Practical Solutions for Cost Reduction under Health Care Reform
According to a recent Kaiser Family Foundation poll, almost 60 percent of Americans feel the Health Care Reform legislation has had no impact on their lives. However, the organization also identified that in 2012, prior to the employer mandate deadline, almost 96 percent of employers with at least 50 full-time equivalent employees already offered health insurance to their employees. It is these same organizations that are most impacted by reform legislation and are seeking creative and practical solutions for the mandated requirements they must follow.
Private Insurance Exchanges
One option includes the use of Private Insurance Exchanges. Different than a Public Exchange where anyone can seek insurance based upon community prevailing rates, a Private Exchange is catered to the employer’s plan design needs and is typically managed by private sector insurance and brokerage companies. Employers typically offer a set amount of dollars for the purchase of health insurance and the employee selects a plan that supports their personal needs from that Private Exchange. Through Private Insurance Exchanges, employers can provide better value to their employees by typically offering a much broader range of plans. Employers also have better control on the predictability of cost and don’t have to utilize company resources for the management of those benefits because that is done through the Private Exchange.
The popularity of these Private Exchanges is growing at an exponential rate. According to a 2013 study completed by Accenture, approximately 1 million individuals were estimated to obtain health insurance through Private Exchanges that same year. The study further predicted that this number would increase to almost 40 million in 2018. Part of this growth is due to an expansion of the number of Private Exchanges available to employers and the greater flexibility in access to the Private Exchanges based upon an employer’s size. Some of the initial Private Exchanges required an employer to have at least 5,000 employees; today, Private Exchanges are available for employers with as few as 100 employees, and exchanges are being developed to support employers with even fewer employees.
Some employers also are considering transitioning from a fully-insured plan to a self-insured plan. Although self-insurance plans can pose a greater financial risk for business organizations, especially if the past claims history is not known, they can generate significant savings if managed correctly. These plans are typically paired with stop-loss insurance to help cover claims that are higher than anticipated. Additionally, certain regulatory exemptions for self-insured plans from Health Care Reform regulations also provide incentives to use them, such as:
- “Essential health benefits,” which include some areas of coverage that are not wanted or needed by individuals and employers. Self-insured group plans, among others, are not required to offer essential health benefits.
- Medical loss ratios (MLR) now apply to health insurance issuers so that any premiums paid which exceed approximately 15 percent to 20 percent for administrative costs are rebated to employers. The MLR does not apply to self-insured plans.
- An annual fee requirement, which is typically passed to employers with fully-insured plans, now applies to certain health insurance providers. Self-insured plans and insurance issuers with less than $25 million in revenues in a calendar year are exempt from this fee.
Professional Employment Organizations
An additional practical solution includes the use of Professional Employment Organizations (PEOs). PEOs assume employer responsibility and risk through contractual co-employment relationships with a client’s employees. One of the key benefits for small employers is the ability to obtain health insurance through this outsourced HR model based upon an employee’s health history and not a community rating typically available through Public Exchanges. However, because of the complexity of Health Reform regulations and the increased burden placed upon HR departments, large employers are also utilizing PEOs. Approximately 800 to 900 PEOs are operating across the country, and according to the National Association of Professional Employer Organizations (NAPEO), the industry increased from a 5 percent growth rate in 2010 to just over 10 percent in 2012.
A number of practical solutions for Health Care Reform requirements exist, but developing a strategy that best fits your organization is crucial.