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NEW YORK—It could be years before it is known whether the new health care reform law has a positive or negative effect on employers, the leader of an employer benefits lobbying organization said.
Extending coverage to millions of previously uninsured U.S. residents under the law could reduce uncompensated care, said James Klein, president of the Washington-based American Benefits Council. Requiring full coverage of preventive services and allowing employers to boost financial incentives for participation in wellness programs could improve employees' health and reduce health care costs.
However, it also is possible that the health care reform law could result in employers dropping health care coverage and an unraveling of the employment-based system, Mr. Klein said during the keynote address at the 2010 Business Insurance Benefit Manager of the Year Forum last month in New York.
That could happen if rates paid to providers treating patients covered by Medicaid don't cover costs and providers inflate charges to patients in insured plans to such an extent that those plans no longer are affordable, Mr. Klein said. The law will provide Medicaid access to millions of additional lower-income uninsured individuals.
“As we all know, Medicaid pays the lowest rates,” Mr. Klein said.
Providers may have to “look elsewhere” to make up for those costs, he said.
While it is too soon to say how it will unfold, the result of more immediate changes resulting from the law is more obvious, he said.
In the short run, employers' health care costs will go up. For example, while it may be good public policy to require employer plans to extend coverage to employees' adult children up to age 26, such a mandated change “will raise costs,” Mr. Klein said.
Other provisions that impose new taxes on health insurers and medical device manufacturers, among others, will get passed on to employers and consumers in the form of higher charges, he said.
On the other hand, the demand for COBRA health care continuation coverage by former employees and other beneficiaries is likely to plummet as other provisions in the reform law kick in, Mr. Klein said.
When state insurance exchanges start operating in 2014, beneficiaries may not only be able to get coverage that costs much less than COBRA, they also may be eligible for federal premium subsidies for coverage purchased through the exchanges, he said.
One issue that employers have begun to examine is whether it would be more cost-effective to drop coverage, pay the required $2,000 per employee penalty and boost employees' salaries to help them purchase coverage through insurance exchanges.
While that option might cost less than continuing to offer coverage, the decision “is not as simple as it appears,” Mr. Klein said.
Employers that drop coverage could be at a disadvantage if their competitors don't, he noted. In addition, Congress might increase the penalty if employers drop coverage in large numbers, he said.
“If the penalty goes up to $3,000 or $5,000,” it might be better to spend $10,000 and “get some employee relations value” rather than paying a $5,000 penalty that employers cannot deduct on their taxes, he said.
Although the law will impose a compliance burden, employers shouldn't forget that business community lobbying led to positive changes compared with previous versions of the legislation, he said. For example, the original House bill included a public plan option that would have crowded out private plans, Mr. Klein said.
Under the final bill that passed, employers still retained a fair amount of flexibility in their ability to design their health care plans, he said.