Employers health costs scrutinized

July 21, 2012
| By Pete Daly |
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It’s always the first thing employers, especially small business owners, want to know: How much will this cost me?

That was one of the most persistent questions at a public forum at Grand Valley State University last week on the Patient Protection and Affordable Care Act, since it has now survived a Supreme Court challenge largely intact and the federal government’s countdown clock is ticking.

The forum at GVSU was put on by the Alliance for Health and Jean Nagelkerk, GVSU vice provost for health. The state of Michigan has not yet passed legislation setting up the state’s health insurance exchange, but must do so soon to meet federal deadlines. The insurance industry, employers and health care providers will all be impacted, and the PPACA involves at least three federal departments: Treasury (in the form of IRS tax penalties), Health and Human Services, and the Department of Labor (regarding employer health insurance plans.)

A panel of professional people presented their viewpoints on the Act, with Carl Ver Beek, a Varnum attorney, serving as moderator. He has long experience working with the local health care community. Also on the panel were Steve Heacock of Spectrum Health, Ron Palmer of Grand Valley Health Plan, Win Irwin of Irwin Seating, Mary Alice Williams of Nokomis Foundation and Vondie Woodbury of Mercy Health Partners/Muskegon Community Health Project.

Ver Beek said the PPACA is “so complex … no one can claim to be an expert on it.”

Irwin, whose company has 450 employees in Michigan and Illinois, said “the United States has a huge problem — a failing health care system,” with two major deficiencies. While other industrialized nations around the world have universal health care, only the U.S. among them has millions of people who do not have access to health care, meaning insurance. The other problem is “a huge cost problem. I think this is the big problem.”

The cost of health care in the U.S. ranges in some areas to as much as 18 percent of GDP, but other industrialized nations have complete and effective health care at one-third less cost, according to Irwin. He noted that the bulge in cost doesn’t kick in as a major problem in the U.S. until a person reaches their late 50s, adding that health care cost for an 85-year-old American averages $42,000 a year — but it is about $11,000 in Germany.

Under the U.S. system, “irresponsible free riders” with no insurance must be cared for under the law, and the cost is shifted to every individual and employer who pays insurance premiums. At the same time, dramatic increases in U.S. health care costs for the past couple of decades have made it harder for U.S. companies to compete in a global market, said Irwin, and U.S. employers really don’t have a lot of opportunities to hold down those costs.

“We employers are not the problem,” said Irwin.

As for Irwin Seating, he said PPACA probably won’t affect the company’s cost much either way “because we have a good (health insurance) plan” for employees already.

Grand Valley Health Plan is an HMO that provides insurance to about 150 employers in the area. Palmer, the head of GVHP, said there are 1.3 million uninsured people in Michigan now; PPACA will require about 500,000 of them to seek mandated insurance from a state insurance exchange. The remainder will be qualified for the expansion of Medicaid coverage.

The mandate facing employers in 2014 will require those with 50 or more full-time employees to provide insurance or face potential penalties of $2,000 for each one beyond a head count of 30.

“If you had 100 employees, this could be pretty expensive,” Palmer told the Business Journal.

Part-time employees — working less than 30 hours a week — are not part of the employer mandate but will be subject to the individual mandate to buy insurance.

If a company with 50 or more full-time employees does offer insurance, but one of those opts out and goes to the state insurance exchange instead — and gets a premium tax credit subsidy for their insurance, the employer faces penalties of up to $3,000 per employee per year. That part of PPACA is intended to discourage employers who try to drastically minimize their cost of a group insurance plan by requiring the employees to pay most of the cost, and/or face very high deductibles before their insurance kicks in, according to Palmer.

There will be federal subsidies for insurance and those can be “pretty substantial,” said Palmer, but he added it is a complex formula that will change from 2014 to 2016.

“I really hesitate to say anything other than the federal government is saying that there will be subsidies available, and they’re fairly substantial,” he said.

The actual rules under PPACA haven’t been written yet, noted Palmer.

“Now we are going to have the question of what is actually going to occur when the rules are promulgated and these exchanges are set up,” he added.

There is also a “medical loss ratio” set by PPACA, which is, in effect, a mandate to insurance companies. At least 85 percent of the insurance premium paid to the insurance company must be for actual medical services, not administrative overhead at the insurance company. Palmer said that rule is aimed at employers who offer their employees individual policies, which tend to have high marketing cost at the insurance company.

An immediate change under PPACA was the requirement that family insurance plans include children up to age 26. Palmer said PPACA won’t require GVHP to change much of what it does, because it already covers employees’ children up to age 25 and its administration cost is 10 percent of its premium revenues. He noted that the “state regulations already in place (in Michigan) are very close to or the same as what the federal government is now requiring.”

Palmer emphasized that PPACA is full of specific, concrete details that will be a struggle to implement. He said there are always problems with major legislation when it is implemented “and they have to go back and either revise the legislation or revise the rules.”

On the issue of health care cost, there were a number of questions and comments at the forum regarding the cost of expensive medical procedures routinely done in the U.S. for individuals nearing the end of their lives. The example cited was a heart valve replacement for a 90-year-old man — something not normally done in the health care systems in other industrialized nations. The U.S. practice tends to increase the cost of health insurance premiums for all.

“Americans try to deny death,” said Irwin.

Williams of the Nokomis Foundation agreed that end-of-life care goes to the extreme. “At some point, you have to say enough is enough,” she said.

Nagelkerk said one ramification of the changes coming will probably be more of a focus on wellness, in effect, spending on programs that keep people healthier from an early age.

Heacock spoke about the “fiscal cliff” coming Jan. 1 when more of PPACA is implemented. He predicted that people who do not have insurance will flood the ER more than they already do, and Palmer agreed that “it’s going to be a mess.”

Lody Zwarensteyn, head of the Alliance for Health, did not speak at the forum but told the Business Journal later that with the Supreme Court decision, it is “incumbent on everyone to be prepared” for PPACA.

“Health care reform is the law of the land,” he said.

If a state refuses to set up its insurance exchange, he said the federal government has made it clear it will operate the exchange for that state, with or without participation of its government officials.

“So, do you want more federalism?” he said.

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