Health Care Reform: Lawyers are Employers and Consumers, Too

Love it, hate it, or none of the above, the Affordable Care Act took center stage in October. What does it mean to law firms as employers and lawyers as consumers? Here's a thumbnail sketch of the new law and how some lawyers are navigating it.

The rollout of Obamacare has been anything but a no-drama affair. Lawyers have been learning along with the rest of America about this massive and complex new law, both in their role as counselors and - perhaps more urgently - as employers and health-care consumers. That task has been complicated by the shaky launch of the public insurance marketplace in October.

Website meltdowns and policy cancellations aside, how does the Patient Protection and Affordable Care Act ("ACA") work? No single article can tell that story. But sometimes with a change this big, it helps to look at a an overview from 30,000 feet before delving into the details.

With that in mind, here's a look at key provisions of the ACA - both those in effect already and others that will take effect in 2015 - and how some Illinois lawyers are finding their way thus far through the new health care landscape.

Obamacare basics

For starters, and for better or worse, the repository of information about the new law is www.healthcare.gov, the much-maligned federal Health Insurance Marketplace website. (See sidebar for more ACA resources.) At presstime, experts brought in to improve the site after its inauspicious launch were still expressing optimism that it would be much improved by the time this article appears. Illinoisans, by the way, can begin their journey at www.getcoveredIllinois.gov, the state's ACA website.

On October 1, the public health insurance marketplaces known as "exchanges" were unveiled, offering individuals and families an array of private health plans, plus the possibility of federal subsidies to help pay for them. In addition, the marketplace for the Small Business Health Options Program (SHOP) began offering employers with fewer than 50 full-time employees health plans for their workers. Some states as well as the federal government administer the exchanges.

Individuals. The individual and family health plans come in four policy grades: bronze, silver, gold, and platinum. The more precious plans cost more in premiums and offer more in benefits, although there are new, more expansive baseline health benefits - like preventive care, discussed below - that all the plans must provide and a maximum out-of-pocket cost for the insured.

No one can be denied coverage. In fact, the law requires everyone to be insured or pay a penalty - the so-called "individual mandate." There can be no lifetime maximum coverage limits, and the out-of-pocket maximum a person can pay before benefits kick in is $6,350 for individuals and $12,700 for families.

Many of the insurance policies are somewhat pricey, and to qualify for a federal subsidy in 2014 an individual must earn less than $46,000 per year, a couple less that $62,000, and a family of four less than $94,000. Those earning more have the same plan options as everyone else, but they'll pay retail prices with no federal help.

Opting out in 2014 would result in penalties equal to 1 percent of a person's taxable income, or $95 per adult and $47.50 per child, whichever is greater. Those fines will rise significantly each year.

For the self-employed, part-timers, those with preexisting conditions, and employees who work for small businesses that do not offer health insurance, the exchanges lay out comparative analyses of all the private plans offered in a particular state, and, based on a detailed questionnaire, inform consumers if they are entitled to federal subsidies. Assuming it has not been extended by the time you read this, the enrollment period lasts until March 31, 2014. In subsequent years, the enrollment period will run from October to the end of December. (See the "The ACA and solo practitioners" sidebar for more about how the ACA affects lawyers as consumers.)

Small employers and the SHOP exchange. Small employers who provide no coverage to their workers were required to notify employees about the exchanges by Oct. 1. And they also became eligible to buy plans for their employees on the SHOP exchange.

Like the exchanges for those buying individual policies, the SHOP exchange provides side-by-side analyses of various plans. Employers are eligible for up to a 50 percent tax credit for their contribution to the cost of premiums for low and moderate-wage earners. (For more, see "The ACA and solo practitioners" sidebar.)

Large employers. Large employers will be required to provide health insurance to their full-time and full-time "equivalent" employees beginning in 2015, a deadline pushed back from the originally scheduled 2014 launch. If they fail to do so, they face stiff fines; in most cases $2,000 per employee.

A full-time employee is anyone who works 30 or more hours a week. Employers must cover at least 60 percent of the premiums, and the employee portion of the premium cannot exceed 9.5 percent of the employee's annual income.

The devilish details

Those are the skeletal basics, but various nuances in the Affordable Care Act, particularly those involving employers' obligations, are raising a number of questions. Insurance brokers, employment lawyers, and various business groups and associations are trying to parse the law to learn the ways employers can and must comply. Understandably, concerns about the costs and coverage of newly mandated insurance plans are on the minds of employers and employees alike as health care reform gets underway.

Promoting preventive care. The overarching goal of keeping health care accessible and affordable is keeping people healthy. Preventive care, which the ACA requires insurers to cover, and resulting employer wellness plans could reduce costs over time, an insurance expert says.

"One good thing about [the ACA] is wellness. It's very proactive. It says that employers [who promote wellness] can now make up to a 30 percent differential in premiums," explains Paul Shaheen, of The Horton Group, a company that, among other things, provides insurance brokerage services to businesses. "So that's one good thing where employers can take advantage of the Affordable Care Act and drive that message home for wellness."

Workplace sponsored wellness programs - and incentives to employees who take care of themselves by getting annual check-ups, exercising, and not smoking, for example - have been offered in the past and are encouraged under the new law. Under the ACA, insurance companies must cover many basic preventive health services. And employers, by making some services available onsite, or by offering things like contributions toward fitness centers or smoking cessation classes, can often save on the costs of providing health care.

Chapters in the reform story. "This is not just one piece of legislation. It's almost a storybook on health reform, said Larry S. Boress, President and CEO of Midwest Business Group on Health, a Chicago-based nonprofit comprised of public and private health care and human resources professionals. "The first chapter was reforming how we cover people. The second chapter was expanding coverage," he said. Young adults can remain on their parents' policy longer, those with pre-existing conditions can no longer be denied coverage, and, in some states, Medicaid has been expanded.

