Navigating the Health Care Maze

October 26, 2010

Confronted with the often-dizzying details contained in the landmark health-care legislation signed into law this spring, university administrators are grappling with a host of new questions about the plans they offer employees. How will they maintain a plan’s “grandfathered” status? Speaking of grandfathers, how well does the current plan cover grandfathers before they qualify for Medicare? And where are we going to put that new lactation room?

“It is expected between now and 2020, there will be approximately 1,000 individual rules, decisions [or] choice points that the federal government and employers will have to make,” Kyle Cavanaugh, vice president for human resources at Duke University, said during a recent presentation to faculty and staff.

One of the early decisions for employers, including colleges, is whether or how to retain “grandfathered” status for a plan. Employers with plans that were in effect as of March 23, the enactment date of the new law, can maintain their grandfathered status – and thereby be exempt from some of the new law’s requirements -- so long as they don’t make major changes, such as reducing benefits or increasing employees’ out-of-pocket expenses beyond a specified threshold.

Losing grandfathered status will trigger a host of new requirements, including providing equal coverage for emergency room visits in or out of network, as well as providing preventative care without cost sharing.

Duke has chosen to retain grandfathered status, Cavanaugh said. While the university’s well-regarded plan already offers many of the preventative care benefits that losing grandfathered status would require, there are other changes that “right now we would prefer not to make,” he said.

Among the early changes the Patient Protection and Affordable Care Act requires, regardless of grandfathered status, is extended coverage to dependent children until they turn 26, up from 19 where many plans now drop children. That provision goes into effect for plan years that began in September or later this year, so some colleges are already bound by the dependent extension.

Duke estimates as few as 700 and as many as 3,000 new individuals will be added to its plan as a result of covering children up to 26, and that could cost close to $1 million, Cavanaugh said.

At Eastern Michigan University, the dependent children provision has already had a notable impact. While the university has historically offered an optional family plan that covers dependent children between the ages of 19 and 25, Eastern Michigan charged about $200 a month for that additional benefit. Under the new law, however, an employer plan that covers children cannot levy a differential charge based on age. Consequently, Eastern Michigan couldn't continue charging the fee, ushering in significant additional cost increases for everyone in the pool, officials said. Indeed, university estimates suggest the increased participation in expanded dependent coverage, among other cost drivers, will increase expenses by $2 million.

Anticipating those cost increases, the university will be increasing employee premium shares – the amount withdrawn from paychecks – by 100 percent or more in some instances.

“It was complicated [to change the plan], but we were very open about it and we got it done so we are in a good position in the future,” said Susan Martin, the university’s president.

Uncertainty Over Exchanges

If there is a common sense of trepidation for college employers studying the implications of the new health care law, it’s about the unforeseeable impact of changes that will occur years down the line. Looming in the distance, for instance, is the year 2014, when a number of health insurance exchanges will begin to offer a choice of health plans to individuals, many of whom will qualify for federal subsidies.

At the University of Michigan, officials are already considering what it could mean if significant numbers of young and healthy people in their plans are drawn to the exchanges, potentially changing the university’s risk pool. If the university ends up covering primarily those who are older or who have more health problems, the charges paid by the university and its employees could go up substantially. Laurita Thomas, Michigan’s associate vice president for human resources, said the university will have to be intentional and transparent in educating employees about their options.

“[The exchanges] will have a major impact on us, so we will be concerned about what the design looks like,” she said. “You can design a plan that looks like a bargain basement plan and people who don’t think they will get ill will take it.”

Michigan has already taken some proactive steps tied to the new health care law, becoming one of thousands of employers and unions approved for a newly created early retiree insurance subsidy from the federal government.

The Early Retiree Reinsurance Program sets aside $5 billion to be divided among qualified employers to cover health care costs for retirees not yet eligible for Medicare. The funds can be used to reimburse employers for up to 80 percent of medical claims costs for an individual between $15,000 and $90,000.

The $5 billion is being distributed on a first-come, first-served basis, so there’s an incentive for employers to apply early, as many already have.

“That’s the key initially, is to stay out ahead of this stuff as much as possible, which is not easy,” said Ted Makowiec, Michigan’s senior director of benefits.

There are about 120 higher education employers that have been approved for the reinsurance program, according to a recently updated list.

While many of the changes colleges are contemplating with the new health care law are significant, there are other smaller-scope issues to consider. Additional reporting requirements present new administrative challenges, and a little-noticed amendment to the Fair Labor Standards Act would require employers of 50 or more people to offer private, comfortable rooms for breastfeeding mothers.

The lactation room provision may prove a head-scratcher for colleges with sprawling campuses. Marietta College officials have been discussing the requirement since this summer, trying to determine whether renovations will be necessary to comply.

“Buildings are spread out all over the place. What’s the best one location for all employees? That’s the trick,” said Vicki Ford, the college’s executive director of human resources.

Other changes in store for the future include an excise tax on generous health care plans – often called “Cadillac” plans – to take effect in 2018. Given rising costs in health care, most employers -- including colleges -- are expected to eventually hit the ceiling that triggers the excise tax, many analysts say.

While there is still considerable debate about how all the changes will impact costs, there is some buzz about employers considering whether it may be more affordable to pay a $2,000 per worker fine for discontinuing health care than to continue current offerings. Those decisions probably wouldn't be announced until after 2014, when the final system will be in place.

Most colleges have a history of strong health care benefits, so they would be unlikely to be among the first to drop plans, said Norman Jacobson, a senior vice president at Sibson Consulting, a human resources firm.

“It’s not what we’re recommending, but it is something that gets discussed in the corporate world,” he said. “Higher ed would be the last ones, I think, to jump on that bandwagon, so to speak.”

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