"While the Exchange will allow those employees who cannot afford their employer-sponsored plan or whose employer’s plan is deemed unaffordable under health care reform, I don’t believe the exchange will be a viable option for many small businesses in Rhode Island."
Robert Calise, principal of Warwick-based benefit-advisory firm Cornerstone Group, one of New England’s leading benefit-advisory firms, has some questions about the potential value to small businesses offered by the new Rhode Island Health Benefits Exchange. His views differ significantly from many of the proponents of the new Exchange.
Providence Business News asked Calise to share his insights into what the new health reform landscape may mean for the insurance market and for small businesses in Rhode Island.
PBN: Now that federal health care reform has been ruled constitutional, how will the R.I. Health Benefits Exchange, scheduled to begin operation in late 2013 as an online marketplace for small businesses and individuals to buy health insurance, change the equation for small businesses?
CALISE: The Rhode Island Health Benefits Exchange is designed to offer another option for small employers when making their purchasing decisions. From what we know to date, the Exchange will allow carriers to offer the same products that they offer outside of it.
However, carriers will not be able to offer products in the Exchange that they don’t offer outside of it.
The Exchange will offer what’s known as “defined contribution” style benefits, in which an employer determines a monthly contribution they will make on behalf of each employee. The employee can then go to the Exchange and select a plan that is most appropriate for them.
It is still unclear whether the Exchange will allow employees to select from varying “metallic” level plans, i.e., gold, silver, or bronze, from the same carrier or from different carriers.
While this model takes small employers out of the purchasing decision, which may be attractive to some businesses, I believe that the end result is that the exchange will add to their costs. Based on an estimated preliminary expense budget for 2015 presented at a recent Exchange stakeholder meeting, the Exchange may add between $23.02 and $30.20 in costs per member per month, depending on low, moderate or high enrollment.
While the Exchange will allow those employees who cannot afford their employer-sponsored plan or whose employer’s plan is deemed unaffordable under health care reform, I don’t believe the exchange will be a viable option for many small businesses in Rhode Island.
PBN: In Rhode Island, the emerging trend identified in the 2011 survey conducted by the R.I. Office of the Health Insurance Commissioner is that many large group businesses are moving toward self-insurance? What are the advantages – and the risks – of becoming self-insured?
CALISE: Self-insurance doesn’t mean a business does not have insurance. Rather, self-insurance typically has three components:
Plan and claims administration costs. An insurer like Blue Cross & Blue Shield of Rhode Island, Tufts Health Plan or UnitedHealth care of New England can be contracted to provide the administrative services at a fixed cost per employee per month.
Claims expenses. These are the actual claims that are incurred by employees and their dependents, a variable cost that fluctuates with employees’ actual usage of the medical system.
Stop-loss insurance. Two types of stop-loss coverage are typically utilized by small and large self-insured plans: individual stop-loss, which protects the employer with coverage that kicks in after a deductible level has been reached by any covered member, and aggregate stop loss coverage, which provides the employer protection if their entire group of employees and dependents collectively reach one large deductible.
Self-insuring an employee benefits program offers several benefits. Self-insured programs, governed under ERISA, are not subject to most state regulations, including the Rhode Island premium tax, which amounts to 2 percent of premiums. Self-insured plans are also not subject to state-mandated benefits, enabling companies to design a health plan that may or may not include benefits mandated in fully insured premiums. Most importantly, self-insured companies who invest in wellness and disease management programs to improve the health and well-being of employees, which have a direct impact on employees’ utilization of benefits, can reap the rewards.
The downsides to self-insuring include the potential cash flow fluctuations that come with claims that vary from week to week as well as the risk of maximum exposure under a self-insured plan compared to the costs of remaining fully insured.
PBN: Federal tax credits up to 35 percent of the cost are currently being offered to small businesses that offer a majority of their employees health insurance. Is this a good deal?
CALISE: On its face, it sounds like a great deal. But, we have had less than 10 out of our 700 small-employer clients actually qualify for the benefit.
Primarily, that is because it is a difficult tax credit to obtain, since the maximum 35 percent credit is only for those businesses with less than 10 full-time equivalent employees, with an average wage less than $25,000 per year. And, even if an employer qualifies for the credit, it offsets dollar-for-dollar the tax deduction for health insurance premiums paid for employees.
PBN: What kinds of information do Rhode Island employers need to respond to changes over the next 24 months as a result of implementation of federal health care reform?
CALISE: There are a number of requirements employers will need to meet in the next 24 months. They include:
Employers must distribute Uniform Health Plan Summary of Benefits and Coverage as part of the first open enrollment beginning after Sept. 23, 2012.
Beginning Jan. 1, 2013, there will be increased Medicare health insurance tax withholding on high income individual, health FSA contributions are limited to $2,500, the repeal for the employer business deduction for qualified retiree drug programs begins for the 2013 tax year, and the first dollar preventive care services for women begins, with a one-year moratorium for certain religious institutions.
On March 1,2013, employee notices are required regarding exchanges, and on July 31, 2013, patient-centered outcomes fee due.
In 2014, there are changes to the plan design coverage provisions, including:
Pre-existing conditions exclusion not applicable to adults (or children).
Employee waiting period for coverage cannot exceed 90 days.
Annual limits prohibited on essential health benefits.
Limits on cost-sharing (deductibles and out-of-pocket maximums).
Wellness programs may increase penalty/reward to 30 percent.
Clinical trials coverage.
Other provisions affecting employer coverage include:
Exchanges available to individuals and small employers (with fewer than 100 employees, although the state may drop the threshold to 50 employees).
Qualified Health Plans participating in Exchanges may be offered through cafeteria plans.
Shared responsibility (“play or pay”) penalty for employers with 50 or more full-time employees (or full-time employee equivalents) who fail to provide minimum, affordable coverage.
In addition, the individual mandate becomes effective and there is an expansion of Medicaid coverage, unless the state opts out.
PBN: How can workplace wellness initiatives reduce the overall cost of health insurance for employers and employees?
CALISE: Worksite wellness initiatives come in many flavors. From simply offering a voluntary participation-based program that may include a health risk assessment and on-site walking or smoking cessation program to a results – and outcome-based program that provides an incentive – typically lower premiums for employees who achieve certain levels for things like nicotine usage, BMI, total cholesterol, blood pressure and glucose.
We view worksite wellness programs as an integral part of controlling the rising costs and utilization of our health care system. More than 70 percent of diseases in the U.S. are a function of lifestyle choices. Employees typically spend more of their waking hours at work than at home, making the workplace the perfect place to send the right message to employees and reinforce what they hear from their primary care physician.
The more employer sponsored wellness initiatives that are implemented, the healthier the employee population becomes, which can really bend the health care spending trend. In addition to saving employers and employees money, wellness programs increase productivity, decrease absenteeism and workers’ compensation claims and produce a higher level of employee engagement and morale.