The Affordable Care Act (ACA) requires large employers (those with at least 50 full-time equivalent employees) to provide qualifying health care coverage to substantially all full-time employees and their dependent children or pay a monthly “Employer Shared Responsibility” penalty. The employer mandate was set to take effect in 2014 but was delayed until 2015. But, even without the threat of tax penalties in 2014, employers should practice complying with the mandate during the 2014 transition period.
Here is a blueprint for implementing a compliance strategy:
1. Amend health plans to comply with the ACA requirements that were NOT delayed. Required changes include eliminating annual dollar limits on essential health benefits; eliminating pre-existing condition exclusions for all enrollees; offering coverage to dependents to age 26 who are eligible for other employer coverage; and limiting benefit waiting periods to no more than 90 days. Non-grandfathered plans also must prohibit discrimination based on participation in a clinical trial; abide by cost-sharing limits; and prohibit discrimination against any health care provider acting within the scope of that provider's license or certification under applicable state law.
2. Determine whether the employer mandate applies. In general, the employer mandate applies to “large” employers that employed an average of at least 50 “full-time” equivalent employees on business days during the prior calendar year. A full-time employee is one that averages at least 30 “hours of service” per week (or 130 hours per month). All entities in a controlled group are treated as a single employer to determine large employer status.
3. If an employer is determined to be a large employer, assess financial risks under the employer mandate. A large employer that chooses not to offer minimum essential coverage (MEC) will be penalized $2,000 per full-time employee (minus the first 30) if one full-time employee receives a federal subsidy for Health Insurance Marketplace coverage. This is often called the “sledgehammer” penalty. If a large employer offers MEC, but the MEC fails to provide minimum value (60%+ of total allowed costs) or affordability (employee’s contribution toward the premium is ≤9.5% of household income), the employer will be penalized the lesser of $3,000 per full-time employee receiving a subsidy or $2,000 per full-time employee (minus the first 30). This is known as the “tack-hammer” penalty. Most employer-sponsored group health coverage is MEC, including, apparently, so-called “skinny” plans that cover only ACA-required preventive services with no cost-sharing and with no annual or lifetime dollar limits on benefits.
4. For a large employer that wants to avoid the sledgehammer and/or tack-hammer penalty in 2015, rehearse employer mandate compliance in 2014. Finalize plan designs and amend plans now to conform to MEC, minimum value and affordability requirements. Offer coverage to employees performing 30 hours of service or more per week during a month and, at a minimum, their dependent children to age 26. If large numbers of variable-hour or seasonal employees make it difficult to track and manage full-time status, establish ACA-compliant “measurement periods” to determine whether these employees actually work enough hours to be offered coverage. Maintain detailed records, because informational reporting about the coverage and to whom it is offered must be provided to the Internal Revenue Service beginning in 2016.
Details of each employer’s situation are unique. But all employers should accelerate and simplify this complex compliance project. Many independent, third-party administrators can be an invaluable resource for navigating the employer mandate rules and penalties and other complexities of health care reform.
The Commonwealth Court of Pennsylvania, in Hospital & Healthsystem Association of Pennsylvania v. Ins. Commissioner, 939 C.D. 2011 (Pa.Commw. 08/09/2013) was called upon to decide whether a governmental entity – acting like an excess insurer – overcharged health care providers and appropriated funds belonging to the providers. The health care providers and trade associations petitioned for review of an adjudication of the Insurance Commissioner that denied their challenge to the assessments imposed upon them by the Medical Care Availability and Reduction of Error (MCARE) Fund for the years 2009, 2010 and 2011. These assessments provide the monies used by the MCARE Fund to pay medical malpractice claims in excess of what the health care provider’s primary insurer pays. Petitioners assert that their assessments were excessive because they resulted in a collection of more monies than were needed by the MCARE Fund to pay claims for one year and provide a 10% reserve.
Since 1975, the Commonwealth of Pennsylvania has been directly involved in providing medical malpractice insurance to health care providers. The General Assembly addressed the medical malpractice crisis by establishing a mandatory medical malpractice insurance system. A health care provider’s refusal to purchase malpractice insurance coverage in 1975 was, and continues to be, sanctioned by the provider’s loss of his professional license.
