John Fradelizio, a longtime North Bay insurance veteran, is managing director, employee benefits, for Wells Fargo Insurance Services in Petaluma. He is a past president of the president of the Northern California Employee Benefit Council, and he has served on advisory boards with numerous carriers including Blue Cross, Blue Shield, Kaiser, Aetna, Health Net, United HealthCare and Delta Dental. He started with ABD as vice president and team leader in 2002 and stayed on with the company through the Wells Fargo transition. He was named managing director of the employee benefits department for the North Bay in 2008.
Q: Now that health reform is here to stay, what should companies be planning for and what can they expect, in terms of health care costs and overall impact on their workforces?
Mr. Fradelizio: The impact of the Affordable Care Act will vary depending on the structure of the current benefit offerings. For employers who offer fairly generous benefits to a broad cross-section of employees, the impact may be minimal. The largest expense for employers that are subject to “pay or play” may be in increasing eligibility to all employees working 30 or more hours per week, along with increases in enrollment to avoid penalties under the individual mandate. If employers increase eligibility and otherwise grow enrollment, the incremental increase in employer contributions toward health care coverage for newly eligible employees can add up.
Q. Much has been made of the notion that companies will be incentivized drop employer-sponsored health coverage with the health insurance exchanges coming on line. Is this still a possibility or is it hype? What might incentivize employers to keep health benefits in place, particularly small to mid-sized business?
Mr. Fradelizio: Most larger employers will not be well-served by dropping their benefit plans. Although the penalty for not offering coverage initially seems small, the penalty is non-deductible for tax purposes. If an employer drops health coverage, they lose the tax deduction for the amount contributed toward medical care. In addition, they would see an increase in their payroll taxes since employees would no longer be paying their share of the cost of coverage through a Section 125 plan. Another factor employers should consider is the cost of purchasing benefits through the exchange for employees who are not below 400 percent of the federal poverty level. These employees may end up paying more than they are accustomed to, for coverage that could be less than they have today. Employers may be required to gross up wages for these employees if they want to retain that segment of their workforce.
Q: If employers do drop their plans, will the exchanges and other elements of health care reform be enough to provide comprehensive health coverage for individuals?
Mr. Fradelizio: The California Exchange is still in the works, although California is ahead of many other states in terms of developing a program. For example, we have already learned that a Kaiser small group plan will serve as the “benchmark plan” in the California Exchange. However, there continue to be a number of unanswered questions regarding carriers, plan options, benefit designs and not least of importance, the cost of coverage that will be available.
Q: The federal government recently said it would roll out two nationwide health insurance plans in every state, as a means to keep costs down and expand access. Will that plan be effective in containing costs?
Mr. Fradelizio: At the risk of sounding cynical, I would suggest that the federal government does not have a good track record in terms of controlling costs in many areas of society, least of all health care. At this point, it is not clear precisely how costs will be determined, but it may be that costs for younger, healthier individuals may actually increase. Moreover, individuals who are not eligible for federal subsidies (based on income levels) may see costs increase over what they have historically seen in the group insurance market.
Q: Does California’s exchange contain adequate, too much or not enough “essential health benefits” in order to be a successful augmentation — or perhaps replacement if companies drop coverage — to the current mix of employer-sponsored coverage and public health programs?
Mr. Fradelizio : To be determined …
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