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Examining the cost of health care reform

Increased expenses, administration and confusion: How the Affordable Care Act has affected midstate businesses

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Health care reform has reached its terrible twos, and the growing pains are only set to continue.

In the two years since the Patient Protection and Affordable Care Act was signed into law, much has changed for businesses in health care and surrounding industries. And much is still to change, provided some or all of the law is upheld by the U.S. Supreme Court.

For businesses throughout the midstate, the regulations have spawned confusion, administrative burdens and health benefit re-evaluations, health care experts here said. The law also spurred changes in workforce size and wellness plans, they said.

The act, known as PPACA, has affected many Central Pennsylvania industries in different ways.

The insurance industry is preparing for hefty cost increases as more lives are covered because of the law, administrators said. Insurers also are shifting to focus on consumers, they said.

For health care providers, updating policies and technology and beginning intense preparation for mandates in the next several months have dominated operations, executives said.

Benefit brokers and specialist businesses have faced constricted commissions, perhaps necessitating a different company strategy for the future, they said.

In the legal advising field, PPACA has increased business but also required large amounts of time and energy that might not be billable, attorneys said.

How employers have been affected:

Benefits as a whole comprise about 40 percent of any business payroll at this point, said Mark Smith, partner at Lancaster-based Barley Snyder law firm.

One of the earliest mandates applicable to employers was the requirement to cover dependents up to age 26. Also part of the act has been acceptance of pre-existing conditions on insurance plans and removal of maximum costs members could incur, he said. Annual limits on costs for insurance also are being phased out.

"Really there are a lot of changes in health care reform that are going to significantly increase the cost of providing coverage," causing employers to think hard about what they can afford, he said.

The preparation for future sections of the law, whether they're postponed or not, has added an administrative burden to companies, said Mike King, partner at York-based law firm Stock and Leader.

For example, this year insurance carriers and companies with self-funded health benefits will have to provide a summary of benefits. The document has gone through several regulatory updates on length, information necessary to include and text size. It started as four pages with 12-point font and has morphed to four pages front and back with a separate two-page glossary defining terms within the summary.

Preparing and then reformatting and changing the document to be used with this year's renewal of benefits has been very challenging, he said.

W-2 reporting also will go into effect this year for 2013 tax forms, requiring businesses issuing more than 250 W-2 forms to include the value of health benefits provided. Many companies have begun to put in legwork to change software and administrative layers for the regulation, King said.

Many mandates require increased data management, record-keeping and reporting, said Scott Radcliffe, vice president at insurance broker Engle-Hambright & Davies Inc., based in Lancaster.

"Who's responsible for it and when and how does all that work?" are questions businesses have to set up operational structure for, he said.

The law will provide some expanded incentives for wellness programs to help start decreasing employers' costs of providing health care coverage, King said. PPACA increases the credit employers can offer an employee who is meeting certain wellness criteria to between 30 and 50 percent of the cost of premiums, he said. The wellness incentive update is scheduled to be effective Jan. 1, 2014.

With all of the legislative changes, there's been a revived interest for midsize companies to become self-funded for their health insurance benefits, Radcliffe said.

"They're looking closely at self insurance as a way to take better control over their plan," he said. "There's been an emergence of stop-loss consortiums, benefit captives and programs trying to make it easier for a small and midsize employer to take the leap into self insurance."

With increasing health benefit costs and administrative work and confusion over what mandates are going into effect and when, businesses are taking a look at what their workforce will look like come 2014 if the individual mandate is upheld by the Supreme Court, King said. Many employers are considering dropping health insurance benefits entirely and weighing the cost of the penalty for not providing coverage, he said.

For companies larger than 50 full-time employees, the penalty for not providing health insurance is about $2,000 per employee, which small business owners have said might be more affordable than providing benefits, said Joanne Corte Grossi, a regional director for the U.S. Department of Health & Human Services.

Companies are examining, "If we don't provide coverage, are we going to be able to maintain the workforce that we need?" King said.

How health insurers have been affected:

The major impact to health insurance carriers has been in a shift of focus to consumers rather than businesses, said Mike Fiaschetti, senior vice president of provider strategy for Pittsburgh-based Highmark Inc.

"Up until now, ourselves and other health insurance companies are mostly focused around the group employer," he said. "We believe many more individuals will be responsible for the (health benefits) decisions after PPACA."

More consumers will be part of Highmark's strategy both because more people will have health insurance under the individual mandate and because many employers might stop offering health insurance, he said.

Highmark has been working on changing its marketing, billing systems and service lines to be directed at consumers mainly by interfacing with health insurances, he said.

The insurer is developing its own health insurance exchange for small businesses, aimed at employers with up to 99 employees who want to offer plans with a defined contribution, Fiaschetti said.

By reformulating their business operations per PPACA, insurers are incurring more and more costs, he said.

The mandate to cover individuals up to age 26 alone increased Highmark's costs between 2 and 3 percent, he said.

"That's an issue; that's not making (health benefits) more affordable," Fiaschetti said.

