Employers settle in to new era of health care benefitsReprints
Since its enactment in March 2010, the landmark Patient Protection and Affordable Care Act has weathered numerous attempts to block, repeal and eviscerate it.
Employers have stayed the course through the law’s fits and starts, however, and now that most of the key provisions are in effect, benefits managers and business leaders are rolling up their sleeves for the long haul.
“After five years, I think employers are pretty much of the view that this law is here to stay,” said J.D. Piro, a Norwalk, Connecticut, based senior vice president and national practice leader for the health law group of Aon Hewitt.
Indeed, the health care reform law already has begun to revamp health care delivery by ushering in public exchanges, spurring health system and payment reforms and accelerating the adoption of high-deductible account-based health plans, among other pivotal changes.
The primary goal of expanding health insurance coverage to tens of millions is still a work in progress, but early evidence suggests the law is making headway.
In 2014, the number of working-age adults without health insurance dropped to 29 million, or 16% of the population, according to the New York-based Commonwealth Fund’s Biennial Health Insurance Survey released in January. That’s the lowest level in more than a decade and the first statistically significant decline in uninsured rates since the survey’s inception in 2001.
Separately, the Congressional Budget Office released new estimates in January showing that 36 million children and adults under age 65 will be uninsured this year, down from 55 million if Congress had not passed the law.
The health care reform law has been a game-changer for employers, too, beginning with the enormous administrative and compliance burden it imposes. Simply understanding the far-reaching law and all
its complexities is tedious and time-consuming. Implementing it is even more so, especially as regulatory guidance continues to evolve, and 78% of employers in a 2014 Mercer L.L.C. survey cited the increased administrative burden posed by the health care reform law as a significant or very significant concern.
“We were still working on unanswered COBRA questions 10 years after COBRA was passed, and COBRA was a drop in the bucket compared to ACA,” said Christopher Gavigan, president of Charon Planning, an NFP company, a strategic planning and benefits management firm, in Warrington, Pennsylvania.
With the employer shared-responsibility mandate now in play for businesses with 100 or more employees, employers are focusing on the next big task: complying with the law’s detailed recordkeeping and reporting requirements.
Whether the law will have a lasting effect on the health-care cost trajectory remains to be seen. In the short-run, it added modestly to employers’ health benefit expenses via new patient protections and expanded benefits, such as dependent coverage up to age 26, and more significantly through the extension of health benefits to full-time employees who weren’t previously eligible for coverage.
Most employers experienced year-over-year health-care cost increases over the past three years, according to the Society for Human Resource Management’s 2014 Strategic Benefits Survey, with 79% saying they are very concerned about controlling health care costs.
After assessing the law’s effects, one of Mr. Gavigan’s large employer clients considered scrapping its proposed acquisition of another large business. Initial estimates suggested that extending health benefits to workers at the target company and absorbing other health care-related expenses would have cost several million dollars, he said. Ultimately, the 1,000-plus-employee acquirer completed the deal, but switched to bronze-level health coverage to minimize costs.
For certain employers with large numbers of hourly or low-wage workers, the 30-hour definition of a full-time employee, which determines eligibility for benefits under the law, is packing a wallop.
To provide health benefits to workers earning $20,000 to $30,000 a year, “you’re potentially looking at a 20% increase in total labor costs for certain parts of your workforce,” said Christopher Ryan, vice president for strategic advisory services in the Louisville, Kentucky, office of ADP L.L.C.
That is why many employers are choosing between reducing worker hours below 30 hours a week to avoid the additional expense or retaining a smaller number of key employees on a full-time basis with health benefits.
Of the various fees embedded in the law to help fund health reform, the one that strikes fear among benefits and business leaders is the excise tax on high-cost health plans, also known as the Cadillac tax.
Beginning in 2018, a 40% excise tax will be imposed on health care premiums that exceed $10,200 for single coverage and $27,500 for family coverage. The tax will be paid by insurers and plan administrators, who then almost certainly will seek reimbursement from employers.
It adds up quickly, and it’s tough to avoid because mandates under the law raise the value of health coverage and because the tax is linked to the overall inflation rate, said Amy Bergner, managing director in the global human resource solutions practice of PricewaterhouseCoopers L.L.P. in Washington.
“It’s almost like you’re baking in this potential exposure, and the employer has fewer and fewer levers to control,” she said.
Dire predictions of employers no longer offering health benefits for their workers due to reform-related pressures have not materialized, however. Only 1% of employers have eliminated health benefits, and 5% intend to do so over the next three to five years, a recent Aon Hewitt survey found.
Instead of bowing out, employers are scrambling for ways to make benefits more affordable and, in turn, avoid triggering the excise tax. Thirty-three percent of employers in the survey said they were reducing the richness of their plan designs for 2015 through higher out-of-pocket costs, and 31% are increasing the use of wellness incentives.
Ultimately, if that excise tax were to erode the value of employers’ pretax exclusion of health benefits, it could lead to the broad adoption of health plans with lower actuarial values, Mr. Ryan said. In other words, employers may shift from gold-level health plans to silver or bronze, with the option for employees to “buy up” to a higher-value plan, he said.
Five years after the reform law’s enactment, lots of loose ends remain.
Employers still await crucial regulatory guidance on several matters, including specifics on calculating the Cadillac tax.
“You only know what you know right now, and it’s scary for employers,” said Mike Colarusso, managing director for the Mid-Atlantic region of Charon Planning.
Future legislative attempts to derail the law are unlikely to go very far as long as President Barack Obama wields the veto pen. However, there could be a push to raise the 30-hour work week definition to 40 hours.
It’s also unclear how the U.S. Supreme Court will rule by the end of June on the health-reform law’s premium tax subsidies in the pivotal King v. Burwell case. A decision in favor of the plaintiffs could, in theory, derail enforcement of the employer mandate in the 37 states where federally facilitated exchanges operate.
“No subsidy, no penalty. No penalty, no mandate,” Mr. Piro said. It wouldn’t be a “whole new ballgame, but a substantially new one,” he said.