Healthcare reform: What businesses need to know now

How will the Patient Protection and Affordable Care Act (PPACA) help employers manage rising healthcare costs?

David Pringle. PPACA creates four different cost-sharing levels (ranging from 60 percent to 90 percent coinsurance) that employers can offer starting in 2014. Although employers don't like to find themselves in this position, by shifting more of the coinsurance burden to employees, employers can still balance the scales of offering quality health insurance while managing rising costs.

Some carriers plan to increase their current plan premiums in the coming year. Most companies and their employees cannot afford this increase. What are employers' options?

DP. Because of the narrow range of changes that may be made to a grandfathered plan, many employers whose health insurance costs will increase may face a dilemma. If deductibles, co-pays, or the percentage of employer contribution is increased by more than the amounts allowed under the new law, the plans will lose grandfathered status. If that happens, an employer may choose to offer a qualified health plan, which could be more expensive than keeping the grandfathered plan. If a new qualified health plan is offered, it must comply with all new insurance market reforms, including the new IRS nondiscrimination rules. An employer may also choose to terminate coverage altogether. If coverage is terminated, business owners and key employees will lose the benefit of having health coverage paid with pre-tax dollars.

What can employees do to manage the inevitable rise in costs as more and more costs get shifted their way?

DP. One thing employees can do to manage their own healthcare costs as more of the cost gets shifted to them is to hedge against higher out-of-pocket expenses by purchasing supplemental health insurance. Our experience in Japan, which has a national healthcare model, is that although major incidents are covered, the costs associated with offering broad coverage creates financial gaps that policyholders don't realize until it's too late.  In Japan, the co-payments, deductibles, out-of-pocket maximums, and coinsurance costs continue to shift more toward consumers, which means more and more of their disposable income is at risk. By purchasing supplemental insurance, like cancer, accident, disability, and others, they help protect their income from the unforeseen expenses brought on by a serious illness or accident.  The need for Americans to protect their income isn't any different.

Does healthcare reform affect my ability to offer voluntary worksite benefits to my employees?

DP.No. Voluntary worksite insurance, also called supplemental or excepted benefits, include accident, disability, stand-alone vision, and/or dental plans, as well as cancer and hospital indemnity insurance. Unlike major medical insurance, voluntary coverage pays cash benefits directly to the policyholder. The new health insurance reforms are aimed at improving access to major medical coverage.  In fact, the need for voluntary products will become more acute as people discover the financial gaps inherent in major medical coverage. I expect the market for voluntary products will be in high demand over the next few years as PPACA gets implemented.

How will the cap on flexible spending accounts affect out-of-pocket costs?

DP. PPACA imposed a limit of $2500 on health flexible spending accounts. For those who redirected more than that (a typical employer has a maximum FSA contribution of $5,000 - $6,000), the difference will now be taxable as gross income, starting in 2013. This means people will have to pay out-of-pocket for expenses over that amount. As anyone who has dealt with a serious sickness or injury can tell you, the medical and nonmedical expenses can pile up quickly - and dramatically - for many. This is where voluntary insurance comes in handy. A hospital indemnity policy, for example, would help defray those unexpected out-of-pocket costs and give policyholders peace of mind in trying times.

Biography

David Pringle is Senior Vice President of Federal Relations at Aflac, where he has worked for more than 32 years. His primary responsibility is coordinating Aflac's government relations and lobbying efforts in Washington, D.C. He is also secretary and principal fundraiser for Aflac's Political Action Committee (Aflac PAC).