Starting January 1, 2014, the business of offering employee health care benefits fundamentally changes under the Affordable Care Act (ACA).
That's the date when the first portions of the ACA take effect, and businesses with 50 or more full-time employees need to start executing a strategy to address the unprecedented operational and financial challenges posed by the new law.
To get out in front of the changes, employers need to do the following:
1. Model the anticipated health care costs to understand the financial hit you may face.
2. Determine the best approach to providing health benefits based on your expense structure and needs.
3. Decide whether a defined contribution plan is the best way to proceed, including whether to participate in an insurance exchange.
Sizing the cost
Financial modeling is an essential first step to developing a strategy to comply with the ACA. The analysis should begin now, with the modeling extending to the year 2020. Calculating all of the costs, including the less obvious ones, is critical to having a comprehensive understanding of the financial implications.
Make up your mind
The next step is whether companies should "Pay" or "Play," as the industry calls it. "Pay" means an employer opts out of offering benefits to employees and agrees to pay a penalty per full-time employee imposed under the ACA. "Play" means providing an employer-sponsored plan to your workforce.
It's critical to engage the necessary legal and actuarial expertise to project the actual costs. This analysis should be incorporated into current employee census data, plan design, premium amounts and contribution information.
Then determine if it makes sense to continue offering benefits or drop coverage, alter employee salaries, move to a defined contribution approach or some other unique strategy. Financial modeling should calculate the breakdown in cost and outline how much expense the company and employees will incur under either "Pay" or "Play."
Defined contribution model
Whether fully-insured or self-funded, most companies are currently in an employer-driven "payor model." With the payor model, employers assume most of the cost and risk. They are responsible for administrative functions and must determine the benefit offering. They also must absorb the seemingly perpetual increases in premiums.
A defined contribution plan enables employees to purchase the health care plan that is best for them. This model re-engages employees in the economics of health care by encouraging them to shop for coverage and services just like any other product.
Employee education is the key to successfully navigating the challenges ahead. It also requires that employers provide a choice benefits, self-help tools and member counseling and support.
The bottom line: We're all in this
The ACA represents the most sweeping changes to benefits since the passage of Medicare. Brokers and consultants can play a leadership role in helping mid-sized and large employers work through the big challenges ahead.
Written by Shawn Pynes, principal of Barney & Barney, LLC and the firm's director of Employee Benefits.
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