In 2002, the General Assembly enacted the Medical Care Availability and Reduction of Error (MCARE) Act. The MCARE Act addressed a newly perceived crisis, i.e., the cost of medical malpractice insurance. There was concern that the cost of medical malpractice insurance in Pennsylvania had increased to the point that physicians educated and trained in Pennsylvania were leaving to set up practice in other states where the costs of this insurance were lower.
Relevant to this case, the MCARE Act established the MCARE Fund. The MCARE Fund was set up to provide insurance coverage in excess of the mandatory levels of primary medical malpractice coverage. The MCARE Fund is scheduled for termination. To that end, the MCARE Act has established a schedule for continued increases in the amount of primary coverage that must be purchased by health care providers and continued decreases in the amount of excess coverage that will be available from the MCARE Fund.
The MCARE Fund is a “pay-as-you-go” program of what the general assembly called “insurance.” Unlike a private insurance company, it does not establish reserves to cover injuries that occur in the assessment year but do not become adjudicated awards for several years thereafter. Instead, the MCARE Fund is set up to raise only those funds necessary to “cover claims and expenses for the assessment year.” The MCARE Fund projects its annual expected claim payments on the basis of the prior year’s payments. This means that the amount collected from health care providers in a given year may be more, or less, than what is actually needed to pay the MCARE Fund’s claims and expenses for that year.
In making its calculation for 2009, the MCARE Fund ignored its 2008 accrued unspent balance of approximately $104 million. Instead, in 2009, $100 million was transferred out of the MCARE Fund into the Commonwealth’s General Fund for the purpose of funding the operations of state government. The Court held that this transfer of funds was illegal. Petitioners appealed their 2009, 2010 and 2011 assessments on the theory that the MCARE Fund’s year-end balance should have been included in the aggregate assessment calculation for 2009 and the following years. Simply, the aggregate assessment must be “sufficient” to produce a balance sheet that replaces what was spent in the prior year and provides a reserve of 10%.
The MCARE Fund has the statute to mean that 110% of the prior year’s expenditures must be collected each year from health care providers, regardless of the starting balance. This exercise means that unspent balances will accumulate even as claims decline, consistent with the MCARE Fund’s scheduled termination, or as earnings on the 10% reserve increase.
Construing statutes, courts must be mindful of what the legislature did not say as well as what it did say. Most importantly, the MCARE Act says nothing about the accumulation of unspent balances in excess of the 10% reserve. It does not authorize them. The MCARE Act provides no guidance on the income generated by an accumulation of unspent balances, which can be considerable given the present unspent balance of $104 million. The MCARE Act’s silence on these matters makes perfect sense only if the legislature never intended that such an accumulation would develop.
The legislature has addressed the possibility of an unspent balance in only one place in the statute. The MCARE Act provides that upon termination of the MCARE Fund, “[a]ny balance remaining in the fund” shall be returned to the healthcare providers who paid “assessments in the preceding calendar year.” This presumes a small, if “any,” balance and suggests that there should not be an unspent balance in any other year.
The MCARE Act states that the MCARE Fund’s reserve “shall be” 10% of the prior year’s claims and expenses. Instead, after the 2009 assessment, the MCARE Fund had a reserve of 64%. Such a reserve cannot fit any reasonable interpretation of the stated purposes of the MCARE Act or the precise wording of the statute.
The aggregate assessment must raise funds “sufficient” to meet the specified purposes in the statute. This means that the MCARE Fund must begin its annual aggregate assessment calculation with its unspent balance and add to it the amounts “sufficient” to cover the prior year’s claims and expenses and to “provide a 10% reserve” not a 64% reserve.
The fact that the General Assembly chose to limit distribution of any balance in the MCARE Fund at termination to those that participated in the Fund in the preceding calendar year indicates that the legislature intended a direct correlation between the actual MCARE Fund balance at termination and the population of providers assessed in the prior year.
