Health Care Reform Impact on SMBs

by Shep Sepaniak, Managing Partner, Fritz-McDonald Company

America's Affordable Health Choices Act of 2009 in multiple forms in House and Senate proposed bills sets the stage for far-reaching changes to the American health insurance industry and health care delivery systems.  These reforms will over time impact Americans' current health coverage status, employers' cost of doing business and about 20% (and growing) of the total American economy now dedicated to the business of health care.  

Most importantly, future generations' access to health services will be profoundly different from what we know and enjoy today.  Whether or not the outcome meets the American vision will depend heavily on which interests participate most effectively in the shaping of these economically complex policies and systems. 

Action Item:  Stay on top of likely Health Care Reform outcomes, which will change your business and financial strategies.  To determine likely impacts and short-term changes in your benefits and compensation programs, involve your functional experts in health/insurance coverage, financial planning and human resources.  Keep an open dialogue, so you are prepared to address the potential impact on your bottom line once Reform becomes law.

Within the thousand plus pages of the legislation and national discussion, we have identified some of the major issues in need of further review, clarification by lawmakers and consideration by individuals and businesses:

Mandatory addition of 40+ million individuals to the health care delivery system, including young adults who will no longer be able to opt out of health care or purchase a less expensive Health Savings Account (HSA) plan; self-insured high income individuals; working families who are unable to budget for medical premiums; lower income families, many of whom are eligible but not enrolled in currently available health programs; unemployed workers who have not taken advantage of the COBRA subsidy; and approximately 12 million illegal aliens. 

Employer mandates to pay for adding currently uninsured individuals to the health care system are proposed and being debated in varying forms.  The subsidy proposed in a Senate bill would result in significantly more expense for an employer to hire a low-wage worker.  This approach differs from a broader "pay or play" arrangement, which requires employers who don't sponsor health coverage to pay a dollar amount per employee, or percentage of payroll.  The Senate Finance Committee is also considering taxation of health benefits of employees earning over $100,000; or alternatively, taxation of benefits valued over a specified cap.  However, taxation of health benefits would not apply to Union employees, even though they generally enjoy richer than average benefit packages. 

Either way, an increase in employer health insurance costs and taxes to insure the uninsured is on the table.  The stakes are high and could mean job cuts, lower wages and business curtailments in recessionary times.

 

Specific government mandated qualified benefits –qualified health benefit plans must provide government specified benefits without any annual or lifetime coverage limits. Services which must be covered include hospitalization, prescription drugs, mental health services, preventive services, maternity care, and children's dental, vision care, hearing services and durable medical equipment.  These government-mandated standards will apply to all Americans, including those covered by employer-based health plans, after a transitional grace period.  Whether intended or not, the end result of highly regulating employer-based health coverage could eliminate any business reason for employers to continue sponsoring coverage.

Restructuring of the health insurance industry – including the elimination of pre-existing condition exclusions, providing for guaranteed coverage/renewals and basing premiums on only limited factors: age, area and family members covered.

A Public Option or "Exchange" is proposed as a way to allow for competition between private insurers and a government-run public option to provide an alternative to individuals without employer-provided coverage.  This is an area of great contention, as critics believe such "competition" will be non-competitive and ultimately lead to universal, one-size-fits-all health care.  Jim Himes, a Connecticut U.S. Congressman described the government health plan "exchange" with a familiar reference to the travel agency business:  "Think Orbitz.com for health insurance," he wrote. 

While many consumers have a favorable impression of the ease and convenience of online travel websites, those who once worked in the languishing bricks and mortar travel industry will have a differing view.

On August 12 at a town hall meeting in New Hampshire, President Obama emphasized that "…private insurers should be able to compete with the government plan. They do it all the time," he said.  "UPS and FedEx are doing just fine … It's the Post Office that's always having problems."  If the government will run health care delivery like USPS mail delivery, which the President admits is "having problems," perhaps Americans should be given more time to weigh the options.  

Elimination of private, individual health insurance policies – A provision in HR 3200 will eliminate individual private coverage after the Bill's effective date.  So one can keep his or her coverage, as noted by the Bill's supporters — with an important exception: If you have private individual coverage, you won't be able to change it after Health Care Reform law takes effect. Likewise, if you leave your employer to become self-employed, you will not be able to purchase an individual health coverage policy as you can today.  

