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Most U.S. Employers Plan to Keep Coverage After 2013
More employee cost-sharing foreseen

By Roy Maurer  6/16/2011

Less than 1 percent of U.S. employers planned to stop providing employees with health care coverage in 2014 when the health care reform law's “play or pay” provisions become effective, according to a survey by the International Foundation of Employee Benefit Plans (IFEBP).

The 2011 survey of more than 1,350 individuals—including HR and benefits professionals along with general and financial managers—found that although many employers will look to employees to help manage rising costs, very few plan to eliminate or reduce their health plan benefits as the result of health care reform.

Beginning in 2014, under the “play or pay” provisions of the Patient Protection and Affordable Care Act (PPACA), employers with 50 or more employees will face penalties for not providing health care coverage or for providing plans that are not deemed sufficient or affordable by the government.

Half of responding organizations reported that they will continue to provide health care coverage and avoid penalties. One-third (33.6 percent) were still conducting an analysis. Just 0.7 percent intended to respond to this requirement by paying the $2,000-per-employee penalty rather than providing sufficient or affordable health care coverage as defined by law.

Moreover, the IFEBP survey found just 2.6 percent of respondents plan to cut health benefits for new hires, 0.9 percent will close health benefits to new hires and 1.6 percent plan to drop dependent coverage.

McKinsey: Large Number of Employers Expect to Drop Coverage

A very different outlook for employer-provided health care in the U.S. was suggested by an early 2011 McKinsey & Co. survey of 1,300 U.S. employers covering a range of industries, locations and sizes. In the McKinsey survey, about 30 percent of respondents said they would "definitely or probably" stop offering employer-sponsored health insurance after 2014.

McKinsey acknowledges, "our survey educated respondents about [the health care reform law's] implications for their companies and employees before they were asked about post 2014 strategies." The survey is viewed by many as an outlier but points to the uncertainty over what the future health care landscape will be.

Contrary to what many employers assume, more than 85 percent of employees would remain at their jobs even if their employer stopped offering health care coverage, McKinsey found, although 60 percent would expect increased compensation.

Extending More Benefits to Employees' Adult Children

Although the legal requirement that employers offer to extend coverage to employees' adult children until age 26 only applied to health care, the IFEBP survey found that most employers (60 percent) will go a step further and change the eligibility requirements for dependents in other benefit plans (e.g., dental and vision) to conform to the requirements of their medical plans.

Higher Costs

While the impact of PPACA will vary from one employer to the next, it is generally agreed that the law will increase plan costs, further amplifying health care inflation trends, the IFEBP survey found.

A majority of employers (60 percent) have conducted an analysis to determine how health care reform will impact their 2011 plan costs. Among respondents analyzing cost impacts:

A large majority (85.4 percent) expect that the legislation will raise their costs in 2011.

More than one-third (36 percent) estimate the legislation will increase their costs by 1 percent-2 percent.

One-quarter (26.3 percent) estimate cost increases of 3 percent-4 percent.

Just under one-quarter (23.1 percent) predict that compliance will increase their health benefit costs by 5 percent or more.

Extending coverage to adult children to age 26 is still seen as the top driver of cost increases. However, administrative costs and cost-shifting attributable to reduced Medicare and Medicaid payments to providers have emerged over the past year as major concerns.

More Cost-Sharing

To help ease the increased costs brought on by health care reform, employers report increasing:

Participants’ share of premium costs (39.8 percent of respondents).

In-network deductibles (29.3 percent).

Employees’ proportion of dependent coverage cost (28.4 percent; an additional 16.2 percent plan to increase employees’ proportion of dependent coverage cost in the next 12 months).

Out-of-pocket limits (27.2 percent).

Co-payments or co-insurance for primary care (24.3 percent).

Remaining Grandfathered

Even though employers report several benefits of maintaining their grandfathered status—namely that their plans are exempt from the appeals process and the requirement to provide coverage for preventive care with no cost-sharing or annual limits—just 30 percent expect to maintain grandfathered status beyond the next three years.

“Maintaining grandfathered status will be very challenging for employers,” said Sally Natchek, senior director, research, at IFEBP. “Plans can lose the status in numerous ways, including reducing benefits, raising co-insurance or significantly raising co-payments or deductibles. To remain grandfathered, an employer will be able to make only limited changes in their health care plan. This does not appear feasible for most organizations,” she noted.

Rx Cost-Sharing

Employers are passing on to employees additional prescription drug plan costs as well. Drug plan design changes include increasing:

Co-payments or co-insurance for retail pharmacy benefits (18.9 percent of respondents).

Co-pays for maintenance medication filled at retail sites (17.3 percent).

Co-payments or co-insurance for maintenance medications filled through a mail-order pharmacy (15.9 percent).

Promoting Wellness

The survey shows that because of health care reform, more employers have (or plan to) adopt or expand their use of:

Wellness initiatives (44.6 percent of respondents).

Financial incentives to encourage healthy behavior (38 percent).

Disease management programs (27.1 percent).

HDHPs Proving Popular

As a result of health care reform, approximately one-third of responding organizations are increasing their emphasis on high-deductible health plans (HDHPs) with a health savings account (HSA) or are assessing the feasibility of adding an HDHP with an HSA. Rarely are employers decreasing their emphasis or assessing the feasibility of dropping HDHPs, the survey found.

Roy Maurer is a staff writer for SHRM.

Related Articles—SHRM:

Big Plan Changes Considered by Employers, HR Magazine, June 2011

SHRM Research Spotlight: Health Care Reform Poll—Where Are Organizations in the Decision-Making Process? An Update, SHRM Research, April 2011

Related Article—External:

What Will 2014 Mean for Health Care?, Wolters Kluwer Law & Business, June 2011

McKinsey Stands By Contested Health Insurance Survey, NPR.org, June 2011

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