Requiring health care providers to fund a new 10% reserve every assessment year, without regard to the monies already held by the MCARE Fund, defeats the stated goal of the statute to provide affordable excess insurance. Such an approach repeatedly and needlessly charges participating providers an assessment in excess of what is necessary to fund the statutorily-required 10% reserve. Because the population of providers changes over time, the providers who enter such a system in the earlier years will end up subsidizing the participating providers in the later years. This is unfairly discriminatory.
For all of the foregoing reasons, the court reversed the order of the Insurance Commissioner and remanded this matter to the Commissioner to recalculate the MCARE assessments for 2009, 2010 and 2011.
The MCARE law was designed to die over time. It, and its predecessor, is an example of why a governmental entity should never get involved in insurance because they do not understand what insurance is or how it works in the real world.
Medical Malpractice Insurance is a risk-sharing device where many health care providers pay into a fund so that there is sufficient money available to indemnify those who are sued for malpractice. The “crisis” laws like the MCARE law arose because doctors who erred were sued regularly and successfully until insurers found a need to raise premiums to a level necessary to cover the payments and make a profit. To solve the “crisis,” the government decided to provide a form of insurance rather than resolve the problem caused by its tort system.
Governments should not make profits and do not know what to do with a profit if it was made by accident or by a poorly-designed system that has no relationship to the long-term thinking of an insurer. The law here was made specifically to protect those who paid into the fund and to return excess, unspent monies to the providers who paid into the fund. It is not a premium but a tax where health care providers are compelled to buy both primary insurance in the market and excess from MCARE.
This case is instructive as government continues to place itself into the business of insurance where whatever the government calls insurance is, in fact, a method of government largess. For example, the National Flood Insurance Program, FAIR Plans, and the Affordable Care Act have nothing to do with insurance since they are not risk-sharing devises but are rather devices that take tax money from the country or state as a whole to provide insurance-like benefits to a special category of people like those who live near a river that regularly floods, people who live in high fire risk areas, or people who are ill but decided not to buy insurance. The Commonwealth of Pennsylvania, until slapped down by this court, took money intended to protect medical providers for its own use without legal authority.
Most of the dust has now settled around the State Exchanges. Last week the New York rates were finalized and with most of the other states, rates came in lower than anticipated. The Department of Health and Human Services (HHS) released an analysis1 suggesting that rates were 18% lower than anticipated. The national press has been in a frenzy as the public is trying to determine what all of this means. This article will discuss several of the issues and try to put them in perspective.
So What Are The Facts?
Are the rates actually lower? The HHS article demonstrates that yes, rates are coming in lower than previously projected rates even by the Congressional Budget Office (CBO). However, the situation is not quite the same as alluded to. For example, the study compared the “lowest rate” with the projected or forecasted rate. In the recently released rates for the State of New York, rates for the silver plan in New York City ranged from a low of about $350 to a high of nearly $700, a wide range. The HHS article compared the lowest rate in a plan type and compared that to the CBO projection. If the low in New York was $350 and the high $700, one might assume an average rate of $525 (i.e., (350 + 750)/2 = $525). Comparing $350 to the projection gets a different answer than comparing $525 to the projection. For example, if $350 is 18% lower than the projection, $525 is 123% of the projection, a much different story than presented.
Why Do The Rates Vary So Much?
Rates are based upon a large number of specific and sometimes hard to define actuarial assumptions. Some of the health plans used different assumptions than others resulting in different rate levels. Some of the key assumptions are:
- Health care provider discounts and also average cost of those providers in the network
- Care management approach and effectiveness
- Required expense and margin loads
- Assumed health status of population to be covered
- Assumed health care inflation and/or trend assumption
- Specific plan design
- Prior experience with individuals and small groups
There are other assumptions that are included, but the above list describes most of the important ones. If a particular health plan has better than average discounts with providers it is likely that their premium would be lower than a plan with lesser discounts. If the providers included in the network have a lower average cost than a competitor's network, the premium would likely be lower than the competitor. If a health plan had more effective care management practices than their competitor their rates might be lower. The list goes on. In addition to actual measured performance, some of these differences might be based upon perceived value and/or differences.
