Selling Benefit Changes to Retailers (and Other Industries Most Impacted by Healthcare Reform)

Some sectors, such as retail, could face a damned-if-you-do, damned-if-you-don't dilemma when coming to terms with federal healthcare reform. Meanwhile, change could be easier for other industries.

By JOEL BERG, a freelance journalist and college professor

The complexity of healthcare reform boils down to a relatively simple question for most employers: Will they or won't they keep coverage?

The answer can be as complicated as the reform itself, involving factors ranging from the expected competition for talent in 2014 to the definition of a full-time employee.

So far, at least, reform has had a limited impact on most companies, say professionals who will be advising employers as they make decisions. Yet for some employers in particular industries, reform has already had a bigger effect on how they handle healthcare benefits.

For employers in general, the bill's early mandates--such as extending benefits for children up to age 26, if dependent coverage is offered--tack on an average of 2.5 percent to the cost of health insurance, according to an analysis by brokerage firm Lockton Companies LLC.

The analysis was based on modeling of more than 130 benefit plans. The increase is highest for industries with the least generous plans, such as transportation (3.7 percent) and manufacturing (3.3 percent).

Companies will see a bigger impact in 2014, which is when those with at least 50 full-time employees must begin providing affordable coverage or pay a penalty.

If cost were the only issue, the outlook for continuing coverage would be bleak.

The Lockton analysis found, however, that employers in most industries would save money--an average of 44 percent--by accepting the government-imposed penalty rather than continuing their existing benefit plans. Employees would then have to shop for coverage on state-level exchanges authorized under the law or pay a penalty of their own.

The more an employer currently spends on health insurance, the more they will save, according to Lockton. And this is where the typical benefits behavior of certain industries comes into play.

Governments and hospitals, traditionally the most generous, are among those that would exceed the average savings from plan termination. They also would pay more under a looming tax on the most generous plans, known as "Cadillac plans." Financial and professional services firms also would be hit relatively harder by the tax, which takes effect in 2018.

IMPACT ON RETAIL

A notable exception is the retail sector, which includes hotels, restaurants and amusement parks. Employers in those industries could be paying more regardless of what they do, according to Lockton's study and other analysts.

Companies in those sectors may be the ones wrestling most intently with the question of "pay or play," said Kathryn Stein, a managing director in the human resource services practice at consulting firm PwC.

"A lot of that will depend on where the costs go and what these industries that are on tighter margins are going to be able to do," Stein said. "Within retail, I always think about the grocery chains, for example, and those types of organizations with limited margins and large workforces and currently somewhat limited benefits. Those kinds of organizations may look more closely, but that's pure speculation."

Temporary agencies are another example of an industry facing big questions from healthcare reform, Stein added. "They're dealing with people that they previously have not provided benefits for that maybe are working the average 30 hours a week."

For retailers not offering benefits, the government penalty will be, on average, less than the cost of adding coverage, according to Lockton. But there is additional expense either way.

As a result, the sector is seeking greater flexibility under regulations implementing the healthcare law. One concern is the definition of a full-time employee when it involves a seasonal hire or a part-timer who occasionally may work more than 30 hours a week.

"The retail workforce does not divide neatly into full- and part-time pockets, so that's why we've been eager to work with the administration," said Neil Trautwein, employee benefits counsel for the National Retail Federation, a trade group in Washington, D.C.

In the meantime, business owners are pondering changes to their operations, such as ensuring that employees stay under 30 hours a week, said Michelle Reinke, a senior policy analyst for labor and workforce policy for the National Restaurant Association in Washington, D.C.

"That's probably not what the authors of the law intended," she said. "But it is what employers, restaurateurs, are telling us they will do."

SUBTLER CHANGES FOR OTHER SECTORS?

Employers in other industries are hoping to offset the costs of healthcare reform by tweaking their plans, according to a survey put out this spring by PwC. According to the survey, 84 percent of employers are planning changes, which could affect everything from retiree medical benefits to coverage of dependents.

Other strategies could include expanding employee choices and beefing up wellness programs, said Lissa Thomson, a senior vice president and chief consultant for Lockton Southern California Benefits Group, a division of Lockton Cos.

"Those are two big themes that we see developing with healthcare reform," Thomson said.

To ensure coverage meets the new law's affordability standards, employers can offer high-deductible plans, which usually have lower premiums, Thomson said. That trend is already under way.

Thomson also expected to see more employers establish wellness programs and base premiums on employee participation. Employers will be able to charge more to people who don't take part, pushing those employees onto the health insurance exchanges, Thomson said.

Of course, companies can avoid tinkering simply by choosing to drop coverage and take the savings.

But the potential windfall won't be the only factor. Companies also must consider the employment picture in 2014, said professional advisers. Companies that need talent, such as high-tech firms, may keep coverage. Those that don't might decide to drop it.

Most companies will be reluctant to move first. But the ones that do are likely to be large and publicly traded, said Scott Anderson, a manager at Sensiba San Filippo LLP, an accounting firm in San Jose, Calif.

"They have more at stake, and they're reporting to shareholders," he said.

Even then, employers should account for the potential costs of shedding health insurance, said Anderson, who drew an analogy to workplace safety programs. Although the programs cost money, they have been shown to yield savings on workers' comp claims.

There's little data on the cost of forgoing health insurance, he said. But it is worth contemplating.

For example, he said, "If your employees are opting not to take advantage of the state exchanges and don't have healthcare coverage, it's possible that that risk trickles down into workers' comp claims."

