Darren D. Reynolds, JD
CEO and President
Since 2010, when the Patient Protection and Affordable Care Act became law, speculation has abounded, with experts and non-experts alike debating whether employers would drop group health coverage. As the employer shared responsibility penalties approach in 2015, employers must decide whether they will offer employer-sponsored health coverage that complies with the Affordable Care Act (ACA) or drop coverage and face various penalties and repercussions.
Although playing with the numbers is a basic approach to determining whether to keep or disband group coverage, the initial costs won’t tell the whole story. Disbanding group coverage, especially if you don’t increase employee wages, will be viewed as a reduction in compensation. This will likely have a negative impact on employee morale, possibly leading to lowered productivity and satisfaction. Eliminating group coverage will also cause you to forgo a powerful recruiting and retention tool. This could potentially increase your turnover rate and related costs, and possibly decrease your ability to attract top talent due to the lack of a valued benefit.
Your business runs on the quality of your employees—offering group health coverage indicates that you care about your employees, and it contributes to your employees’ morale. If you drop coverage, employees will suffer the inconvenience of having to find and obtain insurance elsewhere, whether through a spouse or parent’s plan or through the individual market.
The convenience and reduced cost of obtaining health insurance through an employer is a powerful and valuable benefit for most employees. When deciding to keep or drop your group health coverage, consider the value group coverage has as a retention and recruiting tool, helping you attract and keep the talented and motivated employees who contribute to the success of your company.
Ultimately, if you disband coverage, you benefit from reduced upfront health coverage costs, but are likely to end up paying significant amounts of money through penalties, increased wages and lost tax advantages. If you decide to keep group coverage, you and your employees will benefit from receiving various tax advantages, avoiding ACA penalties and ensuring higher employee satisfaction.
Terry Lovekamp, CPA, CEBS
Chief Operating Officer
It is now official. I am old. This weekend I played in our 29th annual high school alumni basketball tournament (which started the year after our class graduated from high school; so you can do the math). In one of our games, we played against kids (alright – young adults) that were 27 years younger than us. In attempting to assemble our team, we agreed that we were really going to focus on “just playing for fun” – recognizing that we physically were at a great disadvantage. Many of our classmates were wise enough to turn down the chance to play (we ended up with only 6 guys on our roster), as they were more honest about their current physical conditioning and concerned for their health, and they likely knew that the team captain (me) could not “just play for fun”.
The first game was only about 15 seconds old when I collected my first pass, and just like old times, effortlessly dribbled my man off of a screen, only to have the defender fight through the pick and pop me in the eye with his hand. No whistle was blown. Adrenaline, that I no longer knew my body could create, rushed through my veins. “Just for fun” was immediately vanquished from my thoughts. It was “game-on”. Unfortunately, the will to compete and the spiked levels of testosterone were not enough to overcome the effects of aging.
At the start of the second half, I pulled up for a 3-point shot (keep in mind that I am so old that there was no such thing as a 3-point shot when I was in high school), and as I skied above my defender (at least 3 inches off the floor) someone rammed a knife into the back of my left calf muscle (or at least that is what it felt like). Toughness (or stupidity) did allow me to finish the game. And, a bottle of heat spray, several ibuprofen, and the fact that we only had 5 guys show up for the next day for game 2, allowed me to battle through our second loss, and final game of the weekend.
While this weekend may not sound like much fun to some, to a nostalgic, old basketball junkie it was a great reason to hang out with old friends and their families, and it was awesome to feel that competitive rush again. At the same time, it was a very humbling experience, knowing that my skills had continued to diminish and my body was incapable of doing what my mind still thought it could. Even though the lesson that I should probably learn from these events is, that I should hang up the high-tops, my immediate reaction is that I am going to work on my skills, conditioning and flexibility and this time next year bring my A-game to the Alumni Tourney.
At Consociate, as an administrator of numerous types of health plans, working with many different types of employers and consultants, and competing against large insurance carriers, it is crucial that we always bring our A-game. We hear from so many clients, prospects and consultants, that what they are most impressed with in dealing with Consociate is, our people, our exceptional and professional service, and our ability to be flexible. These are great qualities that I do believe Consociate brings to the game.
These qualities are a necessity in this very competitive market, and we do not take them for granted. As our company has aged, we have had to keep up with technological advances, an onslaught of government regulation, and local and national economic uncertainty. The secret has been not to become lethargic and not to become like the aging ex-athlete who returns to the court once a year and expects the results of his youth. We keep stretching ourselves, to be more flexible, more accurate, and more courteous. We test our systems and controls, to ensure accuracy and efficiency (including SOC I, Type 2 Annual Review). And, most importantly we take great pride in our people, their talents and their commitment to excellence.
With basketball’s March Madness upon us, and my calf muscle swollen to twice its normal size, it seems appropriate and timely to conclude with a quote from college basketball’s greatest coach. John Wooden once said, “The score will take care of itself, when you take care of the effort that precedes the score”.
Darren D. Reynolds, JD
CEO and President
Employers will certainly remain concerned about the future of their employee benefit programs. The Affordable Care Act (“ACA”) has had no success in reducing an employer’s costs, and in most cases has caused greater than expected increases. For those fully insured employers who were offered a special renewal option at the end of last year, whereby the employer could renew the group health plan prior to the traditional renewal date, the option proved valuable and kept some renewal and early renewal premiums at a favorable level. Unfortunately, the future can’t be predicted as to the impact that the ACA will have on group health plans, a majority of which will now renew between October 1, 2014 and December 1, 2014 – due to the early renewal options of 2013.
Most insurance companies that have remained in the employer group health market, also have individual products available either directly or through the Exchanges. The enrollment projections that were used by the government when modeling for success of the ACA will clearly not be met. This is no reflection on the insurance companies, but when low cost, younger enrollment targets are not being hit, the results will surely yield negative results/profits. The modeling that was used allowed for too great in assumptions of enrollment demographics.
This year more than ever, employers that are fully insured must be proactive in reviewing their health insurance options well before their plan’s renewal dates. The market has already seen fully insured rate increases as high as 79% for plans that have renewed on or after 1/1/14. This is not to infer that affordable fully insured options will not exist, just that due diligence need be used to provide a good check of all of the options and carriers that remain in the fully insured group health market.
In addition, employers that took advantage of fully insured plans that were priced to gain market share, should now once again look at the self-funded market as a viable option. The ACA has burdened fully-insured plans with additional fees and taxes that do not currently apply to self-funded plans. HM Insurance Group (a wholly owned reinsurance subsidiary of HighMark Blue Shield – Pennsylvania) has calculated that the additional ACA fees and taxes for a fully insured employer with 500 covered participants (employees and dependents) to be an additional $235,000 over just a three year period.
Self-funded plans provide employers other advantages such as employer control of plan design, possible improved cash flow, elimination of carrier profit margins and risk charges, the opportunity to impact health plan costs through effective and participatory risk management, ownership of actual cost and claim data, etc. Reinsurers are now responding to market opportunities and providing additional programs to better budget risk for employers, even those with as few as 50 covered employees.