Although actuarial science is an objective science, different actuaries might have different opinions on the same issue and could apply different judgment when the data is incomplete or questionable. As a result, rate differences might occur as a result of different actuarial opinion.
The nature of a specific health plan can also lead to differences. One example of this is the rate development in one of the states our company was working on. One of the major players in the market attempted to negotiate more favorable contracts with its provider network. The best attempt at negotiating with a highly desirable health system resulted in a contract that paid that provider about 115% of Medicare payment rates, an improvement from their current contract. A competitive health plan in that same marketplace contracting with that same provider was able to negotiate a contract at close to Medicaid rates, considerably less than what the other carrier had achieved. A very surprising result that we had to investigate further to understand.
The first carrier was a major commercial health plan. The second was a health plan that served Medicaid beneficiaries. Their current contract paid close to Medicaid rates, and since the Exchange was going to attract Medicaid-like enrollees they were able to negotiate a rate close to their current rates, but a little higher. The large commercial carrier at the same time was not able to negotiate anywhere near that rate discount but was pleased to be able to get an improvement. This reimbursement difference alone would contribute to at least a 35% – 50% rate differential. Examples such as this have occurred through many of the exchanges and have led to many rate differences.
In addition, some plans have proposed “narrow networks” where providers agreeing to significant discounts and which have demonstrated performance advantage are included in the network. This has resulted in favorable rates in many situations. Some plans have used “broad networks” where almost any provider is included in the network. The exchange has no requirement about breadth of network. Individuals signing up for coverage in the exchange are going to have to carefully assess what providers are included in the networks. The lower premium rates might be the results of narrower networks with limited access.
In summary, the news has been more encouraging than expected, at least by many; however, there are many idiosyncrasies that need to be considered before making a final judgment regarding the Affordable Care Act and the exchanges. Rates will be available October 1, assuming no further delays, and then we will be able to make final assessments.
In my article last month — Care Transparency: What Employers Are Missing! — I wrote about how employers are missing an understanding of how employees are making health care decisions, and how that crucial factor impacts health care costs.
Employers need to meet employees where they are — online. Employers need to provide them with tools that can help their research and decision-making process with robust, accurate, unbiased and evidence-based information. Employers can significantly improve the quality of care consumed by their employees and reduce health care costs by focusing on creating care transparency.
In this article, we have explained the types of tools that will be effective in supporting employee decisions and that employees will really use in making care and treatment decisions. WiserTogether's research of patient decisions across the top 200 health conditions shows that of the 22 unique factors that patients typically use in evaluating treatments, quality of care tops the list. Cost does not even make the top five. In other words, cost is not the primary decision driver for patients, and consumers do not seek out cost tools when they begin making decisions. This explains the low utilization that organizations see when they offer cost transparency tools as a stand-alone service.
Health Affairs1 recently published an article that found that patients object both to discussing health care costs with clinicians and to considering costs in deciding among comparable clinical options. It is also well-known that despite the payer's best efforts, patients do not factor in payer and employer cost burdens when making health and care decisions, despite the fact that payers cover a majority of the costs. Economists have a term for this phenomenon that patients exhibit, called the “Tragedy of the Commons.” This concept means individual decision making is driven by personal benefit and ignores the implications of those decisions on third parties and the common good.2
Studies show that patients faced with a treatment decision can only process a limited number of factors. In its 2012 research that showed quality of care is the most important factor patients consider when making health care decisions, WiserTogether found that only seven of the 22 factors carry enough weight to qualify as first-tier factors for patients. Those seven factors are explained below.
Importantly, patients also indicated differences in how open they were to information about a factor coming as an expert opinion versus information coming in the form of experiences of other patients.
WiserTogether found that for the following four factors, patients want accurate information about the experiences of other patients. For each treatment, patients wanted to know the following:
- Treatment Effectiveness — How effective did other patients say the treatment was for them?
- Treatment Popularity — What percentage of patients in a situation like mine use the treatment?
