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Employers expect health reform law to boost costs

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One-quarter of employers expect the requirements that group health care plans extend coverage to employees' adult children up to age 26 and that they eliminate lifetime dollar limits will increase plan costs at least 3%, according to a survey released Thursday.

The provisions, which generally go into effect in 2011, are among the first plan changes required under the new health care reform law.

Thirteen percent of employers responding to the Mercer L.L.C survey expect the adult-child and dollar-limit provisions to boost costs by 3% to 4%, while 12% expect cost increases of at least 5%.

On the other hand, many employers expect a more modest impact: Thirteen percent expect cost increases of less than 1%, while 28% estimate cost increases of 1% to 2%.

Thirty percent say they don't yet know how much costs will increase as a result of complying with the new coverage mandates, according to the Mercer study.

Demographics are a key factor in why costs will vary, said Tracy Watts, a partner in Mercer's Washington office. For example, employers with young workforces likely would have few employees with young adult children, but employers with a high number of employees between age 45 and 60 likely would have many young-adult children.

In the wake of the new requirements, some employers already are considering changes to their premium structures. For example, 20% said they will strongly consider changing their premium rate tiers. Many employers now have only two or three premium tiers.

In addition, 16% are strongly considering boosting the premium share for dependent coverage. Nearly half are strongly considering requiring children above a specified age to certify that no other coverage is available. Under the health care reform law, the adult-child coverage requirement does not apply until Jan. 1, 2014, if the adult child is eligible to enroll in another employer plan.

Twenty-nine percent of respondents said a new 40% excise tax on the most costly plans is the reform provision that worries them most. Under the provision that is slated to begin in 2018, a 40% excise tax will be imposed on premiums exceeding $10,200 for single coverage and $27,500 for family coverage.

The tax poses a difficult issue for employers with generous plans, Ms. Watts said. If they pare coverage, employers will lose a tool that has provided a recruiting edge; but if they make no changes, employers face additional costs.

The survey is based on the responses of 791 employers.

A summary of the survey is available at www.mercer.com.