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Employer plans for healthcare reform evolving

Employers are preparing for provisions of the Patient Protection and Affordable Care Act (PPACA) that go into effect in 2014 -- and trying to assess the impact the changes will have on health plan enrollment and cost.

Findings from a survey of nearly 900 U.S. employers by consultancy Mercer, released in June 2013, highlight how employer thinking on reform has evolved over the three years since the PPACA was signed into law.

 

Higher costs expected

Employers have upped their estimates of the PPACA’s effect on cost, the survey found.

In 2011, 25% of survey respondents expected the law would have little or no impact on cost (adding less than 1%). In 2013 only 9% expect to get off so easily.

In 2011, 15% of respondents expected their costs to rise significantly (by 5% or more), compared with 19% in 2013.

While employers can calculate how many employees will be newly eligible for coverage, they can only guess how many will actually elect coverage. All individuals are required to have health coverage, but because the tax penalty for not obtaining insurance will be relatively low in 2014—just $95 per individual or 1% of household income, whichever is greater—some employees may choose to go without it.

 

Increased cost shifting

Changes in contribution strategy also make it harder to predict enrollment levels. Some employers are attempting to protect themselves from big jumps in enrollment by raising employee contributions for coverage, particularly for dependents. The survey found that:

• Nearly a third (30%) of respondents will require a bigger paycheck deduction for dependent coverage in 2014.

• Thirteen percent will raise the contribution percentage for employee-only coverage.

These changes may affect enrollment decisions in families where both spouses have coverage available.

When asked if they were budgeting for an increase in enrollment in 2014, just 17 percent of employers said they were, 42% said they were not, and 41% still hadn’t decided.

 

Tracking employee hours

The survey found that about a quarter of employers (23%) were still unsure of how they would track and record the hours of employees who work variable hours, as is required by the new law in order to verify that everyone working 30-plus hours is offered coverage. “Tracking employee hours and maintaining accurate records will be critical for employers, since they will need access to this information later in the event of an audit or to defend themselves against penalties for 2014 and beyond,” said Tracy Watts, Mercer’s health care reform leader, in a media release.

Most of the organizations surveyed (78%) are concerned about the communication requirements associated with the new law, including educating employees about their choices and supporting informed decision-making.

 

Looking ahead to 2018

Although the bulk of the reform law will go into effect in 2014, the provision that may ultimately have the biggest impact on employer-sponsored health coverage is the excise tax on high-cost plans that goes into effect in 2018. To avoid the 40% excise tax, companies must keep the total health plan cost below a threshold of $10,200 for an individual and $27,500 for a family.

“This provision could be the real game-changer,” said Watts. “Employers have consistently told us that they will do whatever is necessary to avoid the tax, and given the rate of increase in health benefit cost, that may require fundamental changes in the type of health benefit they provide and how they provide it.”

More than a third of employers said they have begun taking steps to avoid the tax in 2018. Most commonly, they are focusing on high-deductible consumer-directed health plans (either by adding a plan or taking steps to increase enrollment in an existing plan). Many say they will add or expand wellness programs in an effort to reduce health care spending by improving employees’ health.

 

Public and private exchanges

While few large employers plan to terminate their medical plans and send workers to the public health exchanges (just 7% of those with 500 or more employees), many said they would consider using a private health exchange, in which the employer provides funding and the employee shops online to choose a medical plan and sometimes other benefits. A private exchange allows employers to provide a defined contribution amount that employees can use to purchase benefits; the medical options in the private exchange are designed to comply with the PPACA.

About a third (32%) of the employers surveyed are considering offering a private exchange within two years, and about half (47%) are considering it within five years.

Stephen Miller, CEBS, is an online editor/manager for SHRM.

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