Health Care Reform: What does it mean for Employers?

Much has been said about the effect of health care reform on employees, insurance companies, medical providers and others: but what about employers?

In reviewing the President Obama's speech and the ensuing discussion, our take is that he made some subtle but significant changes from his previous position. He certainly gave a more detailed account of the impact of his proposed plan than in the past, but was it reassuring to employers?

He told the nation that what he's proposing won't force businesses to change their existing insurance coverage. That much is true. Unfortunately, he also pointed out that nothing in his plan will guarantee that employers will have the same form of coverage as in the past. In earlier speeches he had said that people who were happy with their current insurance plan could simply keep it without having to change. That's correct as far as it went, but neither can his plan guarantee that people can keep their current coverage even if the plan is the same. Employer coverage extends to families as well as employees, so all are affected. Employers are free to change their coverage in response to health care reform in ways that employees might not like and some employers may even elect to drop coverage. In the past Obama has said, "If you like your health care plan, you'll be able to keep your health care plan, period." Now, the subtle change in wording is that nothing in his plan will "require any change."

How will employers be affected by the "public option plan?" In discussing this "hot potato option" it seems to me that Obama came down solidly with one foot on each side of the fence. Who can blame him as this piece of legislation seems to be dividing Congress and the country most of all? His words were: "The public option is only a means to an end and we should remain open to other ideas that accomplish our ultimate goal". It seems to me that this is consistent with what he has said in the past. Many were disappointed as they were expecting an out right endorsement of a public option plan.

The fear of many employer groups and insurance companies is that a public option could ultimately grow into a universal coverage, government run plan. The opponents of the public option fear that the younger and healthier employees will gravitate toward the public option as it will be cheaper (at their age) than their group insurance because of government efficiencies that cannot be achieved by public insurance companies; i.e. not for profit. It is argued that the result of the younger and healthier employees going to the public option is that the employer plans are eventually left with essentially the older and sicker people. It is further argued that this will raise the cost of employer plans while lowering the cost of the public option through this process of "adverse selection".

Opponents point out that carried to its ultimate conclusion this could be the death knell of private employer insurance as the government run public option now becomes nationalized health care. Proponents of the public option are quick to point out that this will not be the case. Instead, they say that the public option will increase competition in the health insurance marketplace and make the insurance companies more efficient in their operations. They add that with all the criticism of government run operations (Medicare) being less efficient than private plans why then should employers fear this option?

What about pre-existing conditions? Obama's plan will eliminate insurance company underwriting for pre-existing conditions and allow full coverage regardless of health conditions. In our opinion, this will only work in tandem with another part of his plan-mandated coverage. He said, "Individuals will be required to carry basic health insurance-just as most states now require you to carry auto insurance." This is a change from his earlier campaign position-but necessary for this to work. By requiring all citizens to be covered by health insurance will bring younger, healthier people into the pool and their premiums should help pay for those who are already sick. In its simplest form, insurance is essentially grouping people together to share risk and assessing all people in the pool with a contribution (premium) to pay claims for those who are ill. With a larger pool of people sharing the risk, claims become more predictable and premiums are lowered. This answers the issues that we see with people not being able to get insurance and/or having it taken away when they need it the most. In our opinion, this is something that is most needed in health care reform.

Another area of concern to employers is how health care reform will be paid for-with or without a public option. One of the missing links from the President's speech was a more detailed look at this topic. It was mentioned, but in no great detail. Another concern of employers is how much this will reduce our costs for insurance in the future? To date, there has been little discussion of how all of this reform will affect future premium rates. Will they still continue to increase each year? Much of the discussion going on now is about how we pay for the overhaul, but silence on the affect this will have on future costs of health care to the employer and employees. The only comment we have of any significance was made in July by the Director of the CBO (Congressional Budget Office): "We do not see the sort of fundamental changes that would be necessary to reduce the trajectory of federal health spending by a significant amount"

Obama has maintained for some time that there is agreement on 80% of the agenda of his plan and the remaining 20% can be worked out in committee. However, as we all know "the devil is in the details" and the hardest work is still yet to come. How all of this will eventually affect employers' Benefit Plans is still uncertain.We do know that the Senate Finance Committee bill will limit Flexible Spending Accounts to a yearly maximum of $2,000 for unreimbursed health care expenses and eliminate coverage for over-the-counter drugs and medicines. One of the bills (at last count there are five) will roll back HSAs to where they started as to reducing the deduction limits and also requiring claims to be adjudicated. If you are concerned about limiting these benefits (as we hope you are) we have a link for you on our newly redesigned website to SaveMyFlexPlan.org. By this link, you can send an email directly to President Obama, Vice President Biden and your respective Congressmen. The website has some suggested paragraphs you can add with just a few clicks or you can add your own comments.

In summary, while there is much that can be agreed upon there is still no one bill that we can read, digest, agree with, object to or comment on. Will all of this be settled by year-end, which is Obama's time table? I fear not, but we will be watching closely and will continue to keep you informed.