Outside Insights | August 2013 | By Jeff Englander and Kimberly Savilonis

Here Comes Health-Care Reform

How small- and mid-sized businesses can prepare for upcoming health-care changes and gain an edge in the process.

Encouraging healthy behaviors can cut down on an employer's health-care costs.
Encouraging employees to practice healthy behaviors can cut down on an employer's health-care costs. thinkstockphotos.com
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Three years after the Patient Protection and Affordable Care Act (commonly called the ACA) became law, “many employers still don’t grasp its basic elements,” according to a recent BusinessWeek article.

Despite the recent one-year delay in enforcement of the employer mandate penalty, small and mid-sized businesses should take steps now to be sure they’re prepared for the upcoming changes set out in the ACA. Yes, there’s a lot to consider, when means it’s crucially important for each business to consult legal counsel for specific guidance. But for well-prepared business leaders, there are cost-management strategies that can potentially help ease the burden.

Starting on October 1 of this year, individuals and small businesses can use the new health insurance marketplaces to begin evaluating health insurance plans authorized under the ACA. Businesses with less than 50 employees will have access to these health insurance marketplaces through the Small Business Health Options Program (SHOP). Then, following a one-year delay in implementation, on January 1, 2015, the law’s employer-insurance provisions will take effect, including the mandate that businesses with 50 or more full-time employees provide qualifying and affordable health-care coverage or pay a fee.

As much as $493 billion of health-care spending may be attributable to so-called manageable behaviors, including about $200 billion to deal with obesity and weight control and as much as $191 billion to cope with smoking.

Say, for example, that a franchisee operating as Dale’s Restaurant Co. has 75 full-time employees, and its management team has determined that the company is subject to the ACA’s employer insurance mandate. That means Dale’s is responsible for offering qualifying and affordable insurance to full-time employees or paying a fee of up to $3,000 per year per full-time employee if any employee receives subsidized coverage through a health insurance marketplace. (Employees may also choose to buy coverage voluntarily through a marketplace even if their employer offers qualifying and affordable coverage; however, they wouldn’t be entitled to receive subsidized coverage and wouldn’t be able to apply any portion of their employer’s contribution for health-care insurance toward coverage purchased via a marketplace.)

On the other hand, suppose that the independent Pat’s Bar & Grill has 10 full-timee mployees, and its management has determined that it’s not subject to the mandate. Pat’s would not have to pay the fee of $3,000 per full-time employee as a result of not offering the mandated coverage. In fact, it may be eligible for subsidized coverage. Pat’s would have the opportunity to pool its risk with other small businesses, bringing increased purchasing power and allowing them to obtain higher-quality coverage at lower costs.

To minimize uncertainty, business leaders should use the extra year of planning time afforded them to evaluate the impact of reform on their companies, then determine how to comply with the law’s legal and administrative requirements, even if they choose not to offer health-care coverage to their employees. Once senior managers are educated on the implications for their business, they can begin to develop a health-care compliance strategy.

Moreover, given that enforcement of the coverage mandate won’t begin until 2015, employers can use 2014 to calculate their actual costs had the mandate had been in place. They can also assess any technical or systems issues and communicate with regulators about problems they’ve encountered, as well as issues that have been brought up for public comment, to address them before actual implementation begins.

At that point, business leaders can evaluate their options and tackle the purchase decision. As an employer, one of the first questions to ask yourself is, How much can you spend on group coverage? In order for plans to be qualified under the law, they must provide for 60 percent coverage. Also, bear in mind the affordability provisions of the ACA; they define “affordable” as costing no more than 9.5 percent of the employee’s W-2 income with that particular employer for employee-only coverage.

Businesses may want to consult with an insurance broker to help decide which plan provides the right balance of cost and benefits—a unique decision that depends on the ages and income levels of the employer’s workforce, as well as the company’s budget.

Employers can take steps right now to begin managing their health care-related costs. According to the annual National Survey of Employer-Sponsored Health Plans by Mercer LLC, the average total health benefit cost per employee is expected to increase 5 percent this year, compared to 6.1 percent in 2011 and 4.1 percent in 2012. The average all-in cost was $10,558 per employee in 2012.

Mercer has noted that “workforce health management”—essentially implementing policies to encourage health-conscious behaviors—has emerged as employers’ preferred strategy for controlling health-care spending. For example, to encourage people to visit the doctor, consider allowing no-cost preventive care and screenings.

Here are some additional health-conscious expense-management ideas that businesses may consider implementing:

  • Encourage your company cafeteria to discount healthy meal options, offer fruit and other healthy snacks, and provide lower-calorie options in on-site vending machines.

  • Provide on-site screenings and investigate the use of health-risk questionnaires to ensure that employees are aware of their own health issues such as high cholesterol.

  • Offer subsidies for employees participating in smoking cessation and weight loss programs, subject to Health Insurance Portability and Accountability Act (HIPAA) regulations.

  • Sponsor “Biggest Loser”–type contests to reward healthy lifestyles.

  • Appoint health coaches to help employees better manage chronic diseases such as diabetes.

According to PricewaterhouseCoopers, as much as $493 billion of health-care spending may be attributable to so-called manageable behaviors, including about $200 billion to deal with obesity and weight control and as much as $191 billion to cope with smoking.

The benefits of carefully managing costs for both the employer and the employee are clear. A 2011 survey by Towers Watson found strong evidence of a link between highly effective health and productivity programs and better human capital and financial results, including higher workforce productivity and lower rates of work loss.

Why is it the employer’s concern? Each year, according to GE’s internal calculations, employees spend at least 2,000 hours at work, during which they eat about 400 meals or snacks and, if they smoke, consume about 50 packs of cigarettes. So when employers think about helping their workforce to be as healthy as possible, they need to think about more than just discounted gym memberships. They should consider creating a true culture of health.

Jeff Englander, CFA, is a senior vice president and senior research analyst on the GE Capital Industry Research Team based in New York. Kimberly Savilonis is the senior vice president of strategic marketing with GE Capital, Franchise Finance.