- Treatment Speed — How fast did other patients start to see a difference, and how long was the recovery?
- Treatment Side Effects — What side effects have other patients experienced, and how severe were they?
For the remaining three factors, patients wanted expert opinion:
- Scientific Evidence — Which treatments are best supported by medical evidence?
- Consequences of Delay — What might happen if I wait to have the treatment or decide not to have it?
- Treatment Duration — How long will the treatment last?
The results seen were independent of whether the information was available. Patients ranked out-of-pocket costs as a second-tier factor they are willing to consider when making a health care decision. Patients also report that finding information about any of the seven top-tier factors is extremely hard, and the current tools/support systems provided are inadequate.
Research has shown that patients seek out such information prior to making a health care decision, and the information gathered influences their commitment to follow through on a treatment.
Employees repeatedly state that they are overwhelmed with health information and need help finding content that is relevant to their situation. Tools that help them understand their options, evaluate those options based on personal preferences and constraints, and succinctly communicate their questions and concerns to their providers can supply the missing link. Treatment selection and shared decision support tools — whether used by the patients directly or in consultation with a provider — help support patient decisions and effective interactions with providers.
Effective and engaging tools need to offer the following:
- Personalized treatment selection based on the patient's demographics, co-morbidities, personal preferences, and financial constraints.
- Need to provide (at least) the seven top-tier decision-making factors to assist employees' evaluation of options along with cost and plan coverage.
- Be easily accessible online anywhere, including at point of care set-ups.
Employees are adopting these tools at very high rates, as these tools are aligned with the natural behavioral process people follow in making health care decisions. Such tools are helping employees become informed health care consumers who understand choices and are able to make wiser choices based on their values. These tools also are helping to reduce the knowledge gap between the providers and patients and to create more confident health care consumers who can start engaging with providers in making shared and effective health care decisions.
Having said that, WiserTogether's Patient-Centered Care Index (PCCI) shows that the provider community is a long way from treating patients as an equal partner. In my next article, I will write about specific areas where providers are underperforming in delivering patient-centered care and how they often treat themselves differently than they treat their patients.
This article is co-authored with Gregg Rosenberg, Ph.D., Chief Product Officer at WiserTogether, Inc. and author of A Place for Consciousness (Oxford University Press).
1 “Focus Groups Highlight That Many Patients Object To Clinicians' Focusing On Costs,” Sommers, Goold, McGlynn et al.; Health Affairs, 32, no.2 (2013): Pgs 338-346.
2 “The Tragedy of the Commons Revisited,” Rafid Fadul; New England Journal of Medicine, no. 10 (2009): Pg 361.
What health plans and brokers don't want you to know….
Sometimes it's humbling to admit what you don't know. It's even worse to realize that you don't know what you don't know (YDKWYDK – pronounced, yidick-widick). Well, last fall I was hit square in the face with an embarrassing case of YDKWYDK. Silly me, I presumed that within certain boundaries, actuarial science is, well, a science. Based on the experience/characteristics of a population, and the design of a plan, there was a narrow range within which premiums would be assessed. Not exactly.
Informed Purchasers Can Get Better Coverage And A Lower Cost
I advise employers about how to manage health care costs. That's what I do for a living. Well, I discovered there is a process for uncovering available savings of which I've been unaware. Let's call it the informed purchaser discount. It turns out if you:
- Learn more about how rates get set (not necessarily based on actual claims risk), and
- Discover where fees might be hidden (many places), and
- Inform yourself on calculations health plans use to forecast cost and protect themselves from exposure (quite conservatively), and
- Partner with someone who has the data platform and predictable process to uncover available savings, and
- Design a new plan that aligns patient and provider interests,
You can pay a lot less for coverage.
Why Don't You Already Know About This?
Well, it turns out there are incentives built into the system such that:
- Most brokers — who are paid by the plans — are reluctant to push back on plans for better prices, and
- Brokers who do push back may get penalized by the plans with worse quotes or slower service, and
- The timing of quotes are manipulated to rush decisions and leave less time for deliberations, and
- Because it's a hassle to price many different designs, the plans and brokers often choose a favorite and don't bother to tailor it to specific client needs, and
- All plans tend to operate this way, so you won't detect over-charging by simply comparing among them.
