Employment Resources

According to research from the Employee Benefit Research Institute (EBRI), a non-profit organization that conducts research and assembles and disseminates information related to employee benefits, those most likely to seek information on American health care costs, accessibility, and quality to make an informed decision are young people, those that experience an increase in cost sharing or premiums, and females. The research also found that individuals with a higher educational level were those most likely to research information. The analysis was based on the EBRI/MGA 2010 Health Confidence Survey. Those participating in the EBRI/MGA 2010 Health Confidence Survey were asked if they had tried to find any objective information within the last two years on any of following subjects:

• If and how many disciplinary actions were taken against a particular hospital or physician.
• The disadvantages and advantages of various treatments.
• The cost of various treatments.
• The cost associated with various hospitals and physicians.
• The experience, training, and certification of a particular physician.
• Statistics on procedures performed at a particular hospital, such as the number performed and rate of success.

Related to the above questions, the study found the following key points:

• Fourteen percent reported that they had sought information on how many disciplinary actions had been taken against a hospital or physician.
• Twenty-four percent attempted to look at the costs associated with various hospitals and physicians.
• Twenty-eight percent attempted to find the complete costs of various treatments.
• Forty-five percent of Americans reported trying to obtain health information related to the disadvantages and advantages of various treatments.

The author of the study pointed out that many companies have shifted the costs of health care toward their employees, which has resulted in many individuals searching for ways to simultaneously control their costs and improve the quality of the care they receive. Such individuals are researching information that will help them to make beneficial and educated decisions.

Related to the motivators behind information seeking, the study found some interesting points on cost-shifting, health status, demographics, and health coverage:

Cost-shifting. Respondents that had experienced cost sharing increases or premium increases were more likely than those not experiencing such to seek information on their doctor’s credentials, the disadvantages and advantages of various treatments, provider costs, and treatment costs.

Health status. The individuals that considered themselves in poor to fair health were more likely to make informational searches on how many given procedures a hospital has performed and what the hospital’s success rate is on the procedure. Of the respondents reporting a worsening health status over the previous five years, 52% said they attempted to gather information on the disadvantages and advantages of various treatment options.

Demographics. Individuals older than 65-years-old were less likely than those under 45-years-old to make attempts to find information on the cost associated with various hospitals, physicians, and treatments; the disadvantages and advantages of various treatment options; and if and how many disciplinary actions have been taken against a hospital or physician. Additionally, when compared to white individuals, there were indicators that low-income individuals and minorities may be more likely to search for cost-related information.

Health coverage. Respondents with health coverage were less likely than the uninsured respondents to do information searches on the cost of treatment and providers costs. Respondents unsatisfied with their existing health plan were more apt than those very/extremely satisfied with their existing health plan to seek information on provider costs, treatment costs, and the disadvantages and advantages of various treatments.

In closing, benefit plan sponsors can use information like the above to better understand and connect with their workers.

Results of a recent survey show that 12.4% of all U.S. employees with insurance are covered by consumer-directed health plans (CDHP). Although at a slower rate than was seen in 2009, CDHP’s have continued to steadily grow thus far in 2010. The UBA Health Plan survey, by United Benefit Advisors, obtained health plan data from 11,413 employers and 17,113 plans during the October 1, 2009 through June 4, 2010 survey. The survey solely focused on retiree and active health plans and directly related benefits.

The UBA survey is rather unique in that the survey provides not only data relevant to and from larger companies, but a proportionate amount of mid-size to small businesses. The UBA data was compiled with the purpose of supplying relevant, comparative, and factual health plan benchmarks to aid employers of all geographic areas, sizes, industries, etc. in making critical benefit decisions for their businesses.

The survey found that CDHP’s grew at an 18.1% clip in 2010, roughly half of trend reported in 2009. One reason for the slower growth rate was early year employer uncertainty if consumer-directed plans would be restricted by U.S. health care reform. When the healthcare reform legislation was enacted, it ended up not directly addressing health reimbursement arrangements (HRA) or health savings accounts (HSA) use, aside from increasing non-qualified HSA distribution penalties (after December 31, 2010) from 10% to 20% of withdrawn money.

