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Murky Health Reform Grows Clearer for Business

Source: Kansas City Business Journal

Posted on 16 Mar 10

After months of uncertainty about health care reform, glimmers of clarity are emerging on what a final plan might look like — and what that could mean for business.

The debate’s parameters have narrowed to two main options: the Senate version passed in December and the compromise plan President Obama offered before his reform summit last month. Both plans would apply only to businesses with 50 or more employees.

Either way, now’s the time for businesses to analyze employees’ use of health care, perhaps even on a worker-by-worker basis, benefits consultants and others said. The White House is pressing to have legislation on Obama’s desk this week.

Although the proposals might benefit business in the long run by reducing overall medical costs, they may force a more immediate decision for employers: whether to continue coverage.

The Senate version would require employers to pay 60 percent of charges in plans. If the employer offers no coverage, in some circumstances it could face an annual penalty of $750 an employee.

That means employers must determine whether they can afford the 60 percent threshold or whether it’s more affordable to drop coverage and pay the penalty, said Yvonne Waterman, a vice president of Overland Park-based Power Group Cos., an insurance agency that specializes in employee benefits and risk management.

Of course, observers said, dropping coverage can affect recruitment and retention. Typically, Waterman said, employers with small groups — usually no more than 100 members — pick up about half the costs.

“What we have been doing (with clients),” she said, “is looking at, OK, what do you think you can afford, and understanding the value of what that buys.

“Does that mean we have to look at plan design changes? Do we need to step back and look at consumer-driven products or higher-deductible-type plans, and what is that going to look like from a financial perspective?”

Another Senate provision would mandate that an employee’s contribution to health care costs not exceed 9.8 percent of the employee’s household income.

It’s probably not administratively feasible to figure out each employee’s household income, said Ed Fensholt, a senior vice president and director of compliance services for Kansas City-based Lockton Cos. Inc., an insurance broker.

So employers would do well to start thinking how they would set employee contributions based on 9.8 percent of salary, said Fensholt, also a member of Lockton’s Health Reform Advisory Practice.

That way, if an employee has additional household income, the percentage he or she is charged would be below the ceiling in the Senate plan, Fensholt said. But a different provision of the Senate plan would give employers another, safer percentage to shoot for, said Shannon Demaree, vice president of actuarial services at Lockton and a member of the Health Reform Advisory Practice.

“The really safe spot is 8 percent or below,” she said, because of requirements that employers subsidize coverage for workers who use the health insurance exchanges contemplated by reform.

Even if an employee is paying as little as 8 percent of household income toward a plan, employers must provide a voucher if the employee’s household income is as much as 400 percent of the federal poverty level.

The Senate plan would require employers that offer no coverage to pay $750 for every full-time employee if even one gets insurance through an exchange. Obama’s plan would make that penalty $2,000, Fensholt and Demaree said.

Businesses may take another hit from a proposed $67 billion tax on insurance providers — imposed to help pay for reform and expected to be largely passed on to smaller businesses.

The levy “really does leave small business footing a big chunk of that bill,” said Michelle Dimarob, a Washington lobbyist for the National Federation of Independent Business.

The proposals are not bereft of hope for business, said Dr. Lori Heim, president of Leawood-based American Academy of Family Physicians. The Senate version would extend coverage to 31 million uninsured Americans.

“Any time that people have access to care, if they start getting regular medical care,” she said, “we can see downstream cost savings to the system.”