The ACA and the Bottom Line
Even before President Obama signed the Patient Protection and Affordable Care Act into law in 2010, company executives began choosing sides. Some believed the PPACA would increase employee health care costs and financially cripple employers, while others hoped it would lower costs because the insurance pool would be expanded to include younger, healthier individuals.
After four years, a survey from the University of South Carolina’s Darla Moore School of Business found that more than three-quarters (78 percent) of respondents are reporting higher health-insurance costs — averaging 7.73 percent more.
Nearly four in 10 (37 percent) stated that their labor costs have increased — averaging 5.6 percent — as a direct result of the health-care reform law.
The results were based on responses from 213 chief HR officers at medium- and large-sized U.S. firms.
Shifting Costs to Workers
One major result of those increased costs has been a significant move toward consumer-directed health plans (CDHP). More than seven in 10 companies (73 percent) have already moved — or plan to move — to CDHPs, which typically call for high deductibles, according to the survey.
“Four to five years ago, insurance companies were [pushing] CDHPs as a way to introduce more market mechanisms into the health market,” said Patrick M. Wright, a professor in strategic HR management at the University of South Carolina, who directed the school’s annual survey.
At the time, he said, roughly 15 percent of surveyed employers adopted that strategy.
“That’s a huge jump. What the [Affordable Care Act] did is basically give companies carte blanche to launch CDHPs,” he said.
Employer-sponsored health insurance will suffer the same fate as pensions, practically becoming extinct – Patrick M. Wright, professor in strategic HR management, University of South Carolina
Recent headlines also coincide with the survey’s findings on the impact of the ACA on employers.
Starting Jan. 1, 2015, Wal-Mart will no longer offer health insurance to employees who work less than an average of 30 hours per week. More than 30,000 workers will be affected. Other retailers, such as Target and Home Depot, already have made similar decisions to eliminate health-insurance benefits for part-timers.
And the impact of the law is still uncertain, since the ACA’s employer mandate was delayed until next year. The mandate requires that businesses with more than 50 full-timers provide health insurance or pay a penalty.
Wright said some employers are holding off from making any decisions until the mandate officially kicks in.
He said the survey’s overall message to companies is that they will need to adapt to a new regulatory environment and figure out strategies to mitigate rising insurance costs.
Wright said he believes employer-sponsored health insurance will suffer the same fate as pensions, practically becoming extinct, as a growing number of companies seek to divorce health insurance from the employment relationship.
Despite the survey’s responses, others cite other reasons for rising health care costs.
“You have to look at your company, who you’re competing with and really make the case for what direction you’re going down the road.” – Lenny Sanicola, senior benefits practice leader, WorldAtWork
David Newman, executive director at the Washington, D.C.-based Health Care Cost Institute, said other contributing factors include the recession and a long history of health care inflation.
He also noted that high-deductible health plans were growing in popularity even before the ACA was passed.
Newman also said that survey results do not always paint an accurate picture. There’s often a “disconnect” between how people respond on surveys and their ultimate actions, he said.
For example, he said, many employers vowed to drop health insurance if the ACA became law. Instead, they adopted a wait-and-see attitude.
Likewise, survey results can differ. According to the 2014 Employer Health Benefits Survey by the Kaiser Family Foundation, there were modest increases in average premiums — 3 percent for family coverage and 2 percent for single coverage.
But whichever numbers you look at, he said, increases are much lower now than in previous years.
“We can speculate to our heart’s content,” Wright said. “I would be looking more at whether the recession has structurally changed health care in some way to keep costs lower than we’ve historically seen.”
Impact on Employees
As more employers shift toward CDHPs, Wright said, each organization should challenge themselves to make such plans affordable to minimum- or low-wage workers who lack savings or live paycheck to paycheck. How can they pay a steep $4,000, or higher, deductible?
Employers must also question the role health care in the company’s employee-value proposition, said Lenny Sanicola, senior benefits practice leader at WorldAtWork in Scottsdale, Ariz.
For instance: Is health care insurance a magnet or differentiator? Will dropping insurance and paying a penalty be a better alternative? What will the impact be on employee relations or attraction and retention? Will employees expect a bump in pay?
“You have to look at your company, who you’re competing with and really make the case for what direction you’re going down the road,” he said, adding that the University of South Carolina survey validated much of what he’s seen in other surveys or heard from employers.
Companies that decide to stay in the health care game need to explore options or develop innovative strategies to manage costs, he said.
Sanicola offers several to consider: Implement wellness initiatives with incentives, introduce spousal surcharges, pay less for dependents but more for individual coverage, or create reference-based pricing where the company only pays the average price for procedures or tests such as MRIs.
He said many large companies also contract with hospital systems and providers to deliver quality care at lower costs for big-ticket items such as knee or hip replacements.
Employers should prepare themselves to thoroughly explain any changes in health plans, especially CDHPs, which may require some handholding, he said.
