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North Bay Business Journal

Monday, January 2, 2012, 6:25 am

Employers urged to prepare in 2012 for health care reform

Even if court rules against mandate, many changes coming

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    NORTH BAY  — Nearly two years after its passage, health care reform and much of its measures hang in the balance of what promises to be a politically charged  U.S.  Supreme Court decision on the constitutionality of the individual mandate requiring individuals to purchase health insurance.

    But while politicos and pundits await the decision and its implications, health insurance experts in the North Bay said most of the reforms are here to stay, even in the event that the mandate is struck down.

    Central to the argument for repeal is the notion that forcing individuals to purchase health insurance violates the commerce clause. And yet much of the insurance industry says that the mandate is central to any effective reform.

    Without the mandate, healthier individuals likely will not be included in the pool of available consumers, thereby leaving mostly those who absolutely need insurance because of a health condition, which in turn is more expensive to cover for insurers, according to experts.

    “At every step of the way, the Obama Administration has said (the mandate) is a lynchpin of the bill,” said Victor McKnight, a principal with Edgewood Partners Insurance Center (EPIC) in Petaluma. “Without an effective mandate, the guarantee aspect of the bill doesn’t work. The reason they included the mandate was because (the administration) said insurance companies needed to take everyone, but insurance wants a bigger pool.”

    The Supreme Court will hear arguments in March and is expected to issue a decision by June.

    Mr. McKnight said that while the political implications of a strike-down would be steep, questions do remain on the legality of the legislation.

    Apart from the political aspect, employers have a few practical concerns to consider, with or without the mandate.

    “Some of our clients are taking a ‘wait-and-see’ approach, based on the current uncertainty,” said John Fradelizio, managing director for employee benefits for Wells Fargo Insurance Services in Petaluma. “However, we are still encouraging them to be thinking about this strategically, and developing longer term plans for health insurance.” 

    Even if the law — or portions of it — are struck down, certain elements are bound to remain, which should spur employers to think about their health plans, according to Chris Reiter, vice president of employee benefits for Woodruff Sawyer & Company in Novato.

    “We don’t believe they’re going to strike it down,” Mr. Reiter said. “If they do strike down the mandate, it will likely be coupled with with keeping other elements of the bill. The mandate is really an individual level, but most of the bill pertains to employees and their plans, and even if they struck down the mandate, I think there will be a pretty good separation of the mandate and some of the other aspects.” 

    Mr. Fradelizio, careful not to predict an outcome from the Supreme Court except to say it would likely be a close decision,  echoed that notion.

    “Even if the act goes away,the underlying problem continues to be cost and the access to health care in this country. Regardless of what happens either in the Supreme Court or in next year’s presidential election, the problems will remain.”

    Much of the bill’s main elements are still on pace to be implemented in 2014, including the creation of state-run health exchanges. The year 2012 is relatively light on reforms — apart from the legal battle — and even several provisions have been delayed.

    One such provision is the summary of benefits coverage rule, which would have required employers to provide employees with a document describing the benefits and coverage levels offered under the employer’s plans, using uniform standards that would apply to all groups.  However, the provision has been delayed.

    “Although this will not result in taxable income to the employee, employers will need to work with their payroll vendors to develop these new reporting mechanisms.Companies who sponsor health care flexible spending accounts, or FSAs, will also need to communicate with their employees that these accounts will be capped at $2,500 beginning in 2013,” Mr. Fradelizio said.

    For employee benefits purposes, 2012 is overall a pretty light year, experts said, while a slew of provsions will take effect that concern Medicare and other health care segments, including: the formation of accountable care organizations in Medicare, along with a series of other Medicare elements; annual fees on the pharmaceutical industry; and data collection to reduce health care disparities.

    Nevertheless, employers are still grappling with the numerous changes transpiring over health benefits, and costs are expected to increase. 

    “Nothing in (Affordable Care Act) will reduce health care costs, and we have seen cost increases due to expanded coverage of dependents and elimination of plan maximums,” Mr. Fradelizio said. “We expect costs to continue to increase in 2012.  In many respects, I believe confusion is still the order of the day.”

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