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Unexpected Benefit of Fewer Options

Thanks to ongoing mergers and acquisitions, there are fewer managed-care options than ever. That just may make this RIMS the best time to look for new partners.
In his 2004 book, "The Paradox of Choice: Why More Is Less," Barry Schwartz makes a persuasive argument for the notion that having too many options from which to choose actually decreases buyers' satisfaction levels. To support this hypothesis, Schwartz highlighted a study by Columbia and Stanford University researchers that found that, when participants were presented with a smaller selection of chocolates, they were actually more satisfied with their taste than when presented with a wider array of choices.
Although it seems at first somewhat counterintuitive, based on our recent experiences reviewing a host of RFPs for several large workers' compensation claims payers, the theory definitely seems to apply directly to our market.
Thanks to an unprecedented number of mergers and acquisitions, buyers in the workers' compensation managed-care space are now getting an opportunity to test Schwartz's theories and decide for themselves whether the "chocolate" now tastes any sweeter with fewer options to choose from.
Over the last 18 to 24 months, there has been a significant and dramatic contraction of players in the workers' compensation managed-care marketplace. The bill-review market shrunk with StrataCare's purchase of CS Stars and Mitchell's acquisition of Ingenix's PowerTrak offerings. The case management arena narrowed with Genex's purchase of Intracorp. And then ExamWorks acquired every peer review/IME company known to mankind. So there is no denying the reduction in buying choices available to employers and claims management organizations.
Fewer options are definitely not necessarily a bad thing in this case. With fewer competitors, more opportunity exists for each remaining player to differentiate themselves from the rest of the field. As differences between each company's offering become more pronounced, it becomes easier for potential buyers to identify the solution that will best match their needs. It is much easier to see one positioning itself as a generalist, one-stop shop for all your managed care programs while another is focused on becoming the best-in-class option for case management.
For example, as little as five years ago, at least a half-dozen generalist, managed-care firms all vied for employer and claims payer business. It was extremely challenging to discern meaningful differences between the programs offered by national companies like Coventry, Genex, Intracorp, CorVel, MCMC and Bunch & Associates. A proposal written by one could just as easily been written by any of the others. As mentioned before, however, this market has contracted (with Genex acquiring Intracorp, CorVel trying to morph into a third-party administrator and Bunch being acquired by StrataCare's parent company) and it is suddenly much easier to differentiate between the remaining firms.
BETTER VIEW OF BILL-REVIEW OPTIONS
This same scenario is playing itself out across the entire workers' comp managed-care spectrum. In medical bill review, where there used to be nearly a dozen different bill-review software platforms to choose from, buyers today are realistically "limited" to four. While all four platforms offer solid functionality across all aspects of the bill-review process, it is increasingly easy to see how one is seeking to differentiate itself based on efficiency and bill throughput, while another is focused on automated workflow management and a third appears to be differentiating itself as the low-cost option willing to enable and integrate a wide variety of specialty networks and services.
For potential buyers, the decision comes down to answering a few simple, high-level questions such as:
-- Would you rather have a single PPO with big inpatient hospital discounts or the flexibility to assemble a direct-contracted "mosaic" of different (potentially stacked) networks in each jurisdiction?
-- Do you want the vendor to provide integrated specialty review programs, or do you want to assemble your own "best-in-class" collection?
-- Is it more important to maximize bill reductions or minimize operational expenses?
Then they can quickly gain clear guidance on which platforms and partners will provide the best potential fit to their program.
PBM CHOICE

Perhaps nowhere is the dramatic benefit of fewer purchasing options more evident than in the arena of workers' comp prescription benefit management. At the Risk and Insurance Management Society (RIMS) conference several years ago, literally dozens of cookie-cutter workers' comp PBM options were on display, all seemingly leasing the same Restat pharmacy network.
This year's conference during the first week of May in Vancouver should provide significantly fewer, but dramatically better, PBM options from which employers and payers can select.
Once again, as the remaining PBMs seek to differentiate themselves, a few basic questions about the goals and nature of your PBM program can help narrow the field of potential partners dramatically, such as:
-- Which is more important to you, the average price per prescription or the number of prescriptions per claim?
-- Is it more important to capture a higher percentage of first fills or limit the number of claims continuing to receive prescriptions after the first 12 or 24 months?
-- Do you want to partner with or fight against third-party billers to capture more first fills?
-- How comprehensive and aggressive should DUR interventions with prescribing physicians be?
-- How tightly do you want your PBM program to integrate with bill review or case management operations?
GAINING HAPPINESS
In "The Paradox of Choice," Schwartz recommends the following basic process be used by purchasers to maximize their "happiness" or satisfaction with their buying decisions:
1. Identify your goal or goals.
2. Prioritize the importance of those goals.
3. Array your purchasing options.
4. Evaluate how likely each option will be able to meet your goals.
5. Select the best option.
6. Modify your goals.
In the rapidly shrinking world of workers' comp managed care, Steps 3 and 4 are becoming increasingly straightforward as fewer competitors become easier to differentiate and align with the goals identified in the first two steps.
Even though there may be fewer booths in the exhibit hall, this year's RIMS conference will provide a perfect opportunity for risk and claims managers to "taste the available chocolate" and decide whether different managed-care partners might better align with their goals.
DAVID HUTH is a senior partner in the Chicago-based Maddy Bowling Consulting Inc.
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