UBA Health Plan Survey Key and Highlighted Findings

• Preferred-provider plans (PPO) provided health coverage to 65.7% of all 2010 insured U.S. employees. Health maintenance organizations (HMO) provided coverage to 15.4% of employees. The rest were covered under CDHPs.
• The average 2010 cost increase for all plan types was 8%, with that of CDHPs being 7.3%.
• The largest geographical concentration of CDHPs was in the Northeast U.S. region at 26.7%. The second largest geographical concentration was in the Southeast U.S. region at 22.9%.
• Eighty one percent of all CDHP plans in the Northeast U.S. region contained 100% co-insurance.
• For a single employee, the average employee contribution to an HRA was $1,310 in 2009 vs. $1,481 in 2010. For a family, the average employee contribution was $2,502 in 2009 vs. $2,857 in 2010.
• The average employee contributed $113.00 towards single coverage and $443.00 for family coverage across all plan types.

Over recent years, at least from a percentage standpoint, health plan costs continue to rise substantially. These hikes and the continued premium increases are simply more than many businesses are able or willing to absorb. This conundrum leaves many employers trying to decide if they should pass on part or all of the increased cost to their employees, cutback on benefits, or seek a different carrier offering a more cost-effective plan. If leaning toward the third option, remember that many factors go into evaluating and vetting potential carriers. Even when considering a health insurance carrier change due to being dissatisfied with customer service, record of claim payment, or services offered by your current carrier, employers should carefully evaluate potential new carriers before jumping aboard. Here are 10 key questions that you might want to ask when evaluating and vetting potential carriers:

1. Is the carrier financially stable and licensed? Insurance rating services and your state insurance commission can help you determine many of these important stability issues.
2. Does the carrier only issue coverage under the stipulation that a certain number or percentage of your employees enroll?
3. How does the carrier set their premium rates and allocation of premium cost among claims, commissions, and administrative expenses or fees?
4. Does the carrier have a sufficient range of providers and locations in their provider network and how many employees will have to make a provider change under the potential new carrier’s provider network? Employees often cite having to change from their current provider or usual hospital and having to pay more to continue with their current provider as the most disruptive elements of a carrier change.
5. Does the carrier have a positive reputation when it comes to the accuracy and efficiency of claim payments? It’s important to ensure that the carrier has a positive history since employee dissatisfaction in this area can really hurt you during the renewal period. As far as overall reputation, it might be helpful to ask the carrier to provide you with references from customers with a similar sized, located, and niche business.
6. Does the carrier offer a choice when it comes to plan options like co-payments and deductibles? Choice is important to employees and raises the likelihood of their satisfaction with the plan. It can also result in substantial cost savings, as some employees will opt for cheaper high co-payment and deductible options.
7. Does the carrier offer plans with preventive screening and wellness programs? Services like these can be a cost saver in many areas, even extending into increased employee productivity and decreased employee absences.
8. What technology does the carrier use to facilitate ease of access to plan information and, if that portal doesn’t provide sufficient information, is there a real person accessible to address the issue? Having such can save you money and time by cutting down on the calls participants make to your human resource department to have their coverage or claim questions answered.
9. What steps does the carrier implement to control cost and waste and ensure appropriate care? You might use quality indicators, such as those under the Healthcare Effectiveness Data and Information Set (HEDIS), to determine the performance and effectiveness of a plan on issues like how the plan responds to complaints or access to medical specialists.
10. What is the carrier’s definition of key contract provisions, such as dependents, usual and customary, coordination of benefits, and covered employees, and what are the caps, exclusions, and limitations on services? Of course, none of the above should seem extreme. It’s also important that the provisions reflect the unique needs of your work force.

As you evaluate carriers and plans, you’ll be glad that you didn’t just look at cost. The above questions will help you get started weighing cost and coverage with the carrier’s stability, reputation, and responsiveness to determine the best carrier and plan for your business.

