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The Supreme Court opinion was not the one most of them wanted. But now finance chiefs need to work on compliance and make some tough decisions.
David McCann, CFO.com | US
June 28, 2012
CFOs, health-care attorneys, and benefits consultants interviewed today by CFO uniformly expressed surprise, and in some cases shock, at the U.S. Supreme Court's decision to uphold the individual-mandate provision of the Patient Protection and Affordable Care Act (PPACA).
The decision, which left virtually the entire health-care reform law intact, was particularly disappointing to the many CFOs who were hoping that the law, its litany of reforms they have to comply with, and associated costs would simply go away.
The court ruling creates some degree of certainty for business executives who didn't know if or when they would have to comply with the many provisions of the law that had not yet taken effect. Still, CFOs say that significant, unsettling uncertainty remains because of the likelihood that Congress will continue its partisan battle over the PPACA.
"The court may have decided, but Congress certainly will weigh in again," says John Leahy, finance chief at iRobot, whose own objections are more about politics than cost. "I was hoping the court would throw the whole thing out. I'm not a lawyer, so I can't judge what is constitutional, but I feel that Obamacare is a bad idea, not good for the country, and clear evidence of overreaching by the Administration."
For Leahy, the uncertainty is so great that the company has not bothered to quantify the cost impact of the law to date. And its executives haven't begun to think about the upcoming decision facing all employers with more than 50 employees: whether to discontinue offering employee health benefits and instead steer employees to the state health-care exchanges that are scheduled to be operational by 2014 (often called the "pay or play" decision).
Paul Janicki, CFO of Roquette America, likewise rails against the uncertainty that may not even be cured by this fall's elections. "In the not-too-distant future, we will start in earnest with our budget process for 2013, and we also do a higher-level planning for three to five years out," he says. "Part of that is labor cost. We have to estimate what that will be. But with health care, it's difficult to calculate what the impact will be. Even benefits consultants can only give you general guidelines, because it's a complex law and it's still getting baked."
Janicki is also concerned that the Supreme Court's stamp of approval on the PPACA will invite more regulation. "A lot of businesspeople are looking at this as a foot in the door that will allow for even further regulation, and not only in health care," he says.
On the other hand, the National Business Group on Health, which represents the interests of about 350 Fortune 500 companies in matters related to health benefits, thinks the court's decision gives employers more clarity in moving forward with health-coverage plans.
"This clears up the legal uncertainty," says Steve Wojcik, the group's vice president of public policy. "They might not like it, but at least they know what they need to do." The court ruling "is a comfort and certitude, as opposed to something good or bad." For example, as a result of the ruling, companies can now finalize their 2013 benefits decisions that were hanging in the balance, he adds.
Still, Wojcik says, the law "does not address the biggest problem facing employers and society as a whole, which is the unrelenting rise in health-care costs at a time when the rest of the economy has reset its expectations."
What Companies Need to Do, Right Now
Many companies have been sitting on the sidelines, waiting for the court decision before getting down to work on complying with the next wave of provisions to take effect, says Amy Gordon, a health-care attorney with McDermott Will & Emery. Companies that haven't addressed two that will take effect within the next seven months "are definitely behind the 8-ball at this point," she says.
One provision requires companies to distribute a new Summary of Benefits & Coverage (SBC) to employees. Insurance carriers must prepare the documents for fully insured employers, but it's still the employer's responsibility to make sure they're ready and mailed by deadline dates. "You have to stay on top of your carrier," says Ben Lupin, director of compliance for benefits consultancy Corporate Synergies. "They're not the ones who will be penalized if the SBCs are not out in time."
But self-insured employers have it worse, because they have to prepare the forms themselves. For most, it will take significant time and expense to "parse through what you need to provide and fit it into the exact model the government is requiring," says Lupin. "You can't do anything to make it easier to read or use. You just have to fill in blanks, and if the information doesn't fit the space, you might have a problem." The SBC requirement applies to plan years that start on or after September 23 of this year.
The other upcoming provision requires companies to report the value of health benefits on employees' W-2 forms. It's a comprehensive requirement; if an employer offers a free clinic or subsidizes a flexible spending account (FSA), the dollar value of that benefit must be calculated.
"Companies have known that the W-2 requirement is coming, but frankly some of the payroll vendors haven't gotten around to implementing it effectively, and so some employers have ignored it until now," says Lee Doble, a managing director in the benefits consulting and brokerage practice of Frank Crystal and Co., a privately held insurance broker. Such companies will have to make a good deal of coordinated effort with their payroll vendors to collect the required information and meet the January 2013 deadline for reporting it.
Companies also have to revise their health-plan documents to reflect the new $2,500 annual limit for FSAs that takes effect on January 1. Since that's half of what employees could allocate to FSAs until now, a communications effort is probably wise, says Lupin.
Pay or Play
Now is also time to begin considering a more profound implication of the PPACA, the "pay or play" decision. Companies with more than 50 employees that decide to forgo offering health insurance will pay a penalty, in most cases $2,000 per employee per year. But health-care costs are higher than that for almost all companies, so based strictly on the math and costs, it would be an easy decision to nix health benefits.
"How the elections come out may ultimately affect pay or play, but now that you at least know the law is constitutional, it's time to take a look at it," says Lupin. "Planning for 2014 is key now."
Of course, though, there is more to the decision than math and costs; competition for labor is a weighty concern. "If you're looking to hire someone who's getting benefits elsewhere and you're not providing them, you're going to have a hard time landing that person," says Doble.
Few observers believe companies will start nixing health benefits in droves. But the companies most likely to do so are those with fewer than 50 employees, other small ones that can no longer afford to shoulder the health-care burden as costs continue to rise, and those of any size that employ large numbers of full-time hourly workers, such as retail, food-service, and health-care organizations, many experts say. (The PPACA does not require coverage of part-timers.)
Still, it's conceivable that other large companies will take the opportunity to cut out a major cost area, especially a few years from now after it becomes clear how the state exchanges are working. "We're hearing 90% of large employers say they plan to continue offering health-care coverage through at least 2014 or 2015," says Sandy Ageloff, southwest health and group benefits leader for consulting firm Towers Watson.
Theoretically, employees at companies that do end health coverage would still have access to affordable insurance through the state exchanges. The health-care reform law provides for the federal government to subsidize the creation and operation of the exchanges, which are intended to let users easily compare health plans' coverage and costs. While the PPACA calls for the exchanges to be operational by 2014, a majority of states have not yet applied for the federal subsidies, let alone started building an exchange. In fact, they don't have to have one at all: the law provides that the federal government will provide an exchange for residents of states that don't create their own.
Since 26 states were plaintiffs in the federal lawsuit that attempted to have the individual mandate ruled unconstitutional, now that the case is over, "they may well go into overdrive," says Doble. "Many of them won't want to defer to the government."
Companies that decide to keep health insurance may make up for the cost by moderating salaries, Doble suggests. "That's going to be a big question. Employers are already reaching the point of saying they've only got so much money they can use to pay people. If they have to put more into health care, there will be less payroll in employees' pockets."