Obama Health Care Reform Plan Raises Host of Questions for Employers
Companies are looking beyond Inauguration Day on January 20 for clues about what role employers will have if health care reform is enacted under an Obama administration. But at this point there seem to be as many questions as there are answers.
While President-elect Obama has made health care reform a centerpiece of his campaign platform, his proposal, to date, lacks important details. In addition, some aspects may undergo changes as the proposal develops into actual legislation introduced in Congress.
Senator Max Baucus (D-MT), chairman of the Senate Finance Committee and an influential voice on health care issues, recently released a white paper entitled "Call to Action: Health Reform 2009," which describes an alternative vision for health care reform that bears many similarities to Obama's proposal, but also some important differences.
It's not even clear when Congress will begin to seriously debate health care reform legislation, given the slumping economy, enormous budget pressures and other competing priorities facing the new administration.
Despite all the uncertainties, there's a clear sense of urgency — both within Congress and the incoming Obama administration — that deficiencies in the health care system must be addressed in the near term. And employers are eager to learn about what may lie ahead in terms of their own health care plans and the potential impact on their broader effort to help employees manage rising health care costs through consumer-driven delivery strategies.
Introducing a new federal health care plan
The Obama health care proposal would create a National Health Insurance Exchange featuring a new public plan and approved private plan options. Key elements of the program include:
- Enrollment would be available to individuals who do not have access to employer health coverage or current public plans, as well as to individuals who want new health coverage.
- The new public plan would offer a benefit package similar to the Federal Employees Health Benefits Program (FEHBP), and all approved private plans would be required to offer a package that is at least as generous as the public plan.
- Individuals would be guaranteed eligibility for all available plans, with no preexisting exclusions, and the coverage would be portable.
- Income-based, sliding-scale tax credits would be available for those who don't qualify for Medicaid or the State Children’s Health Insurance Program (SCHIP).
- Employer-sponsored health plans would be reimbursed for a portion of catastrophic costs incurred above an unspecified threshold amount, as long as the savings are used to reduce employee premiums.
Mandating "pay or play" at the federal level
The Obama health care proposal anticipates that employers will continue to play a role as a key source of health insurance coverage. The proposal also would retain the current uncapped employee income tax exclusion on the value of employer-provided health coverage, although it's likely that Congress will consider imposing some kind of cap.
The proposal is silent on the fate of tax-favored health savings accounts and high-deductible health plans — central elements in the consumer-driven health care strategies of many companies.
Most important are other elements that could bring major changes in the employer-sponsored health care system, beginning with a pay-or-play mandate. This provision would require large companies to provide "meaningful coverage" or make a "meaningful contribution" to the cost of health coverage for their employees. Companies that fail to do so would be required to contribute a percentage of payroll toward the cost of the new public plan. Small employers would be exempt from the mandate, but the dividing line between large and small employers is not defined.
Setting rules for the pay-or-play game
Notably, the proposed pay-or-play mandate lacks clarity regarding what would be considered meaningful coverage or a meaningful contribution. It also offers no specificity regarding the percentage of payroll assessment that would apply to employers who choose to "pay" instead of "play."
Since none of these critical financial benchmarks have been defined, it is difficult for organizations to estimate at this time how their current health care programs would be affected. Specifically, it's not clear to what extent employers would have to continue bearing the burden of health care coverage costs for their employees in order to avoid paying into the public plan.
Until further details emerge, some employers may decide to evaluate their plans by relying on certain assumptions regarding the likely form that the pay-or-play requirements may take. A company might ultimately determine that it would need to top up plan design, expand eligibility or increase the subsidy toward the cost of health care to meet the "play" requirements, or do all three.
From a strategic standpoint, the Obama proposals raise the prospect that some employers may ultimately choose to sponsor richer coverage than would be available through the government or individual market options. Doing so could serve as a device to attract and retain talent. For virtually all employers, some broad reassessment of their health care strategies, and a consideration of alternative approaches, would be in order.
For more information on how your organization may be affected by health care reform proposals that could emerge in 2009 and beyond, contact your Towers Perrin consultant.