Now that the Supreme Court has weighed in with their interpretation of the Patient Protection and Affordable Care Act (PPACA) most employers are left scrambling for answers. While thousands of articles, summaries, analysis, and opinions have been written about this legislation, most people are still left with more questions than answers. It is clear that most “experts” are more intent on shaping the reader’s opinion about the massive healthcare bill than they are in analyzing and explaining the real world impact of the new law. Maybe it is finally time to look for some real, practical analysis of PPACA.
The “middle of the road” (aka the loneliest place in the country)
Since the passage of PPACA in April of 2010, it seems a line has been drawn in the sand and every politician, pundit, regulator, consultant, healthcare provider and insurance industry executive has been forced to pick a side in the debate about the moral value of the law. The simple size of the bill (nearly 3,200 pages) has discouraged nearly everyone from reading what many agree is the most important piece of legislation in the last twenty years. Unfortunately, this has not kept many from offering their opinion of its content. While reading an opinion of the new law may be interesting (especially if the writer agrees with you!), it does not provide any real practical insight into the impact it will have on individuals and employers. After studying the law and speaking to hundreds of benefits attorneys, healthcare providers and insurance industry executives, I have found myself as one of the few people without a violent love or hate of PPACA.
What is clear is that the constant critiquing of the new bill has prevented many knowledgeable professionals from focusing on our real job, which is to develop strategies to assist employers and employees in understanding and implementing the new law. I believe that PPACA simply represents a good faith effort by well-intentioned politicians to solve a healthcare funding crisis in our country. Call me naive, but I do not believe that that the administration and Congress were trying to install a communist government, that we will have death panels or that we will have waiting lists for surgeries. On the other hand, I am not sure that PPACA will really get every citizen to participate in the insurance pool, that the typical citizen will find their health coverage easier to understand or that the health care costs will go down 30%. Our free enterprise healthcare system, funded by both private and governmental insurance, is very complex and any person experienced in our industry would have to acknowledge that any reform would have to be equally complex. Understanding the real facts about PPACA — what it does and does not do — can help employers implement the law effectively and identify areas where real cost savings can be found. In the end, those employers who quickly embrace this new reform (or the revised version, or even its replacement) will be best prepared to take advantage of many of their competitors who are still on the sideline complaining about whatever reform is put in place.
Stop, do not pass GO!
PPACA is a very complex law that regulates a wide range of components in our healthcare system. It would be impossible to summarize the entire law in even a single book, much less this brief article. Instead, the purpose of this summary is to focus on the key components that directly affect employers and their group health plans. Even with that narrowed focus, we are omitting discussions about minor parts of the bill such as the Cadillac Tax (which will apply to a very small number of plans), coverage of birth control and the health plan tax to fund comparative research.
First, it is important to understand that PPACA does not apply to every employer. Small employers with less than 50 full-time equivalent employees are not subject to the penalty portion of the bill. In fact, small employers may be eligible for incentives to install a group health plan if they do not currently offer one and to add a wellness program to their new or existing plan. Small employers that do not meet this definition may have a strong opinion about PPACA, but should understand that in practice they will not be significantly impacted by the law. The most significant change for them will be the introduction of a health insurance exchange, run by either their own state or the federal government, which will give them an option of selecting coverage from approved carriers. At this time, it looks like the plans to be offered by the carriers will include many of the traditional plans currently available (all meeting the new minimum coverage criteria) with the addition of some new limited plans with limited provider networks at a lower cost. A small employer can choose to buy coverage through the exchange or continue to purchase group coverage through his or her current broker or carrier.
It’s a simple game
Just like the frustrated manager in Bull Durham who explains to his players, “Baseball is a simple game. You throw the ball, you hit the ball and you catch the ball,” an employee medical plan is also a simple game. An employer really has only three variables he can control: plan eligibility, plan benefits and plan contributions. PPACA regulates these three components, but provides some flexibility for employers to customize their plan. While the narrowing of plan options may sound like a bad idea to some employers, most will find that their plan is already playing by these new rules. In fact, most experts estimate that about 80 percent of employee health plans are already compliant with all key requirements of PPACA.
“If most plans are already PPACA-compliant, then why all the controversy?” you may ask. Politics are largely to blame for stirring up passions on both sides, but the health insurance industry is also partially at fault. The truth is that most health plans sold in this country (from any carrier in any state) are very similar. Contributions and eligibility rules are also very similar for most employers. If this is the case, then why do we need reform? Unfortunately, not everyone has been playing by the rules. The 20 percent of employers that are bending the rules are starting to ruin the game for the rest of us.
Approximately twenty years ago, a few large employers figured that they could provide very poor healthcare benefits — or none at all — and reduce overhead to undercut their competition. Their workers could either buy insurance on their own, go on Medicaid or go without coverage, but they would not receive coverage through their employers. This has been going on for years, but with the increase in healthcare costs over the last 10 years, the number of employers adopting the strategy grew. As more employees were dropped from their health plan and then denied individual coverage, we ended up with a growing number of uninsured citizens.
As a result, the entire country entered an underwriting cycle called a “death spiral,” with more and more healthy people dropping out of the system and utilizing emergency rooms for all of their care. When they did not have the resources to pay for their care, the healthcare providers were forced to charge insured employees more to cover these costs. In turn, the carriers passed these costs on to each of us, causing premiums to spiral out of control. It has been clear for several years now that the current system is broken. Something has to be done. A single-payer system was not acceptable, nor was a complete free enterprise system, so we have been left with a compromise in PPACA.
In my next article, we’ll talk about the new rules under PPACA, including how these will affect plan eligibility, plan design and plan contributions. Stay tuned.