You and your business partner or partners have a clear and common vision of how to run your business, where it’s going, and how it’s going to get there. As a team, you’ve worked together each and every day to share the daily demands and shape the success of your business. That said, have you thought about what would become of the business and all your hard work if you or one of your partners became ill, was injured, or died?

A business doesn’t have to become disabled or die just because one of the owners retires, dies, or becomes too sick or disabled to work. Whether the transition of business management or ownership needs to take place after death or during life, it can be orderly accomplished through appropriate business succession planning.

A buy-sell agreement is a tool commonly used in business succession planning. This planning feature, when correctly funded and designed, can orderly establish the value at which the business will be taken over and who will be doing the taking over. The owner can have a peace of mind from knowing that the business has a predetermined basis for which it can be sold in a ready market, thereby giving the owner a source of funds when they need it, such as when they are ready to retire. If the owner was to die prior to the above predetermined basis occurring, then the buy-sell can be used to meet the survivor’s needs or pay hefty estate taxes.

Although there are several ways that a buy-sell agreement can be established, an entity purchase agreement and cross purchase are the two most often used:

Cross Purchase

Due to favorable tax results, this is a highly used approach by many small businesses. It’s generally used by businesses that only have a small number of owners. The cross purchase is typically funded with a life and/or disability insurance policy that each of the owners must maintain on their co-owners. The death benefits from the life insurance policy aren’t subject to taxation since the owners, not the business, actually own the individual life insurance policies. Each of the business owners are legally obligated to purchase the ownership interest of the other co-owner(s) upon death. The deceased owner’s estate sells the owner’s interest to the surviving owners in exchange for the proceeds from the life insurance policy. The surviving owners will get a step-up in the business’s tax basis. Alternatively, the insurance cash value can also be used if one of the co-owners was to need to fund a buyout during their lifetime. One point to remember regarding a cross purchase is that administration is smoothest when there are only a limited number of owners and will become increasingly difficult to administer as the number of owners increase.

Entity Purchase Agreement

This type of buy-sell agreement works somewhat like the cross purchase, but it’s the business, not the owners, that will maintain an insurance policy on each owner and agree to purchase any deceased owner’s interest in the business. As such, the taxation is different.

The death benefits under both an entity purchase and cross purchase agreement, whether being paid to the business or an individual, are exempt from federal income taxation. However, unlike with the cross purchase, there are certain situations that a C corporation can be subject to the corporate alternative minimum tax under an entity purchase. There’s also not a step-up in basis under the entity purchase plan.

Hopefully this brief overview of the entity purchase and cross purchase types of buy-sell agreements has spurred you to think about how vitally important business succession planning is to your business. Of course, this short article couldn’t possibly cover all the factors to consider when developing a business succession plan. As you begin the preparations for you business succession plan with your attorney, accountant, and insurance agent, they should be able to answer any additional questions or concerns you might have.

Once annual enrollment has come and gone, it’s a good time to brush up on some basic benefit plan requirements, to avoid some of the common mistakes made in employee benefit plan administration. The following list of potential errors is by no means exhaustive, but represents a sampling of issues to steer clear of:

