PPACA presents an exceptionally compelling series of scenarios for completely transforming our traditional employer-based healthcare system. That said, the next round of elections could significantly alter the model employers have already begun using to adapt to that transformation. Whatever the outcome, we need to think strategically about how the system will change, how clients will view Employer-Sponsored Insurance (ESI) and how we'll engage with them.

Realistic/Unrealistic Concerns Emerge
Although concern about the future of ESI has been raised and considered a function of PPACA, the survey results offered by a normally trusted source, McKinsey & Co., drove those concerns to an unrealistic level. Their survey said that 30 percent (30%) of employers will definitely or probably stop offering ESI in the years after 2014. Among employers with a high awareness of reform, this proportion increases to more than 50 percent (50%), and upward of 60 percent (60%) will pursue some alternative to traditional ESI.

The study's findings contrasted sharply with a study by the Congressional Budget Office that predicted only seven percent (7%) of employers would likely drop coverage – consistent with RAND, the Urban Institute, and the International Foundation of Employee Benefit Plans – positioning McKinsey as an "outlier". The latter projections are also more consistent with the current statistics thrown off by the Massachusetts and Utah Exchanges (or 'Connectors').

After significant scrutiny, on June 20, 2011, McKinsey acknowledged that its report was at odds with those of the other independent agencies; and that it was not intended to predict whether employers would offer health insurance. They went on to say, "the survey was not intended as a predictive economic analysis of the impact of the Affordable Care Act…we understand how the language in the article could lead the reader to think the research was a prediction, but it is not." This new information made it clear that the survey was flawed and raised the intensity level of the debate.

Critics argue that when employers are fully informed they will see the advantages of continuing to offer ESI. As McKinsey admits in its own study, it's too early and too difficult to predict the future. But, it's not too early for employers and advisors to develop primary and secondary strategies for dealing with marketplace reality. A thorough analysis and understanding of the impacts on their financial and human-capital assets will be necessary before either category of assets is handed over to the government to manage.

Kaiser's recent study shows that premiums for families have exceeded $15,000, a nine percent (9%) increase over 2010 (when trends were lower). And PPACA will do more to drive costs up, than down, as benefits coverage and the number of participants are expanded.

Kaiser pointed squarely at escalating costs as one of the most predictable outcomes of health reform for employers. So, the key for our clients and us will be in managing the bottom line, which is driven by the single greatest challenge – claims cost – a direct function of the health status of the population. Therefore, the problem must be tackled with two key objectives in mind – managing health and thereby managing cost.

What This Likely Means
• Employers facing higher costs and expanded requirements will turn to alternative funding mechanisms such as minimum-premium and risk-transfer strategies such as self-insurance to effectively manage total risk/cost. Self-insurance also allows them to circumvent mandated benefits and restrictions placed on them by PPACA. Carriers have fewer requirements governing the administration of self-insurance programs making them more efficient and less expensive to administer (e.g. MLR). Also, the need for cost transparency improves access to/use of claim and population health risk assessment data.

• Risk transfer, as in property/casualty, must be preceded by risk/loss control. For employee benefits, that means focusing aggressively on targeted wellness interventions and disease management protocols. Employers will not be able to rely on government solutions, exchanges or legislation to drive the process of identifying and controlling clinical risk factors facing their employee population. Key employees unaware of the factors they face, challenge the growth potential and sustainability of an organization.

• The cost of missing this management opportunity must be calculated into any decision an employer makes about ESI. Smart employers will not trust government-sponsored insurance (GSI) to manage their workforce or executive team because clinical intervention impacts disability, absenteeism/presenteeism and Workers' Comp.

• Next week, we'll examine additional impacts and steps employers will need to take in order to optimize the solutions they choose for dealing with heath care reform and PPACA.

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Joe Torella is President of the Employee Benefits Division at HUB International, Northeast and can be reached at 908-790-6842.