- Thus, benefits managers are left reporting to the executive team, honestly: “This is the best I could find.”
Sigh. In other words, circumstances are stacked against the individual employer, especially small ones that are fully-insured. The traditional industry process is meant to keep us in the dark.
Worse yet, as traditional benefit professionals, we don't know what we don't know. There are many reasons not to rock the boat. Perhaps there is a long-term, trusted relationship with the broker; they've become our friends. Brokers won't tell you that they think you can get a better deal — otherwise you would question why they aren't getting it. Perhaps there is fear that getting a different broker or an outside advisor will be looked upon as a sign that we have made poor choices in the past. Perhaps it is simply easier to do what we always do. Perhaps we assume we will get the best deal through the competitive bidding process. Perhaps we assume that because we are smart and capable in other areas, the same approach applies in health coverage. Whatever the reason, the vast majority of businesses don't have the insight to demand and get the informed purchaser discount.
So, you ask, how much can that discount be? (Are you sitting down?) $1,000 to $3,000 per employee, every year. For a 500 person company, that equates to overpaying between a half a million and 1.5M dollars on health care over the past five years. It's shocking, it's appalling, it's something I would not have believed … but folks, it's real. And you can do something about it.
I have spent my professional benefit career advising employers about plan design, corporate policy, health care quality, and health interventions. All the while, I should have been encouraging them to partner with an experienced purchaser who knows the process and can share understandings of risks and incentives.
Stop Paying A Penalty Simply For NOT Being Informed
The only way to get an informed purchaser discount is to make the process transparent and work with someone who only has a financial incentive to save you money. This doesn't mean you fire your broker (unless you want to), only that you insist on having a broker who will partner with an independent plan reviewer/designer. You want someone who is not threatened by complete transparency — something you will learn is not welcomed by plans or most brokers. (If your broker resists, I can recommend a few who do advocate transparency and are open-minded).
What should the independent party do?
- Review your current plan and experience at no charge.
Assess the savings opportunity at no charge.
Explain your design options and confirm you are comfortable with specific types of changes. The savings should not be solely derived from making the plan less desirable, such as:
- restricting access to providers
- shifting large increases in cost to employees
- design changes that discourage employees from choosing coverage
- If savings are not likely, state that fact, shake hands and part ways.
- Charge a reasonable fee, most of which is contingent upon meeting a minimum savings (e.g. $1000 per employee).
In other words, there should be no cost or risk to assess your opportunity, and the group who guarantees savings should get paid after the savings are achieved.
Does such an organization exist? Yes. It's not a brokerage, but a small, independent consulting group called Incenta, that is saving its clients a lot of money. Do I work for them? No, but I am introducing them to my clients because it feels bad not to. Will I be partnering with them in the future to bring this solution to more employers? Absolutely.
This article is a stark departure from my usual analytical or policy-oriented discussion. Readers who know me know that I investigate topics thoroughly and thoughtfully. Despite this, all of us encounter situations where yidick-widick, and we discover new solutions to old problems. It's not a sin to find out we didn't know — but I've decided it's inexcusable to ignore it now that I do know.
Never have I been more convinced that a different sort of expert is needed. Plus, in this case it happens to be very low risk — no cost to assess potential savings, and the vast majority of fees contingent upon achieving $1000 to $3000 of savings per employee.
So, I encourage every benefits manager to become one of the (few) informed purchasers. Don't wait until your renewal is approaching. And don't be afraid to admit YDKWYDK — better to learn this now than continue paying the penalty for remaining uninformed. Call or email me or the others listed at the bottom of this article. Become informed. Your bottom line, and your company executives will thank you.
For those interested in following up, talking it though, or getting started toward a better process of getting health care coverage, feel free to contact:
Send Email to Wendy
Send Email to Dennis
Dave Dias (one of the transparency-advocating brokers I know)
Send Email to Dave