The ACA Today: Where it Stands and How it Affects Employers

When it comes to the Affordable Care Act (ACA), a lot of organizations have questions. Professionals may feel an uncertainty with how everything will work or cost when it comes to their health care needs. We spoke with Robert Klonk, CEO of Oswald Companies, about the ACA.

Client concerns regarding the ACA

“The biggest concerns regarding the ACA would have to be reporting, uncertainty, and costs,” says Klonk. “Every employer is being hit with a deluge of reporting requirements that are forcing them to look at technology alternatives to be able to handle reporting. It doesn’t seem to matter if the company is a smaller or larger group, reporting is quite burdensome.”

The uncertainty comes from the constant delays and changes to the ACA that has been unfolding since 2010.  It is difficult to plan properly when they keep changing the rules.

“The number one issue clients are worried about is cost,” says Klonk. “There is a tremendous amount of cost being shifted to employer plans, and there doesn’t seem to be a timeline of when it will end. Employers are doing everything they can to try to control costs, but yet continue to get hit with additional ACA costs.” These additional costs ultimately then ultimately get pushed onto employees which creates affordability issues.

The winners and the losers of the ACA

After speaking with Klonk, it was clear that there are both winners and losers when it comes to the ACA.

“Obviously, there is a certain percentage of the uninsured population that are winners. Specifically, the population that was eligible for Medicaid that was not signed up before, especially with the expanded Medicaid and the states that did so, since they were able to get coverage under the expanded Medicaid now rules.”

Klonk says there was also a decent portion of uninsured people today that were able to go on the exchanges and receive subsidies. With over 85% of the policies issued today having received a subsidy of some set; and some of them being quite substantial, they would be an obvious winner of the ACA.

Others that would be grouped in this category include poor performing employer groups. Even though they may have high claims, especially the under 50 life groups that are community rated, they will see their costs go down slightly.

Also, the government is a winner, says Klonk. “The government has more control, and with more control comes more power. If we continue to go down this path, the government will be able to control healthcare far more than any of us are going to be comfortable with,” says Klonk.

But who are the losers in all of this? Klonk says it’s the majority of employers.

“There is too much cost shifting going from the individual marketplace to the employer based marketplace. Also, employees of these employers are sometimes bearing the brunt of these increases.  Individuals who still want individual coverage, but are not eligible for a subsidy on the exchange, have seen dramatic price increases for some of their polices,” says Klonk.

“These were relatively healthy individuals under the old standard and would be underwritten based on the risks they brought; and then be priced accordingly. These individuals who would receive a good price are now paying quite a bit more because there is no underwriting, so they pay the penalty for it.”

Community rating

Currently, community rating is in effect for groups of 2-50 employees. As of January 2016, unless it is delayed again, that law will be expanded and the small group definition will go to groups of 2-99.

“Community rating is not performance based, but is more like socialization,” says Klonk. “Community rating brings everybody together and tries to bring it to the median. So if you are a healthy, young, high-performing group that has embraced wellness and performance based medicine, by going in the community rated pool, you will get dinged quite dramatically.”

However, what about the unhealthy groups that haven’t done anything over the past couple of years?

“Some will to see their costs increase,” says Klonk. “But others do have a chance of actually having rates decrease, because community rating brings everything to the middle. So the incentives go away.”

Klonk says this is the reason why you see a lot of self-insured pools cropping up. They can avoid the community rating of ACA. He also says this particular area, as it relates to community rating, scares him the most going forward because it takes away incentives for employers to keep their employees healthy.

“Over the last 15 years, we have worked so hard to incorporate things like on-site wellness plans, and if you take that incentive away from employers, many of them will not do it anymore,” says Klonk. 

The impact insurance carriers will see with the ACA

There is quite a few things that will impact the carriers, depending on the type of carrier that it is.

“Most of them are introducing some type of narrow network, some more narrow than others,” says Klonk. “In certain areas, it’s not a bad offering if they can try to reduce costs there, but in other areas they are limiting access to a lot of good quality providers. One of the challenges is they’ve somewhat reduced the incentives for some carriers to control costs because they have limited the amount of profitability they can make.”  

This is one of the core elements of the ACA. The percentage of profits are limited to 15 to 20 percent, depending on which marketplace they are in.

“We counted on the carriers before to help us on Disease Management, and to help us in promoting wellness programs and to really work with us and the employers to try to control costs,” says Klonk. “Since that incentive with community rating is very challenging, and with the maximization on their profitability, it’s another area that I see diminishing for the carriers.”

However, Klonk says that financially, the carriers are doing fairly well right now.

“You’ve got the reinsurance fees subsidizing the exchange numbers, and with grandmothering in the small market space, as well as community rating, the carriers are able to pad their numbers a bit.  Although their profits have increased recently, I think they are going to get squeezed here as we go forward. You will see more costs being pushed to the carriers from the insurer fees through ACA, and it is going to challenge them a little bit.”

Klonk believes that many of them, conceptually, will change the way they do business years past to where they go forward and their focus isn’t on managing costs as much or managing the risk as much, but simply processing claims and being networks and claims processors, and technology platforms going forward.

“I can see some of that changing as the incentives in ACA go away from really managing risk and managing cost,” says Klonk.

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If your pay cycle is either weekly or bi-weekly, there is a good chance that some years will include an extra payday, although there is some variation to this rule based on the way the calendar falls and the day on which your organization pays employees.

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The “other” category elicited several interesting responses, with more than one employer explaining that while in the past they had chosen to divide pay by 27 and adjust benefit deductions, moving forward they would not be making that same choice. They noted that although logistically this change worked smoothly, employees were displeased with a smaller bi-weekly paycheck and overall morale was negatively impacted.

Other considerations

Although these particular employers did not experience any compliance related issues, employers who choose to divide paychecks by 27 should be aware of any lower wage workers on an annual salary. If the new math puts their pay below the FLSA threshold, this would in fact alter their FLSA exempt status and require the employer to pay overtime, etc to these employees for one year.

Another alternative option, although not at all common, was to simply reduce the final paycheck of the year.

As legal experts point out, this final option can also be dangerous in terms of FLSA as well as state minimum wage laws for any salaried non-exempt employees that might fall under the minimum hourly wage during the final reduced pay period—not to mention the likely backlash and drop in employee morale that could accompany a significantly reduced final holiday paycheck.

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