The Countdown to Obamacare

Open enrollment for Americans to sign up for health-care coverage through state and federal health-insurance exchanges is now just days away: Oct. 1. Perhaps it’s time we summon Feliks Zemdegs for some guidance.

After all, the Australian is pretty good at riddles. He holds what’s billed as the world record for solving a Rubik’s Cube—6.24 seconds. Then again, those cubes have just 54 squares. The Patient Protection and Affordable Care Act was 2,074 pages in final form, so even Feliks might need a little more time for that challenge. 

He wouldn’t be alone. Fully 3 ears since the passage of ACA, as it is known to those in the trade, confusion reigns in the offices of American business owners and HR executives alike. This, despite thousands of pages of regulatory guidance and the best efforts of insurers and insurance brokers to help executives navigate those choppy waters.

 But with open enrollment bearing down—followed 92 days later by the Jan. 1 implementation of ACA’s next mandates—this much is clear:

• Most of the so-called exchanges—redubbed “marketplaces” by bureaucrats lacking an appreciation of Orwellian irony—won’t be operational by Oct. 1.

• Virtually none of the massive connectivity is in place to link computer systems at the state exchanges, the Department of Health and Human Services, the Internal Revenue Service, businesses, insurers, brokers and others who are part of the process.

• Companies that spent three years trying to plan for the increased costs of insurance plans and compliance under the employer mandate must run that calculus for another year, following the administration’s unilateral—some say illegal—delay in enforcing the employer mandate.

• The income-verification system, an integral part of that mandate structure, won’t be in place even if people are able to access the exchanges, and authorities will thus have no means of determining whether applicants are entitled to the federal insurance subsidies they might claim—or whether employers should be held accountable for those payments.

There’s more, but you get the idea. And while some supporters of ACA argue that Medicare and Medicaid also posed implementation challenges, too—arguments made without addressing long-term financials of either program—those strands of the social safety net entangled far fewer people than will ACA. And the effects are being felt from small shops to large corporations.

User-Unfriendly

Luther Salonen’s case is a good example of what confronts small business owners or executives. He’s chief financial officer for railroad contractor Kelly Hill Co., which has a work force of slightly more than 50, so it will eventually face the employer mandate. But most of those employees are covered through a plan managed by their union.

“We don’t have a lot to say about the insurance; we’ve only got about 15 people we’re providing insurance for,” Salonen says. But who’s responsible for reporting on the company’s insurance status to regulators? Just a month before open enrollment, Salonen was scrambling for answers, despite having attended legal seminars on that very topic aimed at HR administrators.

“I still haven’t gotten a good answer on this,” says Salonen, who has a full work week attending to actual company operations even before ACA compliance is factored in. “The last seminar I went to, their interpretation was that even though the union is providing the insurance, because we’re employing them, if (open enrollment) notices are not sent to employees, we could get the penalties, even though we kind of feel like the union should be sending the notices. I’m not in control of it, but I might get the penalty for it.”

Variations on that theme are playing out at businesses large and small nationwide, which is one reason why many should be grateful that the employer mandate has been delayed until 2015, said Ron Rowe, vice president of small group and consumer markets for Blue Cross Blue Shield of Kansas City.

“I think most of the business owners and HR managers have breathed a big sigh of relief, when the pay or play was delayed for a year, that was really the thing forcing them to take a hard look at managing the insurance for their work forces,” Rowe said. “So they’ve been given 2014 to analyze how the insurance exchanges are coming together and come up with a plan.”

But if this couldn’t get nailed down in 3 ears, will the marginal increase of another 12 months be enough to overcome the most serious hurdles? Rowe noted the various political obstacles that followed enactment of ACA, including a side show with the Supreme Court in 2012, but regulators nonetheless have been issuing guidance on the law for years, and are nowhere close to completing that task. “A lot of the regulations in terms of how this will be implemented didn’t come until before Thanksgiving 2012.” 

So where does that leave us?

“There’s good, bad and ugly” in the new law, Rowe said. “In the under 50-employee market, you’re going to see some rates go down because of the modified community rating. Those guys will be able to jump on new products and lower rates, so they haven’t gotten hurt. Some folks will see rates go up, but they’ve been given another year before that mandate has to take effect.”

But the exchanges, he said, haven’t been tested and aren’t ready, and the consequences of that remain unknown.

Most employers, insurers and brokers say, must keep in mind that even though the penalties for defying the employer mandate have been deferred, plenty of other ACA compliance is facing them in 2014: reporting and payments, marketplace notification for employees, distribution of summary benefits and coverage documents for existing and new employees, and distribution of rebates if they’re warranted.

While it has created headaches for HR departments and C-suites, the reforms have had the consequence of creating, “a market ripe for innovation,” says Rick Kahle, president of the Lockton Employee Benefits. “It’s a fascinating time to be doing what we’re doing. When I joined this business, compliance was a small part of what we did for clients. Now, it’s an essential part. That’s a sad reflection on what we’ve come to, but that’s exactly where we are.”

The challenge for brokers, he said, has been helping employers see the value in having a flexible strategy, given the remaining potential for change. “Now that the intensity is going up, we think it makes sense for clients to have a communication game plan” to ensure that employees understand how the process will work. But even with that, when the exchanges open, “people are going to be confused, they’re going to need information, and they’re going to run to their direct supervisors, or to HR, and those people need to be well-equipped with answers or it will breed frustration and uncertainty.” And that, in the vernacular of the brokerage business, will create “human-capital issues.”

Another unintended consequence emerging is one that defies the conventional wisdom of the past three years, which held that many companies would jettison coverage in favor of paying penalties for failure to insure, since the overall cost would be lower. In fact, most companies with insurance are retaining it, and a growing fear among insurers is that the employees will have the incentive to disengage from their company’s plans.

“They’re going to find out what’s available and whether they qualify—the estimate is that 60 percent of them will—and then think they can get a Bronze plan for $50 a month out of pocket” for 2014, said Rowe. “They’ll think, ‘I can do that or stay on a plan at work where I can’t have the kids covered anyway and am paying $200 to $300 to my employer, or give myself a raise, have them quit taking it out of my check.’ Employees will start peeling off employer plans on their own,” Rowe said, without consequence to employers in 2014. But with the employer mandate in force for 2015, “those employers may find themselves in a position where they might have to convince employees to come back on the group plan,” he said.

“The big dilemma that employers are going to have to analyze is, as an employer, do we get hurt if this happens or is it no big deal for us based on our size and the penalty we’re facing?”

The answer to that question, as with many others, won’t come until we’ve endured another year of uncertainty and get closer to 2015.