Study Finds High ACA Costs for Large Employers

Compliance is estimated to increase health care costs by an additional 4.3% in 2016

By Stephen Miller, CEBS April 4, 2014

Over the next decade the Affordable Care Act (ACA) will cost large U.S. employers between $4,800 to $5,900 per employee, according to a study by the American Health Policy Institute (AHPI), a new nonprofit affiliated with the HR Policy Foundation, a public-policy organization of chief HR officers at large firms.

The study report released in April 2014, The Cost of the ACA to Large Employers, looks at direct costs to companies with 10,000 or more employees due to the ACA’s requirements, over and above projected employer health care cost trends without the ACA.

The study found that over the next decade:

  • The ACA is estimated to increase the health care costs for large employers by 4.3 percent in 2016, 5.1 percent in 2018, and by 8.4 percent in 2023, with the increase primarily due to the high-cost excise tax that begins in 2018.

  • The total cost of the ACA to all large U.S. employers over the next 10 years is estimated to be from $151 billion to $186 billion, or 5.9 percent more than what they would otherwise be spending.

  • Large employers are responsible for a total of 137.7 million American jobs, and maintaining a healthy workforce continues to be a top priority for them.

Regulatory Burdens and Fees

According to the report, authored by AHPI President Tevi Troy and Chief Economist Mark Wilson, “these data demonstrate that the added mandates, fees and regulatory burdens associated with the ACA are increasing the cost of employer-sponsored health care plans, with implications for both employers and employees.” As the study concludes, “[c]ost increases in the range of $163 million to $200 million per large employer over the course of a decade will not be overlooked by CEOs, CFOs, or boards of directors.”

Though the financial impact on individual companies will vary, most are feeling significant pressure to “make fundamental changes to their health offerings as a result of the ACA.” The study’s authors argue it is important for policymakers to see the same data employers are grappling with and understand how it may influence their future benefit and staffing decisions.

Surveyed companies, including Fortune 500 firms, said the most costly ACA provisions included:

Large Employers' Health Premium Trends

In another new study, the 2014 ADP Annual Health Benefits Report highlights significant trends in employer-provided health benefits between 2010 and 2014 among U.S. companies with 1,000 or more employees. Among the findings:

Premium increases leveling. In 2014, the average monthly health plan premium was $870 (including employer and employee contributions), an increase of 15 percent since 2010. However, after a spike of 6.9 percent between 2010 and 2011, the rate of increase moderated, and premiums rose 1.7 percent between 2013 and 2014. The cause of moderating premium costs may have been due, in part, to an increasing number of employers using high-deductible health plans with higher co-pays, or implementing spending accounts and consumer-directed health plans.

Premium per covered life fairly constant. Employees with higher incomes tended to incur higher premiums, but they also covered more dependents. When premiums were adjusted for total covered lives—considering each insured person, rather than each employee—premium costs were fairly constant among income levels, averaging $411 per month in 2014.

Dependents on parent’s plan until age 26. Several trends identified may be linked to the ability of dependents up to age 26 to stay on a parent’s health policy, if the plan offers dependent coverage. Higher premium costs in older age groups may have been linked to the growing likelihood that a covered employee could have covered dependents who may be up to age 26. Among those 30 and under, the take rate declined -7.6 percent between 2010 and 2014.

Employers contributing slightly less. In 2014, employers contributed 74 percent of the premium cost for those with dependents, whereas those with no dependents experienced a 77 percent employer contribution share. Employer contributions to health premiums declined slightly for all groups from 2010 to 2014, within a tight range of -1.0 percent with no dependents to -1.5 percent with dependents.

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

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