• Keep your plan documents up to date and reference them in related plan communications. ERISA requires that all employee benefit plans be maintained pursuant to a written plan document. As the governing document for the plan, it should be reviewed regularly, and amended if necessary, to keep up with new laws and regulations (such as health care reform). Since this will be the most detailed document regarding any given plan, it should be referenced in disclaimer materials included in less formal plan communications (such as annual enrollment materials) as the document that will control in the event of discrepancies, or errors or omissions in these other ancillary communications.
• Keep summary plan descriptions (SPDs) up to date and distribute them to employees. ERISA requires that employees receive an SPD covering each benefit plan, and specifies the information that must be included in the SPD. Plan vendors might supply booklets or other communications materials to distribute to employees that describe the plan, but these are unlikely to meet the requirements for an SPD. When plan changes result in an SPD needing modification, an employer might distribute a summary of material modifications in the interim before preparing an updated SPD.
• Include only eligible employees (and dependents) in your plans, as to do otherwise will run contrary to plan documents and represent unnecessary coverage costs for your company. Improperly covering ineligible individuals — contractors, leased employees, former employees, etc. — can be a costly proposition. Similarly, maintaining formerly eligible dependents who, for example, have aged out of the plan, unnecessarily adds to plan costs. Eligibility audits can help to mitigate this problem.
• Follow plan terms in administrative practices. The plan document governs, and both internal staff and outside administrators must follow the terms of the plan when making eligibility and claims decisions, issuing plan notices, handling appeals, etc.
• Make sure plan contributions are calculated properly. This includes taking into account the definition of compensation that is in the plan (which might include bonuses, commissions, etc.) and calculating matching and profit sharing contributions correctly.
• If you allow employees to pay for any benefits on a pretax basis, a cafeteria plan is required. Although the term “cafeteria plan” might conjure images of employees selecting from a menu of benefit choices, a cafeteria plan is, at its most basic level, a premium only plan, and is required to be adopted before employees can pay their health (or dental, vision, etc.) plan premiums with before-tax dollars, or to make before-tax contributions to a health care or dependent care flexible spending account.
• If employees make salary deferrals to a 401(k) plan, these deferrals must be deposited into the plan trust on a timely basis, as by DOL regulation they become plan assets as soon as they can be reasonably segregated from the employer’s general assets.
• Review your COBRA administrative practices to make sure all individuals qualified to elect COBRA coverage receive the proper notices, for all plans subject to COBRA (the health plan, but also the dental and vision plan, and the health care flexible spending account).

Administrative errors can result in fines and penalties, lawsuits, and employee discontent. An annual plan self-review can avoid these potential costly consequences of common mistakes.

You have a great group of employees working with you and your business is thriving. You know much of that success is due to one or two key individuals with both skills and personalities that would be difficult to replace. Imagine they were injured and out of work for a while, or even worse, suppose they died unexpectedly? Would your business survive? There are five separate groups that will be most concerned about the immediate financial health and future of the business in the event of the death or disability of an owner or key employee:

• Employees will be concerned about the continuation of the business and their job security.
• Creditors will be worried about the effect of the key employee’s death on the earning power of the business and its future ability to pay back any outstanding debts.
• Suppliers will wonder about the potential loss of a customer.
• Customers will be concerned about the ability of the business to continue providing its products and services, and will consider looking elsewhere to satisfy their needs.
• Tax collectors will be concerned, but only to the extent that there are sufficient funds to pay the necessary taxes, even if it means the ultimate sacrifice of the business.

Key Employee Life and Disability insurance policies can help soften the impact of all of these.

Key Employee Life Insurance. Generally, your business purchases a Life insurance policy on a key employee, pays the premiums and is the beneficiary in the event of the employee’s death. As the owner of the policy, the business may surrender it, borrow against it and use either the cash value or death benefits as the business sees fit.

However, coming up with a dollar value on a key employee’s economic worth can be challenging. There are no specific rules or formulas to follow, but there are several guidelines that can help. The appropriate level of coverage might be the cost of recruiting and training an adequate replacement. On the other hand, the insurance amount might be the key employee’s annual salary times the number of years a newly hired replacement might take to reach a similar skill level. Finally, you might consider the key employee’s value in terms of company profits. The level of insurance coverage might then be tied to any anticipated profit or loss.

Premiums for key employee Life insurance are not a tax-deductible business expense for federal income tax purposes, since your business is the recipient of the benefits. For the most part, the death benefits your company receives as the beneficiary of the policy are not considered taxable income. However, if your business is a C corporation, the death benefits may increase the corporation’s liability for the alternative minimum tax. Consult a tax professional for information on your specific circumstances.

Key Employee Disability Insurance. The death of a key employee isn’t the only threat to your business. What if a key employee is injured or becomes ill and is out of work for an extended period of time? Disability insurance on such a key employee is another way you can protect your business against any resultant financial loss.

