With the implementation of the Affordable Care Act (ACA), how can an employer avoid the twin problems of the Cadillac Tax and ever-increasing healthcare costs? The Cadillac tax has been delayed from starting in 2018. Now it will begin for plans beginning on or after January 1, 2020. But, the 40 percent tax penalty is a significant concern to employers. How does an employer avoid that tax? And how can an employer curtail or merely slow down the inflationary spiral of healthcare costs?
Congress cannot seem to "repeal and replace" the ACA. Various ideas are floated that the Federal Government should just "block grant" or fund at a local state level amounts needed for healthcare. Then the State and local governments could determine best how to allocate those monies including Medicaid expansion if required. But in the meantime; what should an employer do? The employer must do significant plan redesign, in-depth communications, and try to find ways to reduce current and future medical costs.
All of this must have verifiable savings in healthcare costs over the next few years. Why? To avoid that 40 percent Cadillac tax on family coverage with a monthly premium cost that exceeds $2,292 (indexed). All this must be done before 2020. So, I would suggest that now is the time to consider self-funding your medical plans. I would suggest that now is the time to consider outsourcing all types of medical and health benefits administration.
You might be thinking that you already have a third party administrator (TPA) or carrier processing and paying your medical claims. But is that enough?We would like to try to clarify your options by exploring the past and making some future common-sense predictions.
New Predictions
I could make some easy predictions, such as benefits administration and outsourcing will need to focus on return on investment (ROI). I could predict that more and more services will be conducted over the internet. There have already been many articles on these subjects, and I can recommend several to you. Gazing into my crystal ball, I see some trends, which might be worth considering.
First, to avoid the requirements of the Affordable Care Act - and especially any State-imposed mandates - every employer should explore either partially or entirely self-funded. TASC Compliance has advised that their clients, when looking at self-funding, consider an extended contract for services like a 15 to 18-month agreement so that not all employers are renewing during the fourth quarter of each year for a January 1 renewal.
We see this trend gaining popularity. Next, stop-loss insurance for aggregate, specific or a hybrid Spaggregate, will become very price competitive in the next five years. This will reduce the cost and risk to employers to self-fund, and even smaller employers under 200 employee lives will be able to self-fund. Third, some form of consumer-driven health like a modified HSA, a retiree HRA, or even the expansion of allowing retirement funds to be saved within an HSA. Fourth, for the next five years, using only a TPA or carrier who uses paper and people-intensive technology might not be the best solution for your company.
In fact, state-of-the-art technology has become a moving target, and just when you think you have the latest and greatest, it's devastating to realize you don't have it at all. Obsolescence is a fact of life, and it will usually occur right after you have implemented a new solution. Vince Ceriello, national speaker, author, and President of VRC Consulting, and I have noted: "A lot of Benefits Administration vendors have developed very complex and exciting applications. They appear to do everything but slice bread."
The problem is that you might not need to have your bread sliced. Remember to segregate the functions and features offered and then focus on needs vs. wants. For example, many carriers in the last 15 years have tried to develop their wellness programs and initiatives internally. They decided to hire their coaches and to do internal Biometric testing. The explosion in wellness in the last five years due to the ACA law has given rise to a new niche market.
That niche is wellness being outsourced. Many outsourcers can do it better, with better tools, and sometimes at less cost. It's not just all about price; it's now all about value. Fifth, careful selection of an outsourcer will be based on value, not just price. Dave Ulrich, a national expert in HR and recently recognized as one of the top 50 creative thought leaders worldwide, has stated that Employee Benefits/HR creates value in three areas:
- For employees- which should create more committed employees, longevity, less turnover, more loyalty
- For customers- which should generate more revenue and repeat sales
- For investors- which should create more market value
If the outsourcing of health functions and the self-funding decisions you are making are not creating this value in all three areas; you need to refocus and reload. Why? Because the experts agree that price is not the only issue at stake in outsourcing and self-funding decisions. Watson Wyatt reported that the primary reasons that companies outsource are:
- 36 percent want to maintain or improve service to employees
- 29 percent want to reduce the workload to existing staff
- 14 percent want to reduce costs
- 12 percent want to free up resources to focus on other company business
In fact, recent surveys show that costs, workload, and resources increased internally at the company after outsourcing. Also a groundbreaking study of "Reasons for Outsourcing" shows new reasons and new functions to outsource: We have listed some items to consider in selecting an outsourcer. None of these ideas listed is the price:
- Good cultural fit
- Shared values such as respect for the individual, diversity
- Ability to team with other suppliers
- Alignment of business strategies
- World class processes, expertise, advanced technology and innovation
- Commitment to collaboration and continuous improvement
- Clear expectations and accountability of both parties
- Clear but flexible contract to mutual benefit of both sides with the right incentives to drive the right motivation
- Performance and cost transparency (i.e., metrics monitored and visible to all business units)
- Relationship management
So focus on value, and you will not be disappointed in your outsourcer and your self-funding system. Sixth, the fastest growing area and most significant value for self-funding or benefits administration will be in Employee Self Service using handheld devices I believe that the goal of most employers is to increase value. Employers would love to hear that their employees feel that the employer:
- Respects them
- Provides them with more autonomy
- Gives them better information
- Offers them more "real" incentives to work smarter
- Is willing to share more of a financial stake and cost savings with them
Could that even be possible? It is if you continue to focus on Employee Self Service. Surveys show that employees value and want more information via Self Service. Employees of all ages want information quickly and accurately via Self Service. Mercer Human Resources Consulting recently surveyed many medium and large-sized firms and found that more than two-thirds of those employees who responded want even more varied information via the Internet or to Smart Phone-like devices.
Interestingly - the websites least preferred as a source of information were those sponsored solely by the employers or by health plans. Linking many sites together and allowing in-depth self-service were requested most by employees. Employees want the information to make better decisions about all areas of HR that affect them; especially in medical decisions, provider information, benefits costs, and data analytics.
One answer to the looming healthcare crisis is to give employees better information via Employee Self - Service. Soon employees will be making the majority of all decisions about healthcare. Eastbridge Consulting did a study and concluded:" Employee-consumers will still receive the majority of their benefits through their employer, but "the majority of decision making will shift from employer to employee, [including] allocating the dollars contributed by their employer as well as their contributions, selecting the types and amounts of products and manufacturers."
Also, "the old concepts of 'group,' 'individual' and 'voluntary' [insurance products]" will no longer have to mean by 2020, Eastbridge believes. Rather, products will be seen "as one business and sold by the same intermediaries and on single platforms."
So Where do we go From Here?
By 2020 you need to have reduced your healthcare costs and evaluated Self-Funding and even outsourcing if it makes sense. I suggest that we should all be aware of these future predictions and trends. But don't keep so focused on the future that you miss what happened in the past. Remember that: "what goes around comes around."In 2002, I proposed that benefits administration and HR professionals must "Think not only outside the box but think outside the industry."
However, I admit that there is evidence that a return to old-fashioned values and methods has some merit. There is even a new bestseller from Kirk Cheyfitz entitled "Thinking Inside the Box: The 12 Timeless Rules for Managing a Successful Business" that supports that position. So, it might not hurt to consider and even return to the core values and fundamental management principles that have worked in the past.
We should all learn from the example of what happened at significant firms that did not change and evolve like Enron, Arthur Anderson, Kodak, et al.After all; who could argue with Cheyfitz's very first of his 12 Timeless Rules: "Don't do anything stupid"? Sound advice to live by.
