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House reform bill raises concerns

Posted On: Nov. 8, 2009 12:00 AM CST

House reform bill raises concerns

WASHINGTON—When House Speaker Nancy Pelosi recently said health care reform legislation soon would be sent to the House floor for a vote, she described the upcoming action as a “historic moment.”

Speaking on the U.S. Capitol steps, Speaker Pelosi, D-Calif., said the House would “deliver on the promise of making affordable, quality health care available for all Americans, laying the foundation for a brighter future for generations to come.”

Employers also may view the legislation, which the House was expected to begin considering and possibly vote on over the weekend, as historic, but for different reasons. That is because provisions embedded in the 1,990-page bill could:

c Remove employers' longstanding ability to design health care plans without the government telling them what benefits they must offer and the cost-sharing limitations they can impose.

c Prohibit employers offering health care plans to retirees from reducing benefits unless they make comparable reductions for active employees.

c Require employers to extend COBRA health care continuation coverage years longer than they ever anticipated.

c Penalize employers offering generous health care plans because they don't immediately extend coverage to new employees.

c Eliminate employers' tax break, set in a 2003 law, for offering prescription drug coverage equal to Medicare Part D.

Taken together, these and other provisions in the legislation should have “employers jumping up, kicking and screaming,” said Chantel Sheaks, a principal with Buck Consultants L.L.C. in Washington.

“What's in reform for large employers? There is a lot of downside and not much upside,” said Steve Raetzman, a senior consultant with Watson Wyatt Worldwide in Arlington, Va.

Still, there is much uncertainty on the final shape of health care reform legislation. In the Senate, for example, Democratic leaders last week had not completed a compromise bill drawn from measures passed earlier by Senate committees.

In fact, Senate Majority Leader Harry Reid, D-Nev., last week said he didn't know if the Senate would complete action on reform legislation by year-end.

Even with House and Senate action, a conference committee would have to resolve differences in those measures before final congressional votes.

Parts of House and Senate legislation, though, could be beneficial to employers. Those measures, among other things, would provide health insurance premium subsidies to the low-income uninsured.

With millions more people covered by health insurance, hospitals and other medical providers should see a reduction in uncompensated care—costs that often are shifted to insured patients and drive up health insurance premiums.

For now, employers are worried about the potential impact of several provisions in the House bill.

Under one of those provisions, a Health Benefits Advisory Committee would be established to make recommendations on benefit plan design. The panel, with members appointed by President Obama and Congress, would make recommendations on benefits that health care plans would be required to provide and cost-sharing requirements plans could impose.

Those recommendations would be sent to the Department of Health and Human Services secretary, who could impose them through regulations.

Nothing would require employers to amend their plans to meet the standards laid out in the regulations. But if they didn't, their health care plans wouldn't be considered qualified, therefore making them liable to pay a tax of 8% of salary for each employee not enrolled in a qualified plan.

No one knows what recommendations would be imposed, or how those recommendations could change, resulting in ongoing uncertainty for employers about acceptable and unacceptable benefit plan designs.

“The end result would be that employers would lose control over the design of their health care plans,” Buck Consultants' Ms. Sheaks said.

The House legislation also would make it difficult for employers offering health care coverage to retired employees and their dependents to reduce benefits. The bill would disallow reducing retiree coverage unless comparable reductions were imposed on active employees.

The only exception would be for employers that could prove to the Department of Labor that a bar on reducing retiree benefits would result in an “undue” hardship on them.

Approving the provision would be a case of “no good deed goes unpunished,” said Steve Wojcik, vp-public policy with the Washington-based National Business Group on Health, noting that it would apply only to employers offering retiree health care coverage.

If employers believe it likely that such a provision would make it into a final bill, there likely would be a rush by employers to reduce or eliminate coverage while they still have that ability, some say.

“There would be a run on the bank,” said Mark Ugoretz, president of the ERISA Industry Committee in Washington.

Other provisions could prove costly to employers. For example, the House measure would require employers to continue COBRA coverage until beneficiaries get health care coverage through a new employer or until they become eligible for coverage through new state health insurance exchanges, which the legislation would establish starting in 2013.

As a result, COBRA beneficiaries could extend coverage years after their eligibility under current law expires. Under current law, employees who terminate employment are entitled to up to 18 months of COBRA coverage, while employees' dependents can obtain up to 36 months of coverage in situations involving death, divorce or marital separation.

COBRA can be costly for employers because enrollees tend to be above-average users of medical services, and their premiums typically fall short of expenses they incur.

Other provisions also could be costly—depending on clarification—for certain employers. For example, the measure requires all but small firms to offer and pay 65% of premiums for family coverage and 72.5% of individual coverage, a standard most major firms now meet. Those not meeting that requirement would have to pay the 8%-of-pay-per-employee tax.

But employers in certain high-turnover industries, such as retail and fast-food, impose significant waiting periods, often three months, before new employees are offered coverage. Those employers would face big new costs if the coverage mandate applied when a worker begins a job. The legislation is silent on that issue.