A crucial part of key employee Disability insurance policies is the definition of disability. Typically, these policies define disability as the inability of the employee to perform his or her normal job duties due to injury or illness. As with Life insurance, your business buys a Disability insurance policy on the employee, pays the premiums, and is named as the beneficiary. If the employee becomes disabled, the insurance coverage pays monthly disability benefits to your business. These benefits can equal a certain percentage of the key employee’s monthly salary, up to either a maximum monthly limit or 100% of their salary. The benefits may be used to pay the operating expenses of the business and to cover the expense of finding a temporary or permanent replacement for the key employee.

Disability policies typically offer elimination periods (i.e. the waiting period between the disability and when the benefits begin) ranging from 30 days to 365 days. Depending on the policy, your business may receive benefits for six to 18 months, which would be long enough to allow the key employee to return to work or for the company to replace the key employee.

Depending on the type of coverage purchased, the premiums you pay for the key employee Disability policy may or may not be a tax-deductible business expense. If the policy is considered business overhead expense insurance, then the premiums are a deductible expense. Although the business would be responsible for paying taxes on any disability benefits received, the business expenses the policy pays for indirectly would result in an offsetting deduction.

Planning ahead can help secure your company’s financial future by preventing a business from having to liquidate to raise cash. Key employee insurance can help assure families, employees, creditors, suppliers and customers that the future of the business is secure. By purchasing Life and Disability insurance on the owner(s) and/or key employees, the business is letting everyone know the financial condition of the business will remain sound despite the loss of a key person.

Small business owners who have previously borrowed money can attest that actually being capable of repaying the loan is the core of credit worthiness. They can also attest that the approval process significantly hinges on how risky the applicant appears. That said, credit worthiness isn’t as simple as the term implies. There are actually many complex variables involved.

First of all, just because a new business has a seemingly valuable potential doesn’t mean things always pan out. In fact, new businesses are often notorious for failing to live up to expectations. A business might launch with an innovative concept, but will usually find that the road from concept to profit is long and hard. It’s also during the initial stages of a business where the owner is trying to figure out and reach their target market, a process that takes time and money when profits are at a bare minimum. This is a common reason that many business owners find themselves unable to make their loan payments.

When determining the credit worthiness of a business owner, lenders also look beyond just how balance sheets add up. For example, the lender might look at intangible aspects such as community leadership and ties, reputation, and character. This might include the lender investigating whether or not the business owner has a history of reliability and timeliness when paying off past financial obligations and how past relationships with the lending institution turned out. All of these factors will help determine whether or not the business owner is granted the loan.

One way to prove credit worthiness outside of the above, is by owning a Life insurance policy, as this can show that the business owner has a financial commitment to his/her business and values that commitment. In the eyes of the lender, the Life insurance policy means that the business owner has left a viable way for their beneficiary to follow-through with any financial obligations.

When a Life insurance policy is bought through the business, it makes it a business asset, and like any other business asset, the Life insurance policy will become part of the balance sheet that lenders will look at. If a portion of the Life insurance benefit is assigned to the lending institution, then the insurance can also be used as loan collateral. As far as loans go, the cash value of a Life insurance policy is another useful tool. The cash value can be a guarantee against defaulting, as it can be borrowed against for payments.

In fact, the cash value of Life insurance policy can actually serve several purposes for the business. Borrowing against it is quick and doesn’t require the business owner to get approved for a loan. Borrowing against a Life insurance policy is tax friendly and the cash value usually accumulates in a tax-deferred status, meaning that there aren’t any earning taxes while the policy is active. In most cases, a withdrawal (not surpassing the amount of paid premiums) isn’t subject to taxation. In the event more money is needed than has accrued in cash value, the business owner can usually borrow against the policy without triggering a taxable event.

Due to the fervency and multitude of public comments concerning the grandfathered-status rule in the Patient Protection and Affordable Care Act (PPACA), regulators had little choice but to make an amendment allowing group health plan employers to change to health insurers providing a similar and lower cost coverage, while also not losing their grandfathered-status.

