New health-care law pushing employers to make tough decisions about coverage

Jeffrey MacMillan/Jeffrey MacMillan - Ron Peppe vice president of legal and human resources at Canam Steel.

For years, Ron Peppe spent much of his time poring over contracts that his company, Canam Steel, won to build steel infrastructure in highways, stadiums and hotels, such as the underground steel foundation it just completed for the new Marriott Marquis in downtown Washington.

These days, Peppe, the head of legal and human resources at Canam, whose U.S. headquarters are in Point of Rocks, Md., still reads plenty of contracts. But he is also spending much more time reading the ongoing deluge of rules and regulations coming out of federal agencies that are meant to help guide employers as they adjust their companies’ health benefits under President Obama’s signature health-care law, the Affordable Care Act. Peppe is also spending more time on the road, flying to places such as Peru, Ill.; Jacksonville, Fla.; and the 14 other U.S. cities where the company’s plants are located. There, he meets with workers personally to discuss changes to their health care plans under the new law — and explain why their premiums will be going up 16 percent next year.

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“We have meetings, we walk them through enrollment,” he said. “There’s lots of hand holding. We explain and answer questions because we don’t want people panicking ... They had expectations that somehow their costs were going to go down because of Obamacare. I was there to explain that no, for companies that provide health care, our costs have gone up. Because [Canam] offers coverage, they don’t get a subsidy, and it’ll likely cost more to get government insurance.”

Canam is keeping employer-provided health plans for all of its 2,000 U.S. employees, 300 of whom are in the Washington region. That decision is costing the company $3 million more than if it had opted to pay the $2,000-per-employee penalty instead.

“We need to stay in the health care game to be competitive,” Peppe said. “So we sat down and said, ‘How do we design a plan?’ We made columns for each [Affordable Care Act] mandate and said, ‘Here’s the added cost.’”

The company’s health care costs are already up 20 percent compared with a year ago, and half of that jump came from covering new mandates required by the new health-care law, including extending coverage for dependents until age 26, eliminating the lifetime cap on benefits and covering certain wellness programs.

The extra costs are necessary, Peppe said, because his company competes with other manufacturers and the federal government to hire workers. A competitive benefits package makes a big difference.

“There’s this concept in our company that you’re part of the family, that they do want to take care of you,” Peppe said. “We don’t have unlimited deep pockets. It’s a tough time for the construction industry, but to the extent we could do it, it was the right thing to do.”

But Canam’s game plan is far from finished. A couple of years down the road, the company may require its workers to buy coverage from new insurance marketplaces that are similar to the public exchanges getting so much attention now, but which are run by private companies. Or it may not. There are simply too many unanswered questions to know what will be the best move for the company in the future.

“It’s not like you can set it and you’re done,” Peppe said. “A lot of the nuances affecting things now isn’t so much what’s in the legislation, it’s what are the agencies doing with it. It’s still pretty unsettled.”

That’s leaving companies with little choice but to wing it, effectively playing a game for which many of the rules have yet to be written. Every week, the Internal Revenue Service, the Labor Department and the Department of Health and Human Services — the federal agencies responsible for issuing the bulk of the ACA-related regulations — are putting out new rules for what companies should and shouldn’t be doing when implementing the new health-care law. Many regulations have yet to be announced or finalized, including whether employers must provide coverage to seasonal workers or workers whose hours fluctuate from week to week (under the new law, employers must provide coverage for employees who work at least 30 hours a week) — which could greatly affect cost.

The details matter. Manufacturing and construction are cyclical, and workers’ schedules vary greatly from the more predictable hours of some professional industries. For now, Canam deemed it enough of a hassle to figure out who qualified and who didn’t that it simply chose to provide coverage to all employees.

“We don’t have a lot of technology [resources] on the HR side, it would all be done by hand,” Peppe said. “We didn’t have the money to do it.”

All of these changes are happening at a time when Peppe, like many of his counterparts, is facing pressure to cut costs. Peppe joined Canam in 1996 and in the years since has seen cutbacks and consolidation in human resources and administrative staff.

“I’m spending a lot more time keeping on top of these [health care law] issues because of the volume or regulations and changes in this area,” he said. “At the same time, we’re getting a lot more pressure in-house to keep reducing cost.”

Peppe, like many in-house lawyers, is closely tracking the development of private marketplaces run by insurance companies. A number of large employers, including Walgreens, Sears Holdings and Darden Restaurants, have already started moving in that direction, giving their employees a set amount of money to shop for coverage on the private exchanges.

“There’s a lot of talk among lawyers and HR people about moving to a model like that,” Peppe said. “We looked at that, but the private exchanges weren’t developed enough ... I’m sure we’ll reevaluate depending on where costs are going. It depends on how well we’re doing, what other companies are doing. Everyone is playing this game of seeing how others are doing it.”

Private exchanges are appealing because they potentially may offer employees more options than the two or three plans a company might offer, said Sarah Bassler Millar, a health care lawyer who leads the employee benefits group at Drinker Biddle & Reath. Sending workers to the private marketplaces also offers companies more certainty about their out-of-pocket cost, because they can give their workers a set amount of money and let them choose the insurance plan that best fits their needs.

“There is a tremendous amount of pressure on companies to manage expenses, and health-care expenses are becoming an ever-increasing portion of their budget,” Bassler Millar said. “So they are looking for ways to control cost, ways to ensure that they are mitigating their liabilities. There’s a sense of, ‘If we contract out some responsibility, potentially we have less liability when things go wrong.’ It’s mostly about cost and managing the bottom line.”

Peppe said Canam would probably not consider moving to the private exchange until 2016 at the earliest, partly because the designing of plans has to take place the previous year for open enrollment.

Planning for “2014 is already done,” he said. “For 2015, as soon as we get done with open enrollment after Christmas, we start planning for the next year. I doubt we’ll know enough for 2015. In 2016, there will probably be bigger changes especially with the development of private exchanges.”

“Part of it will depend on how insurance companies react,” he said. “Enrollment may not end up being what they want. There’s a lot of talk that young people will say, ‘The penalty is so low, why buy insurance?’ ”

That could upset the economic underpinning of the new health-care law; federal officials are counting on relatively healthy young people to join in order to help spread the costs of treating those needing more care, he said.

Ultimately, if companies continue to provide coverage for employees — either through traditional employer plans, or by sending employees to the private exchanges — the burden of health care costs will shift onto employees through higher premiums, deductibles, out-of-packet maximums and co-pays, Bassler Millar said.

Over time, many more companies may start dropping health care altogether, sending their workers to the public exchanges.

“That will develop in waves,” she said. “The initial movement is going to be in retail and hospitality, where they have a large number of lower-paid hourly workers they don’t consider full-time, but might be considered full-time for purposes of [ACA].”

“This is a seismic change,” Bassler Millar said. “Six months from now, ... you’ll see employers making different types of choices for 2015.”

 
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