In addition to providing vendor hotlines and conducting face-to-face meetings, he said, companies can train a handful of employees to act as ambassadors — to address questions from co-workers. Employers should also consider extending access to spouses — who often make family decisions.
Many companies continue to struggle in helping to educate employees to be better health care consumers.
They need to do “a better job of giving people tools to help them price out [services] . . . and navigate the system,” said Sanicola. “That’s really half the battle.”
ACA Forcing Changes for Brokers
Brokers are increasingly being asked to act as consultants in addition to negotiating price and insurance policy packages.
The Affordable Care Act has increased that trend.
Kelly Hagan, director of operations, employee benefits at Assured Neace Lukens in Louisville, Ky., said her firm’s clients are increasingly asking for more consultative services, especially after the passage of health care reform.
Before the ACA passed, employers cared more about price negotiations, she said, but now the brokerage hears more requests related to guidance and advice about ACA compliance, as well as compliance with other regulatory acts such as the Employment Retirement Income Security Act.
Hagan said that clients shouldn’t have to ask for certain services; consultation should be a part of a broker’s service package.
To meet that demand, Assured Neace Lukens has two wellness managers on staff to help clients develop customized wellness programs, and has hired a corporate compliance officer to provide guidance to clients.
In addition to one-on-one conversations with clients on priorities, coverages and services, the firm sends out quarterly newsletters and email alerts on compliance issues and presents monthly webinars on topics, such as how to track variable hour employees to determine whether they should be offered health care coverage under the ACA.
The broker “transaction” is becoming less important in terms of the way clients actually see the value provided by their agent or broker. — Tom Fitzgerald, CEO, Aon Risk Solutions’ U.S. retail operations
Tom Fitzgerald, CEO of Aon Risk Solutions’ U.S. retail operations in Chicago, said that the broker “transaction” is becoming less important in terms of the way clients actually see the value provided by their agent or broker.
As such, brokers need to help clients “understand what is possible” — from benefit plan construction, to engaging communications with employees, to risk financing alternatives such as self-funding or using private exchanges for employee health care.
“We engage our clients through our account executives or account managers, but we have over 500 products and services, so it gets pretty complicated and can be difficult for them to always have a clear understanding of everything we have to offer,” Fitzgerald said.
“It then becomes the responsibility of leadership to educate, inform and train our client-facing colleagues,” he said.
Denise Ashford, vice president at Sweet & Baker Insurance Brokers in San Francisco, said a recent survey of select clients that asked for their top priorities, “really brought to light the disconnect between what I thought they wanted, and what they said they needed, and now with this knowledge I can better service them.”
Sweet & Baker caters mainly to midsized companies, as well as Silicon Valley tech startups, and most have thinly staffed human resource departments that need the broker’s consulting services.
These days, clients routinely ask Ashford and others on her team to interpret the ACA’s regulations, such as changes in the probationary period for employee eligibility for health care insurance.
Many smaller brokerages don’t have enough revenue to provide a lot of the additional services that larger firms can, as the additional services come out of commissions paid by carriers, she said, noting that her firm provides a number of additional services to clients “for little to no cost.”
Laymon Group Benefit Consulting LLC in Wilmington, N.C., a small agency with five employees, is able to compete with some of its larger competitors by outsourcing some services to vendors that specialize in different fields, said CEO Chad Laymon.
“This allows us to bring a multitude of different services to the table under one umbrella,” Laymon said. “At the same time, on the service end, we are steering a much smaller boat. This allows us to be more flexible with our client’s needs.”
Laymon has had to increase its value-added services due to “tremendous changes” within the industry because of health care reform, he said.
“Most small brokerage firms were started years ago, and today, the principal is getting older and doesn’t want to involve themselves with all of the changes going on, and even if they do, the technology curve can be a steep hill to climb,” Laymon said.
“As a result, many brokers are selling their book of business to the larger consulting firms. Times have changed. Smaller brokers must adjust to show their strength or they will be left behind.”
Six Best Practices For Effective WC Management
It’s no secret that the professionals responsible for managing workers compensation programs need to be constantly vigilant.
Rising health care costs, complex state regulation, opioid-based prescription drug use and other scary trends tend to keep workers comp managers awake at night.
“Risk managers can never be comfortable because it’s the nature of the beast,” said Debbie Michel, president of Helmsman Management Services LLC, a third-party claims administrator (and a subsidiary of Liberty Mutual Insurance). “To manage comp requires a laser-like, constant focus on following best practices across the continuum.”
Michel pointed to two notable industry trends — rises in loss severity and overall medical spending — that will combine to drive comp costs higher. For example, loss severity is predicted to increase in 2014-2015, mainly due to those rising medical costs.
Debbie discusses the top workers’ comp challenge facing buyers and brokers.
The nation’s annual medical spending, for its part, is expected to grow 6.1 percent in 2014 and 6.2 percent on average from 2015 through 2022, according to the Federal Government’s Centers for Medicare and Medicaid Services. This increase is expected to be driven partially by increased medical services demand among the nation’s aging population – many of whom are baby boomers who have remained in the workplace longer.