On November 15, officials from the Department of Health and Human Services, Department of Labor, and The Treasury Department issued an amendment to the grandfathered health plans interim final rules. Specifically, the new amendment enables an employer to offer the same heath coverage through a different health plan carrier, but still be able to retain their grandfathered status. However, the new coverage must be under a new insurer that doesn’t involve a significant cost increase. And, the new coverage cannot significantly decrease the benefit levels or otherwise violate any provision contained in the grandfathered-status regulations.

Unfortunately, the amendment will only apply in cases of insured group health plans. This means that those changing their health insurance carrier and changing their policy outside of the employer will lose their grandfathered-status. Before the amendment, a plan could lose the grandfathered-status in the event a plan design was implemented that increased member cost or reduced member benefits. An employer group health plan was also tagged as non-grandfathered compliant when an employer changed their insurance company. According to PPACA, plans that are self-funded are limited to only changing third-party administrators; else they lose their grandfathered status. In relation to previous projections made regarding the grandfathering rules as under the PPACA, estimates by federal regulators now suggest that the amendment will create a small increase in how many plans are able to maintain the grandfathered status.

Regulators at The Department of Labor say that the amendment was created in response to public commentary and concern about the PPACA, mainly the following:

• Prior to the amendment, plans that are self-insured were able to change the company employed to deal with the paperwork and risk loss of the grandfathered-status if the cost and benefit did not change. However, employers that only changed their insurance company, keeping benefits the same under the new health plan, were not able to and keep the grandfathered status. Now, since the amendment, every employer will be able to maintain their grandfathered plan, while still changing the third party administrator or insurance company.
• There is an unwarranted and unjust leverage by the insurance company when negotiating coverage renewal prices if employers must stay with a specific insurance company or risk losing the benefit and flexibility of having a grandfathered plan.

Circumstances will always exist where a group health plan could need the leeway in making administrative changes that wouldn’t have an impact on the cost or benefits of the plan; for example, when an insurance company stops offering/providing coverage in a market, or when a company has a change in ownership. Now, under the amendment, the employer in both of the above examples can continue their grandfathered status.

Modern communication methods have brought an overload of information. In this age, immense volumes of mail not only accumulate at the front door, it also accumulates in email in-boxes. The sheer volume alone leads us to delete spontaneously anything that isn’t a bill, personal or business matter, or of other significant importance.

This creates an especially challenging situation for employers attempting to communicate benefit issues with their employees. It also means that employers need to develop benefit communication presentations that employees don’t dismiss instantly and discard if they want to communicate benefit matters effectively. One way to do this is by considering your specific employees when developing communications. By identifying various employee groups, you can then work to target or customize the communications toward them.

It’s important to first understand that topic interest is going to strongly vary from generation to generation, as each will have different current needs and goals for the future. The current work force consists mainly of three generations: Those born after 1980, Generation Y; those born from 1965 to 1980, Generation X; and those born before 1965, the Baby Boomer Generation.

Generation Y are those that are relatively young and still in the beginning stages of their career. This group isn’t very likely to be contemplating their retirement or the importance of retirement savings. As most of us not in this generation can remember, the fallacies of youth might include a feeling of infallibility and an assumption that bad things only happen to others. So, this group might not pay much attention to health benefit information. This generation is accustomed to fast-paced media imagery and usually don’t have very long attention spans. Therefore, this group is more likely to be receptive if the communication is concise and visually catching and received through electronic portals, such as email.

On the other hand, those in Generation X are at a much different point in their lives. Children, a mortgage, contributing to a child’s college education, caring for an elderly parent, and contributions to a future retirement are all common financial responsibilities of this age group, and these responsibilities often compete with one another. This group is usually established enough to know the importance of a retirement plan, but still might not be sufficiently contributing, if at all, due to balancing other financial obligations. Knowing what affects this group can be the perfect gateway to communication. For example, a retirement plan communication that has a budgeting tool as a highlight could serve to gain viewer attention. An EAP (Employee Assistance Program) with a resource and referral service to get elderly care and childcare services might also be something this group would find useful. So, EAP availability could be a highlight of a communication and gateway to discussing other benefits.

