Assessing the implications of healthcare reform: healthcare reform's larger strategic considerations and the opportunities for officers and directors to rethink their organization's role in health care.

• Author: Abbott, Randall K.

Healthcare reform is a transformational moment in American history that will affect every American citizen and virtually every employer starting in 2010. For employers, it is not just a health benefits consideration; it is a total business issue that will materially influence total compensation, the employee value proposition, workforce planning, long- range business plans and corporate finances.

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The law calls for insurance reforms, broader access to health coverage and the creation of state-based insurance exchanges. It also introduces a substantive excise tax on so-called "Cadillac" benefit plans which is designed to deter overly rich benefit plans and create a tax revenue stream to help offset the expense of the law. Healthcare reform, as it affects employers, can be divided into four major tranches, by time frames: Immediate Compliance (2010-2011), Pre-Exchange (2010-2013), Post-Exchange (After 2014) and Introduction of the Excise Tax (2018).

Immediate Compliance

Immediate compliance began with the law's passage on March 23, 2010, and affects most employers as of January 1, 2010, to some degree. The mandated changes include the popularly known provisions of covering adult children to age 26, eliminating lifetime benefit limits and phasing out annual benefit limits. These provisions affect nearly all employers as of January 1, 2010. Other provisions, such as the liberalization of preventive care services and coverage of these benefits at 100%, become effective when a plan ceases to be "grandfathered" under the law. Grandfathering is determined by the employer's decision to operate the plan within very specific and limited parameters that proscribe its ability to change benefits or employee premium cost sharing. According to Towers Watson research, 55% of large employers expect to relinquish their grandfathered status as of January 1, 2010, while the remaining 45% have elected to operate within the prescribed limits to retain grandfathered status through 2011.

Key questions for directors:

Did our organization retain grandfathered status or not? If not, when do we expect to become non-grandfathered and what are the implications?

Pre-Exchange

The pre-Exchange period falls between now and 2014, during which employers will face a variety of additional compliance requirements. Moreover, because the introduction of the state insurance exchanges in 2014 will create the opportunity to exit employer-sponsored health...