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. organizations 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. For instance:
- In 2011, 25 percent of survey respondents expected the law would have little or no impact on cost (adding less than 1 percent). In 2013 only 9 percent expect to get off so easily.
- In 2011, 15 percent of respondents expected their costs to rise significantly (by 5 percent or more), compared with 19 percent 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 percent 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 companies 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 percent) 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 percent said they were not, and 41 percent still hadn’t decided.
Tracking Employee Hours
The survey found that about a quarter of employers (23 percent) 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.
Most of the organizations surveyed (78 percent) 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 percent 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 percent 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 businesses 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 percent) of the employers surveyed are considering offering a private exchange within two years, and about half (47 percent) are considering it within five years.
Employers Weigh Changes to Reward Programs in Light of Health Care Reform
With health care reform looming, nearly half of U.S. employers (45 percent) are considering making changes to their total rewards programs or workforce strategies, according to a 2013 survey of U.S. employers by consultancy Towers Watson.
In rethinking the total rewards mix, companies are putting a range of options on the table to keep costs down and avoid triggering the excise tax in 2018.
Of those respondents considering making changes:
Nearly half (49 percent) have redirected or are considering redirecting rewards from one program to another.
Forty-two percent have reduced or are considering reducing subsidies for dependent health care coverage.
More than one-third (37 percent) have reevaluated or are considering reevaluating their employee value proposition to place more emphasis on variable pay.
The 2013 Towers Watson Talent Management and Rewards Pulse Survey was conducted in April and May 2013 among 113 organizations representing a cross section of U.S. industries.
Stephen Miller, CEBS, is an online editor/manager for SHRM.
Related SHRM Articles:
SHRM Research Spotlights Health Care Reform Strategies, Costs, SHRM Online Benefits, June 2013
Final Rule Provides Guidance on Wellness Incentives, SHRM Online Benefits, June 2013
'PCORI' Fees on Self-Funded Plans Due by July 31, SHRM Online Benefits, updated June 2013
Nondiscrimination Rules for Health Plans Loom Ahead, SHRM Online Benefits, June 2013
Employers Adjust Health Benefit Strategies in Reform's Wake, SHRM Online Benefits, May 2013
On Private Health Exchange, Choice Drives Satisfaction, SHRM Online Benefits, March 2013
Levers of Change: Employers Respond to Shifting Landscape, SHRM Online Benefits, March 2013
SHRM Online Benefits pageSHRM Online Health Care Reform Resource Page