"The third chapter," Boress continued, "is going to be about how do we change the way we deliver health care." Avoiding fragmented care, helping people pick the right doctors, and developing a unified method for maintaining electronic medical records are among the improvements that reform proponents hope are on the way. "It forces the health care system from being one based on volume to one based on value," Boress said.

Law firms are employers, too

Law firms, like employers in any type of business, are subject to ACA requirements, which include a mandate for businesses with 50 full-time "equivalent" employees to provide a health insurance benefit that offers quality at affordable costs.

Charles Y. Davis, a partner at Brown, Hay & Stephens, LLP in Springfield, a firm with just about 50 full-time employees, said his firm shopped carefully this year for insurance, but ended up staying with its existing carrier after careful research. Davis, a member of the firm's management committee and of the ISBA's Board of Governors, said insurance costs have risen significantly over the years.

Cadillac tax. "We want to keep our costs as low as we can and we don't want to pass too much cost to our employees. We don't want them to pay more than they have to," Davis said.

Moreover, beginning in 2018, employers offering so-called "Cadillac plans," those that cost in excess of $10,500 for individuals or $24,000 for a family, will have to pay a 40 percent excise tax.

'Insurance…is the highest expense.' One provision already in effect is that employers and insurers must pay a $63 fee to the government for each covered employee. "I just left a law firm that has 250 employees," Paul Shaheen of the Horton Group said. "Their fee for 2014 is going to be $15,000." The fee will drop by 66 percent in 2015 and again by 33 percent in subsequent years.

"Our experience is that you've got to have a good relationship with your insurance broker," Davis said. "They deal with the nitty-gritty of this every day. They understand what's coming and we've been investigating this on the legal side as they have on the business side."

"If you're a private firm, especially a smaller firm, insurance is going to be the highest expense. We're going to keep reviewing it. Annually it's going to be a serious conversation, particularly for the next few years."

Who's a full-time employee under the ACA?

Questions are being raised about a plethora of ACA issues, including whether an employer is mandated to offer health benefits, how much it will cost both employers and employees, and what constitutes minimum health benefits. This is one of the reasons implementation of the employer mandates was delayed a year. One big question for employers is what constitutes the sort of full-time employment that triggers coverage requirements.

Traditionally, many companies have considered full-time employment, for the purposes of providing benefits, to mean working 40 hours a week. Under the Affordable Care Act, someone working 30 hours a week must receive health care benefits from large employers.

Shaheen and others say some employers have threatened to cut hours to 29 or fewer. But that won't be a simple unilateral decision on the employer's part. Under the law, a precise formula is used to calculate the average hours a person works over a long period to determine whether that employee is entitled to health insurance coverage.

"The employer has to measure how many hours a part-time employee is working and they have to do it over 12 months," said Saghi Fattahian, an employment lawyer at Morgan, Lewis & Bockius, LLP, in Chicago. "So if that employee ends up working more than 30 hours a week, then you have to offer that employee coverage. This is called the stability period."

Fattahian acknowledged that there has been some buzz about the so-called "twenty-niners," employers who will cut hours to 29 simply to avoid the law, but she added that she does not believe that will happen on a large scale. First, doing so might be challenged under federal labor laws. In addition, "most employers want to provide the best benefits they can for their employees."

The most affected businesses under this rule are retailers, restaurants, and other employers who hire seasonal workers. True, costs may increase with the new 30-hour requirement, but hiring and training new employees is a major expense, too, experts said. "That's your human capital," Boress said. "It costs money in the long run to pay for or replace sick employees."

If a larger employer does not offer an eligible employee benefits and that person receives coverage by purchasing a health plan under the public exchange, the employer is subject to a $2,000 fine per employee. Meanwhile, if an employer provides inadequate coverage - for example it doesn't cover basic preventive services or it will cost the employee in excess of 9.5 percent of her salary - the employer can be fined $3,000 per employee.

Controlling costs: self-insurance and private exchanges

The cost of providing health insurance has been increasing steadily for years for the most part; both the employer and employee price tag for premiums has been rising. So insurance companies, brokers, and lawyers have been trying to come up with creative ideas to keep costs down.

Will costs go down under the Affordable Care Act? Will better preventive care create a healthier community and less risk for insurers, thereby allowing them to reduce costs? "That's the hope," Shaheen said, "but the proof will be in the pudding. [The law] has brought out a lot of creative ideas."

Many large employers are opting to be self insured, meaning they collect premiums from employees and pay for their health-care costs, up to the point that the employer's reinsurance policy benefits kick in. Self-insured companies are subject only to federal laws, which is convenient for employers who have offices in multiple states.

Private exchanges - as distinguished from the ACA's government-run exchanges - are also becoming more popular. Private exchanges are, essentially, a group of employers who contract with a number of insurers, offering their employees a defined benefit. The employee may then choose from any number of plans, knowing that their employer will kick in a certain percentage of the premium cost. Being self insured or buying through a private exchange are not new arrangements, but they may be more appealing under the mandates, Shaheen said.

Stay tuned

Thanks in part to political fallout from the troubled website debut and cancelled policies, the Affordable Care Act has become something of a moving target. Will enrollment deadlines and coverage options be extended beyond the dictates of the original law? Are other changes forthcoming? Stay tuned.

Janan Hanna is a Chicago freelance writer and a licensed attorney. A former staff writer for the Chicago Tribune, she writes for numerous news organizations.