Baby Boomers are at the end of their careers and quickly nearing retirement. Many are scrambling to account for bad financial decisions or lapses in savings and preserve whatever they’ve managed to accumulate thus far. Age also brings an increasing concern about health care issues. Any communication that targets these issues is usually very well received by this generation. Many in this generation aren’t very computer savvy and respond better to non-electronic communications.

The bottom line on targeted communications is quite simple: Whatever is interesting and applicable to us now is what we are most likely to read and pay attention to now. It only makes sense that effective communication is best achieved by knowing what’s important and when it’s important, and then developing and presenting communications accordingly.

“Grandfathered” health plans — plans in existence on the enactment date of the Patient Protection and Affordable Care Act — enjoy exemption from some of the provisions of the health care reform law. However, in order to maintain grandfathered status, a plan must refrain from making certain changes, including those involving plan design, cost-sharing or insurance carriers. Employer plan sponsors are having to decide how having a grandfathered plan balances against the need or desire to modify plan provisions or change carriers in response to rising plan costs and rates, and many are questioning whether the advantages of making changes to their plans outweigh the benefits of avoiding some reform mandates.

In a survey from Hewitt Associates, 90% of the companies said they anticipate losing grandfathered status by 2014, with the majority expecting to do so in the next two years. Most (72%) of those anticipating losing grandfathered status indicated they would do so because of the need or desire to make design changes. The surveyed employers also cited changes to company subsidy levels (39%), health plan consolidation (16%) and insurance carrier changes (16%) as additional reasons why they thought it likely they’d lose grandfathered status. In a separate survey by Mercer, 53% anticipated retaining grandfathered status in 2011, but half of this group expected they would no longer be grandfathered by 2014.

Employers with grandfathered plans are asking these questions, according to Hewitt: “What changes do we need or want to make to our health care plans?” and “How can we make them without significantly increasing costs?” For many employers, it will boil down to deciding how much the freedom to implement plan changes is worth, versus the cost of complying with health care reform’s mandates. For example, in the Mercer survey, employers were asked to estimate what it would cost to meet the law’s requirements for 2011, and the response was, on average, and addition of 2.3% to plan costs. Employers were also asked to predict how much their plan costs would rise if they made no cost-saving changes, and the response was an addition of 10.1%. That’s the kind of increase that many employers will decide they simply cannot bear. These estimates could indicate that, at least at this point, some employers project the cost-effective decision will be to comply with health care reform’s mandates, in order to have the freedom to make plan design and insurer changes that fit into their overall cost-containment strategy.

Among the changes a grandfathered plan cannot make in order to maintain that status are raising coinsurance levels, increasing deductibles or out-of-pocket limits by more than medical inflation plus 15 percentage points, and raising copayment levels by more than the greater of $5 or a percentage equal to medical inflation plus 15 percentage points. For many employers, staying within these limits simply won’t be an option. The Mercer survey reflects this: Even though it would mean loss of grandfathered status, 35% said they would consider raising deductibles/out-of-pocket limits, 31% would consider increasing employee coinsurance levels, and 23% would consider raising copays, beyond what’s allowed under reform.

Employers also need to consider to what extent their plans might already be in compliance with provisions of health care reform. For example, one of the health care reform provisions that does not apply to grandfathered plans is the requirement that preventive care services, including immunizations and screenings, be covered with no cost-sharing for plan participants. Many plans already provide for this, and an increasing number continue to willingly move in this direction as recognition of the importance of preventive care grows.

In the coming months, employers with grandfathered plans will be examining their current plan design and assessing whether it will continue to meet their business needs, together with employees’ health care needs. It remains to be seen how many will decide they’d rather have the flexibility to change their benefit programs, than be restricted to the limited plan modifications allowed under the new law.