Wellness as a Cost Containment Strategy
2014 will be here before you know it and the health care playing field will experience unprecedented change – unless, of course, Superman can fly down and actually stop the locomotive. Since that is unlikely to happen, employers need to start planning now for 2014.
At that time, small employers (50 or less employees) and individuals will be able to purchase health insurance coverage from state-based exchanges without being rated (or declined) based on medical underwriting. Instead, rating will be limited to geographic area, age of employees and tobacco use. Age banding will be limited to a 3:1 ratio (i.e., rates for a 64-year old can’t be more than 3x that of an 18-year old) and insurance companies will be able to charge smokers 1.5 times the premium of a non-smoker. The large group market (more than 50 employees) will continue to have utilization factored into their annual renewal rates.
While it is unclear at this point what the new rating structure will mean to small group rates, it would make sense that some companies will win and some will lose.
As the playing field levels out and costs continue to rise, employers will need to continue to look for ways to control their costs. One possible way to do that for 2014 is to take advantage of the provision for offering employee incentives of up to 30% of the total cost of coverage for participating in a wellness program and/or achieving health benchmarks. For example, if the total cost of single coverage is $400/month, the employer could use $120/month as the incentive; if the cost of family coverage is $1,500, the incentive could be $450/month. (For employers who would like to implement a plan prior to 2014, the incentive rules are in place now under HIPAA, however, the maximum incentive is 20%.)
The wellness rules will allow a plan to structure the incentive either as a reward or penalty, as long as the incentive amounts for all health-based standards are limited to 30% of the cost of coverage (could be increased to 50% in the future at the discretion of the HHS Secretary). The program must offer an alternative way to earn the same reward for those who are medically incapable of meeting the health standard based on a doctor’s certification. For example, if a surcharge is in place for smokers and a doctor certifies that an employee is addicted to nicotine and medically incapable of not smoking, the plan must offer a reasonable alternative to meeting the requirement. This alternative may be attending a smoking cessation class to allow the smoker to avoid the surcharge.
There are many ways to approach and craft an effective wellness program. However, it is important to note that other federal laws need to be considered prior to implementation, such as the ADA, HIPAA privacy rules, ERISA, and tax rules, so employers should seek outside advice before implementing a program for employee premium contributions based on health standards.
If you would like more information on wellness programs and/or health care reform strategies, please give us a call at 800-662-6238.