many numbers out there, percentage of increase or actual dollars increase. If you Google it, you will see a hundred different numbers out there but they all agree that the costs have increased. Some of the reasons for that is you have increased enrollment now. Because of the individual mandate [that] everybody has to have insurance, we have seen employers with increases in enrollment. Less so here in Massachusetts, because we had health care reform prior, but in other states, we saw significant increases in the moment for employer groups.
John: Right. So, a company would have a certain percentage of their employers that just opted not to have insurance, I mean their employees not to have insurance and that reduced their costs. Now, all of their employees have to get insurance and that’s going to increase the cost.
Darren: Exactly. Quite often they were your younger employees, which you generally want to have on your plan because they help to reduce the average age of the participation which reduces the average cost of the plan.
Darren: Yes. So bringing them on it did increase the overall cost for employer to some degree there can be a positive impact to the rate.
John: What else?
Darren: We also saw the market reforms put in. Those all come at a cost. When you add these features to health plans, their increased risk for insurers, [and] the increased cost of claims for insurers, you are going to see it in your premiums. That’s an increased cost. And then we also have assessments in taxes, the Health Industry Tax also known as the HIT tax, the reinsurance fees, the PCORI fees and then in the future we’ll have the Cadillac tax possibly. We’ll see how that turns out.
John: And what is that?
Darren: That’s an excise tax on high cost health plans.
Darren: If your plan is deemed to be very expensive, then you’ll pay excise tax on the amount over a certain threshold that’s adjusted by the federal government each year.
Shared Responsibility of Employers
John: Interesting. What about the sort of shared responsibility of employers?
Darren: Yes. This presents the biggest compliance burden for employers because it’s something nobody has ever done before. The federal government never did this before, so they had to invent these processes for the employer share responsibility also known as the pay or play rule. But really we have to measure the employers’ ability to offer coverage to full time employees. We changed the definition or we created the definition of full time employees at 30 hours. Most employers consider full time at 32, 35 or even 40 hours. We reduce that threshold and we have to make sure we have the offer of coverage now and prove that offer of coverage. We also have to prove that the coverage is affordable and the federal government sets these affordability standards each year now that we must meet with the plans. And then of course, they do have to meet minimum coverage standards, which is probably the easiest part because most insurers are no longer offering coverage that doesn’t meet those standards to begin with, so that part’s easy. But the record keeping for making sure that you made the offer of coverage and your plan is affordable is very challenging.
And the way it was prescribed it had to be done was something that was never done and it’s in a way that employers don’t necessarily keep records. That’s really where that third party software industry has really come about — payroll vendors and outside vendors have brought in tools. The employers don’t necessarily want to invest in [these tools], but they are left without a choice, because it’s so difficult to do without the help of these programs. And after employers get through the tracking and record keeping process, they also have to produce these 1094/1095 forms for each employee [that] has to receive a 1095. And that’s a whole new challenge for employers. Again, these software solutions have come in to help with that. But there are a lot of codes that employers need to use to fill out these correctly and they are challenging to know the right way to do it.
CRS created a correction process which employers have to follow and go through this correction process to make sure that after they have already submitted their forms. They have the opportunity to do this and make those corrections and if they don’t they could face further penalties. That’s a big challenge for employers. And then the other piece that goes with that is that employers could receive a Marketplace notice, which is a notification from the state or the federal Marketplace that they have an employee who went to that Marketplace, received a plan and received a subsidy to help them purchase that plan. If the employer can’t prove that that plan that they offered to that employee was offered, it was affordable and it met minimum credible coverage standards, then they’re going to face an assessment for that and it’s a pretty big number that they face for that. On top of that, you have other compliance burdens.
Plan documentation is now more important than ever. If your employers haven’t updated their plans to comply with the ACA, they really need to make sure that they update their plan document as soon as possible. Then employers that try and be the good guy, you’ve got to make sure that your workplace wellness programs actually comply. They brought in a whole list of new guidelines to make sure that employers that offer work wellness programs do it in a manner that protects the employees’ privacy, it doesn’t violate the Americans with Disabilities Act, and it doesn’t violate the Genetic Information Non Discrimination Act, also known as GINA. The rules that they’ve put in place make sure that employers are operating in a manner that doesn’t discriminate against these employees and it doesn’t use their information against them. A lot of it is common sense, but you’ve got to follow it, you’ve got to document it properly.
John: Right, so things like giving incentives or something like that, if employees have met certain wellness requirements or something like that, for the company that’s great. It sounds good on the surface of things, because you want to get your employees to be healthy, but there are some people who have disabilities and who just can’t participate in some of those programs, and that could be an issue for them.
Darren: Absolutely. Trying to do the right thing sometimes, if you’re not doing it the right way can actually get you in a lot more trouble than not doing anything at all. I would never encourage an employer not to do these things, but you’ve got to follow the right steps. As I said, a lot of it is common sense, but a lot of it needs to be documented properly and just done right from the start.
Potential Future Changes to the Affordable Care Act
John: We are in the midst of a presidential election here now in 2016, what types of changes to the ACA if any do you think that we’ll see in the future?
Darren: When I was about 10 years old, I think I got my Magic 8 Ball around that age and I still keep that and I keep it in the office. Whenever [I have] a question about the ACA in the future, I just use that Magic 8 Ball to come up with the answer.
John: Give it a shake.
Darren: Yes, because the guess that comes from that Magic 8 Ball is as good as any. We’re really in a state of flux. We really won’t know what’s going to happen with the Affordable Care Act until we have a new president and what that president’s thoughts are about it. Also we’re going to have new legislators and they’ll certainly have a say in that. I don’t want to expect a huge amount of changes, but we don’t know what the changes will be.
How Insight Performance Can Help
John: Can you just talk a little bit for a minute, about some of the ways that Insight can help employers get through, what sounds like an awful a lot of regulations and all of the paper work? Making sure, like you said, that they’re doing the right thing but they’re doing it in the right way. How does Insight help with that?
Darren: Of course. The first thing that we look at is what are the responsibilities for that employer? Because they do differ, based on the size of the employer. Certainly for employers with over 100 employees, the burdens are different than one with only 10 employees. We look at what are the responsibilities that you need to comply with? Then we build a plan around that, a calendar of actions to take care of.
The biggest things are certainly around the reporting process. Making sure that the employer has the access to the right record keeping tools, and the right tools to deliver the forms on time and make the corrections available. If they receive a Marketplace notice, how are we going to help them appeal that? That plan has to also be in place. Then the communication process is very important. As I said, plan documentation and related materials have to be updated. So we work with the employer to make sure that those materials are up to date, [that] they contain all the required language and that they’re delivered at the right time to the employees.
John: All right, well that’s great information Darren. Thanks again for speaking with me today.
Darren: Thank you.
John: For more information, visit insightperformance.com, or call (781) 326-8201.