A recent development is a signal NAIC has taken it regulatory reach to a new level.
By Cyril Tuohy
With the final Affordable Care Act (ACA) regulations on wellness incentives and excise taxes published in the June issue of the Federal Register, it’s time for advisors and managers to dig into the details to make sure employers stay on the right side of the law.
Nondiscrimination requirements under the final regulations differ depending on whether the company wellness program is considered “participatory” or “health-contingent,” according to the ACA experts.
Participatory wellness programs — discounts on health club memberships, free health education programs and diagnostic testing — don’t offer rewards or financial incentives to plan members, in contrast to health-contingent wellness programs.
Health-contingent programs offer awards or financial incentives to plan members “who satisfy a standard related to a health factor,” according to a client note from the law firm Cooley LLP. Health-contingent plans come in two varieties, activity-only and outcome-based plans.
Nearly one in five (18 percent) of employers have an outcome-based health incentive program, according to Mercer.
The new wellness rules, which are designed to prevent discriminatory practices based on health factors while rewarding healthy behavior and preventing disease, clarify designs for programs that offer awards or incentives to employees to meet health standards.
For companies that were not thinking about group health wellness incentives before the final rules were published, it’s time to buckle down and discuss the incentives. For companies that already have them in place, it’s time to revisit them to make sure they are sustainable.
“There are many questions going through sponsors’ minds,” Sander Domaszewicz, national health and benefits expert with the health and benefits consultancy Mercer, said during a webcast briefing on the road to implementation of the ACA.
The enrollment period for plan years beginning on or after Jan. 1, 2014, starts on Oct. 1, and employers are still trying to assess the impact the changes will have on participation rates and costs. As many as 19 percent of employers expect costs to rise by 5 percent or more, according to a recent Mercer survey of 900 employers released June 12.
“As we approach 2014, it’s a bit concerning that 32 percent of employers know little about the actual cost impacts of the new changes,” Mercer president and chief executive officer Julio A. Portalatin said. “The Affordable Care Act affects each organization differently as the impact on many fronts will persist well beyond the 2014 period with many variables to consider.”
Final wellness regulations in the Federal Register mean employers have to make decisions now about how they will track the wellness incentives in 2014, Mercer experts said.
Do employers have alternatives for employees who don’t meet health-contingent outcomes? Do they administer rewards at midyear or provide retroactive credits? Do incentive mechanisms work through premium rewards or contributions to a health savings account? Do employers increase incentives to the allowable maximums of 30 percent and 50 percent?
In the Survey on Health Care Reform: The Road to Implementation, Mercer also found employers making changes now to avoid the ACA’s excise tax, which kicks in in 2018.
Consumer-directed health plans (CDHP) are the big winners there as more than one in two employers (54 percent) said they would introduce a CDHP or take steps to increase enrollment in an existing CDHP to avoid the tax, the survey found.
An estimated 39 million employees were enrolled in these plans by the end of 2012, up 19 percent over the end of 2011, according to an analysis of the Mercer National Survey of Employer Sponsored Health Plans released June 17.
According to the Survey on Health Care Reform: The Road to Implementation, nearly one out of two employers (48 percent) said they would add or expand health management programs, 28 percent said they would drop a higher-cost health plan, 6 percent said they would unbundle dental and medical plans, and 4 percent said they would eliminate health care flexible spending accounts (FSA) as ways to avoid the 2018 excise tax.
The excise tax, designed to limit the growth of health care spending, penalizes companies if the benefits they provide employees exceed a threshold of $10,200 for self-only coverage and $27,500 for family coverage.
Tracy Watts, Mercer’s health care reform leader, said the tax provision could turn into “the real game-changer.”
“Employers have consistently told us that they will do whatever is necessary to avoid the tax, and given the rate of increase in health benefit cost, that may require fundamental changes in the type of health benefit they provide and how they provide it,” she said.
Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at Cyril.Tuohy@innfeedback.com.
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