Other emerging trends also can have a potential negative impact on comp costs. For example, the recent classification of obesity as a disease (and the corresponding rise of obesity in the U.S.) may increase both workers comp claim frequency and severity.
“The true goal here is to think about injured employees. Everyone needs to focus on helping them get well, back to work and functioning at their best. At the same time, following a best practices approach can reduce overall comp costs, and help risk managers get a much better night’s sleep.”
– Debbie Michel, President, Helmsman Management Services LLC (a subsidiary of Liberty Mutual)
“These are just some factors affecting the workers compensation loss dollar,” she added. “Risk managers, working with their TPAs and carriers, must focus on constant improvement. The good news is there are proven best practices to make it happen.”
Michel outlined some of those best practices risk managers can take to ensure they get the most value from their workers comp spending and help their employees receive the best possible medical outcomes:
1. Workplace Partnering
Risk managers should look to partner with workplace wellness/health programs. While typically managed by different departments, there is an obvious need for risk management and health and wellness programs to be aligned in understanding workforce demographics, health patterns and other claim red flags. These are the factors that often drive claims or impede recovery.
“A workforce might have a higher percentage of smokers or diabetics than the norm, something you can learn from health and wellness programs. Comp managers can collaborate with health and wellness programs to help mitigate the potential impact,” Michel said, adding that there needs to be a direct line between the workers compensation goals and overall employee health and wellness goals.
Debbie discusses the second biggest challenge facing buyers and brokers.
2. Financing Alternatives
Risk managers must constantly re-evaluate how they finance workers compensation insurance programs. For example, there could be an opportunity to reduce costs by moving to higher retention or deductible levels, or creating a captive. Taking on a larger financial, more direct stake in a workers comp program can drive positive changes in safety and related areas.
“We saw this trend grow in 2012-2013 during comp rate increases,” Michel said. “When you have something to lose, you naturally are more focused on safety and other pre-loss issues.”
3. TPA Training, Tenure and Resources
Businesses need to look for a tailored relationship with their TPA or carrier, where they work together to identify and build positive, strategic workers compensation programs. Also, they must exercise due diligence when choosing a TPA by taking a hard look at its training, experience and tools, which ultimately drive program performance.
For instance, Michel said, does the TPA hold regular monthly or quarterly meetings with clients and brokers to gauge progress or address issues? Or, does the TPA help create specific initiatives in a quest to take the workers compensation program to a higher level?
4. Analytics to Drive Positive Outcomes, Lower Loss Costs
Michel explained that best practices for an effective comp claims management process involve taking advantage of today’s powerful analytics tools, especially sophisticated predictive modeling. When woven into an overall claims management strategy, analytics can pinpoint where to focus resources on a high-cost claim, or they can capture the best data to be used for future safety and accident prevention efforts.
“Big data and advanced analytics drive a better understanding of the claims process to bring down the total cost of risk,” Michel added.
5. Provider Network Reach, Collaboration
Risk managers must pay close attention to provider networks and specifically work with outcome-based networks – in those states that allow employers to direct the care of injured workers. Such providers understand workers compensation and how to achieve optimal outcomes.
Risk managers should also understand if and how the TPA interacts with treating physicians. For example, Helmsman offers a peer-to-peer process with its 10 regional medical directors (one in each claims office). While the medical directors work closely with claims case professionals, they also interact directly, “peer-to-peer,” with treatment providers to create effective care paths or considerations.
“We have seen a lot of value here for our clients,” Michel said. “It’s a true differentiator.”
6. Strategic Outlook
Most of all, Michel said, it’s important for risk managers, brokers and TPAs to think strategically – from pre-loss and prevention to a claims process that delivers the best possible outcome for injured workers.
Debbie explains the value of working with Helmsman Management Services.
Helmsman, which provides claims management, managed care and risk control solutions for businesses with 50 employees or more, offers clients what it calls the Account Management Stewardship Program. The program coordinates the “right” resources within an organization and brings together all critical players – risk manager, safety and claims professionals, broker, account manager, etc. The program also frequently utilizes subject matter experts (pharma, networks, nurses, etc.) to help increase knowledge levels for risk and safety managers.
“The true goal here is to think about injured employees,” Michel said. “Everyone needs to focus on helping them get well, back to work and functioning at their best.
“At the same time, following a best practices approach can reduce overall comp costs, and help risk managers get a much better night’s sleep,” she said.
To learn more about how a third-party administrator like Helmsman Management Services LLC (a subsidiary of Liberty Mutual) can help manage your workers compensation costs, contact your broker.
Debbie discusses how Helmsman drives outcomes for risk managers.
Debbie explains how to manage medical outcomes.
Debbie discusses considerations when selecting a TPA.
This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Helmsman Management Services. The editorial staff of Risk & Insurance had no role in its preparation.