Health Care Reform will likely do away with Health Savings Accounts, which have recently become popular with small employers to give individual employees more control over their medical care with significant tax benefits.

The pharmaceutical industry is uncharacteristically supporting the Administration in achieving Health Care Reform by contributing $150 - $200 million to their efforts in hopes of reducing the $80 billion tab Congress will be delivering to the industry in its current Health Care Reform proposals.  There is a large potential for savings by managing the delivery of prescription drugs and increased use of generics, and Congressional Health Care Reform is targeting this area.

Tort Reform – setting limits on the amounts health care providers and physicians must pay in malpractice settlements has been cited as an area of promise in containing health costs by reducing unnecessary medical testing and excessive practice of defensive medicine.  Tort Reform is glaringly absent from any of the proposed legislation.

Electronic Personal Health Data – the proposed legislation dedicates up to $29 billion for technology to share electronic personal health data for more efficient health care management.  There is no provision specifically for protection of personal electronic health data, which is currently a topic of concern for individuals and information technology professionals.

End of life counseling – due to the projected strain on health care delivery when 40+ million become insured by a stroke of the pen, older Americans are expressing concerns about rationing of care and references to "end of life counseling," which many have interpreted as rationing by age. 

So, as proposed Health Care Reform legislation is read and analyzed, we are beginning to extract the larger impact it will have on the country as a whole in broad terms, but what is the bottom line for Americans and businesses as a result of these proposed sweeping changes?

Congressman Himes (D, CT) states that the House proposal "is weak on the second key goal:  cost reduction …True health care reform must encourage proven best practices, like increasing nursing staff and coordinating care among a patient's entire medical team… We severely underinvest in the early medical care and education that can lead to a lifetime of healthy habits."

Employers are rightfully frustrated by the complexity, vastness and oversights of Health Care Reform proposals, while trying to manage their existing benefit programs and health insurance plans in the midst of a recession.  Faced with the potential overhaul of an industry approaching one-fifth of the US economy, some may be driven to inaction – or paralysis – when it comes to staying on top of insurance and benefit programs, which have been a strategic part of business and compensation packages over the years.

Whether or not Health Care Reform is enacted this year, or later, now is not the time to disengage from employee benefits planning and the legislative process.  Instead, as businesses fine-tune operations and expenses, they also need to take stock of the overall benefits package offered to employees to make sure that it's designed for their targeted demographics, competitive in a defined marketplace, cost-effective, and technologically up-to-date in administration and communications.  It may seem like a distant hope, but when the economy rebounds, employers will find themselves competing for the best and brightest in the workforce.  Benefit programs, with or without health insurance as we know it, will continue to enrich employees' total compensation packages.

Finally, it is imperative that employers understand the consequences of proposed Health Care Reform and respond to their lawmakers with their business cases.  While broader economic analyses are the focus of mass media coverage, the general population does not experience first-hand broad economic trends and trillion dollar budgets.  Case studies of companies faced with increased taxes, government requirements to administer qualified health benefit plans, job losses and cutbacks are potential outcomes, which must be evaluated in the overall economic context.

In an ideal world, health care reform should make Americans healthier, manage care in critical and end-of-life stages and deliver services in the most efficient and minimally invasive manner.  Some of these loftiest of goals may need revisiting.

Business owners, leaders and decision-makers now have a unique opportunity and obligation to engage in the process of analyzing and defining national health policy.  The Dartmouth Atlas Project has found over the last two decades in its studies of health care outcomes in the United States that there are pockets of excellent health care providers, which operate at significantly lower costs when compared to mediocre providers.  Before hastily spending tax dollars of future generations, implementing fiscal responsibility and making the business case for the right way to Health Care Reform is just what the doctor ordered.

About

Fritz-McDonald Company is a boutique employee benefits brokerage and consultancy firm, serving employers with 100 to 1,000 employees in the tri-state area.  FMC is the high-touch intermediary between insurance companies and its clients to design, implement, and manage employee benefit programs, focusing on services that extend beyond typical benefit plan administration to more comprehensive Human Resources advisory expertise and support through a unique business philosophy, perspective, and delivery model.

Shep Sepaniak is Managing Partner, Employee Benefits Practice at FMC.  He is currently Learning Chair at Entrepreneur's Organization, NYC Chapter.  He was formerly Director, Business Development at Argus Benefits.  Shep earned his MBA at the University of North Carolina at Chapel Hill - Kenan-Flagler School of Business.