Updating policies and procedures to be compliant has come with its own challenges and costs, such as PPACA's updated external appeals process, said David Vassilaros, director of health care reform and regulatory affairs for Dauphin County-based Capital BlueCross. The company had to modify its policies on what types of appeals were allowed and put in place triggers for the right paperwork to be filed when an appeal is submitted, he said.

Adding to the cost of research and system changes, beginning in 2014 there will be an excise tax levied on insurers annually based on market share, he said. The money will be used to offset subsidies flowing through the government's health insurance exchanges.

"We've estimated right now at between $35 million and $40 million cost to us in the first year," Vassilaros said. "That is going to have to be passed through in some portion to our customers, as is any tax on goods and services."

A benefit of PPACA has been health care and health insurance becoming a conversation topic, he said. One of the insurance industry's biggest challenges is helping people understand its products and services, and PPACA has provided a platform for discussion, he said.

The advent and continuation of PPACA regulations have brought up many questions for insurers, including, "What benefits are we implementing? How do we implement them? How do we market them? How do we market them on an exchange? How do we maintain our own balance sheets? Because we're all taking on a lot more risk because there will be no underwriting in this thing," Fiaschetti said.

How PPACA affects health care providers:

The main result of PPACA for health care providers is more and more administrative time, energy and expense, said Dr. Marilyn Heine, president of the Harrisburg-based Pennsylvania Medical Society.

"The medical profession is one of the most highly regulated professions, and we're already burdened by significant administrative requirements," she said.

Although most of the provisions already in effect don't change hospital and health system operations, the preparation for many scheduled for the next two years is happening now, said William Pugh, senior vice president of corporate finance and chief financial officer for PinnacleHealth System in Harrisburg.

One of the most time-consuming steps has been the community needs assessment, he said. PPACA mandated each health care organization to complete a community health needs assessment every two years — Pinnacle partnered with Holy Spirit Health System and Penn State Milton S. Hershey Medical Center to conduct their assessments together, he said.

Another administrative chore was reviewing and updating its charity care and financial assistance policies to be in line with the act, Pugh said.

PPACA will eventually influence payment model changes through intense tracking of quality measures, he said. To prepare for that, many health systems have been working on their information technology infrastructure, readying themselves to participate in health information exchanges, he said.

Systems and providers also are working on partnering with each other and private insurers to develop accountable-care partnerships — allowing the health care businesses to share risk, help lower costs and improve quality, Pugh said.

"The human capital that's required to put all of this into place oftentimes

is an additional cost not reimbursed," he said. "We've incurred significant cost on these things. We believe it's money well spent; we're seeing

tremendous improvement in patient satisfaction surveys and the atmosphere among our whole employee group."

PPACA has contributed to many health care organizations exploring more ways to raise the quality of care, said Maria Royce, senior vice president of planning and community development for York County-based WellSpan Health.

The system already had been working on several initiatives to coordinate care and has continued those efforts with inclusion of PPACA regulations, she said.

WellSpan has partnered with other businesses to open retail health centers for people needing immediate but not emergency care. It's also worked to develop patient-centered medical homes at its medical group practices, changing how care is coordinated to fill gaps in health care, she said. Both are projects many health care operations are pursuing in the ongoing quest to lower cost while improving care, she said.

The care changes and partnerships are allowing health care providers to "learn what has the overall impact, what can impact access in a positive way, the quality of a person's health, and what can be done in a less costly setting to bring all those together," Royce said.

PPACA is not designed to offer health care providers more funding in the future, she said. As payment reform linked to quality and value are coming, health care providers are focusing on expense reductions, she said.

"I think as an industry (PPACA) has focused us to recognize that change is not only inevitable, it is necessary," said John Holmes, chief financial officer for Ephrata Community Hospital.

How PPACA has affected the compliance industry of benefit brokers and attorneys:

Benefit specialists and brokers are facing a change in revenue streams because of PPACA, several businesses in the midstate said.

The act's Medical Loss Ratio requirements mandate health insurance companies to spend 80 to 85 percent of money collected for insurance on health care costs and improving health care quality. Under that provision, commissions paid to brokers and specialists cannot be included in the 80 to 85 percent, which will force them to look for fee payments elsewhere, they said.

"What I think you'll see over the next few years is the thinning of the herd," said TJ Morrison, sales and marketing manager for Benefit Design Specialists Inc. in Cumberland County. "The broker-agent marketplace is overpopulated; the good ones will survive."

Revenue will likely move to fee-basis from employers instead of commissions from insurers, he said.

The ratio mainly will affect brokers working with businesses of one to 99 employees, as most larger businesses they work with pay them on a fee basis already, he said.

Some might think with the advent of health insurance exchanges, the need for health benefits brokers, administrators and consultants will be eliminated, said Matthew Kirk, president of Lancaster County-based The Benecon Group Inc.

"There will still be a very valuable role for them to play, given the complexity of this law and the multitude of changes that will come into effect," he said. "Employers might even need the services of consultants and brokers more than they do now."

Benefit specialists will probably begin providing services for consumers along with companies, Morrison said.

"Employees have never been involved in any decision-making process with benefits," he said.

Confusion will permeate the marketplace, giving benefit specialists and brokers the opportunity to expand their services to a new audience of individuals, he said.

Some of the dependence on benefit specialists already has begun, said Radcliffe, of Engle-Hambright & Davies.

His firm has seen a significant increase in compliance questions asked from clients, he said.

The business does monthly webinars for clients, and three out of four of the most recent topics have been on health care reform, he said.

More information sessions also have been a result of PPACA for legal firms, King, of Stock and Leader, said. His company holds regular seminars on a variety of topics, he said.

"Health care reform has occupied that agenda in the last two years more than any other topic," he said. "I don't think a day goes by that I don't get an email from an organization communicating what the latest update to the law is."

The complexity of the law has added another layer of compliance issues for attorneys to constantly keep up with, he said.

"There's an enormous time commitment in learning the details as well as staying abreast of all the developments and the changes," said Smith, of Barley Snyder. "It's not necessarily work that you're billing clients for."

All of the preparations and operational changes under PPACA are a tight balancing act, especially since all or part of PPACA might not be upheld in a few weeks, said administrators at three area hospitals owned by Florida-based Health Management Associates Inc.

Businesses must be ready to move quickly if the Supreme Court upholds the law, said leadership members at Lancaster-based Heart of Lancaster Regional Medical Center, Warwick Township, Lancaster County-based Heart of Lancaster Regional Medical Center and South Middleton Township, Cumberland County-based Carlisle Regional Medical Center.

"But (we) must, at the same time, be careful with the usage of our resources on a law that may ultimately not become reality," they said in a joint statement.

Editor's note: This item has been modified from its previous version to clarify Joanne Corte Grossi’s statement on the penalties for not providing health care to employees being more affordable than actually providing benefits.

What small businesses need to know about PPACA

Some parts of the act are not widely known by businesses, said Joanne Corte Grossi, regional director for the U.S. Department of Health & Human Services.

In particular, small businesses might not realize that if they have fewer than 50 employees, they are not required to provide health insurance, she said.

If a small business of fewer than 25 employees does choose to offer health care benefits, it can receive up to a 35 percent tax credit, she said. In 2014, the tax credit available increases to 50 percent of the cost.

"It's estimated that 180,000 small businesses are eligible for the tax credit — they can each save about $350 per year per employee," Grossi said.

There will be a health insurance exchange designed just for small businesses, she said.

Editor's note: This item was modified from its previous version to correct the number of employees needed to receive a tax credit.

Defining the plans

Fully insured plan: A plan in which the employer contracts with another organization to assume financial responsibility for the enrollees' medical claims and for all incurred administrative costs.

Self-insured plan: A plan offered by employers who directly assume the major cost of health insurance for their employees. Some self-insured plans bear the entire risk. Other self-insured employers insure against large claims by purchasing stop-loss coverage. Some self-insured employers contract with insurance carriers or third-party administrators for claims processing and other administrative services; other self-insured plans are self administered.

Source: U.S. Bureau of Labor Statistics

Employers: Confusion over nondiscrimination policies

Nondiscrimination policies also were a concern for many businesses.

Under PPACA, the nondiscrimination rules that apply to self-insured health care benefit plans were going to be applied to fully insured plans, said Mark Smith, partner at Barley Snyder law firm.

The nondiscrimination rules do not allow highly compensated individuals a better employer subsidy for health care benefits than the rest of the employee base. Any business breaking that rule faces significant tax consequences, he said.

However, the Internal Revenue Service delayed subjecting fully insured plans to the regulation and tax until further guidance is released by regulatory agencies, he said.

Insurers: Lack of regulatory guidance

A challenge for insurers is the lack of regulations clarifying the many mandates they're now subject to, said David Vassilaros, director of health care reform and regulatory affairs for Dauphin County-based Capital BlueCross.

The company has put together teams of people to address several of the different requirements but often doesn't know what operational changes are needed to be in compliance, he said.

Some mandates the company worked hard to meet were moderated after Capital was ready to go with its new processes, such as returning medical loss ratio rebates directly to consumers, he said. After nine months and 40 people working on a solution and rolling out the new procedure, the federal government released a regulatory update outlining that insurers didn't have to return rebates directly to individuals but could provide them to their employer instead.

Earning Medicare dollars back

Coming this year for hospitals as a part of PPACA is a reduction in Medicare reimbursements under the value-based purchasing rule, said William Pugh, chief financial officer and senior vice president of corporate finance for Harrisburg-based PinnacleHealth System. In 2013, 1 percent of all Medicare inpatient operating payments will be withheld. The amount will increase to 2 percent by 2017, according to the rule.

Hospitals will have to earn the funding back through a combination of quality of care measures and patient satisfaction data, he said. In the past two years, hospitals have been participating in reporting to establish baselines, which will drive the reimbursement for the future, he said.

Write to the Editorial Department at editorial@cpbj.com

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