Employers expect health reform to raise costs: Survey

Already facing burgeoning health care plan costs, employers say the health care reform law will increase them even more, according to a survey released today.

An overwhelming majority of employers—74%—said they expect the Patient Protection and Affordable Care Act to increase group plan costs beyond what they would have been had the legislation not passed, according to the survey, which was conducted by the Midwest Business Group on Health and co-sponsored by the National Business Coalition on Health, Business Insurance and sister publication Workforce Management.

For example, 42% of large employers—those with more than 500 employees—expect cost increases in the range of 2% to 5% due to complying with health care reform law, while 16% expect cost increases in the range of 6% to 10%. Just 11% of large employers expect the law to boost costs less than 1%, according to the survey.

The survey, which was conducted between Nov. 29 and Dec. 15, drew responses from 430 employers, of which 43% have more than 500 U.S. employees.

That employers expect the new law to add fuel to health care inflation is not surprising, said Andrew Webber, president and CEO of the Washington-based NBCH. That is because several provisions#151;such as extending coverage to employees' adult children up to age 26, eliminating lifetime dollar limits and fully covering preventive services#151;kicked in Jan. 1 for most employers.

Given those cost increases, it is not surprising at this stage that employers “are not big fans of health reform,” Mr. Webber said.

Still, employer attitudes could change when, as Mr. Webber put it, the “second chapter” of the reform law unfolds. That stage begins in 2014, when federal health insurance premium subsidies will be offered to the lower- and middle-income uninsured to buy coverage from commercial insurers offering policies through state health insurance exchanges that are to start operating that year.

That new benefit entitlement, plus certain other changes, such as expanding the Medicaid program, could mean an additional 30 million people will gain coverage, according to congressional estimates. Last year, about 50 million U.S. residents were uninsured, according to the U.S. Census Bureau.

In theory, that expansion of coverage should result in a big reduction in uncompensated care, a cost that providers, where possible, now shift in the form of higher charges to patients in employer plans.

But whether a reduction in uncompensated care results in an easing of health care inflation remains to be seen.

“We will have to see if that promise comes to fruition,” Mr. Webber said.

Clearly, some employers are skeptical that health care reform will bring to them more benefits than costs.

In fact, 8% of all respondents and 6% of large employers said it is “very likely” that they will drop coverage in 2014 when the new insurance exchanges begin. In addition, 14% of all respondents and 6% of large employers said it was “likely” they would drop coverage.

Whether employers drop coverage#151;which would require them to pay a $2,000 per full-time employee penalty and, to remain competitive, increase employees' salaries to partially offset premiums that employees would have to pay for coverage through insurance exchanges#151;won't be known for a while.

But that such a high percentage of employers are considering dropping coverage reflects their fears that the health care reform law will boost costs enough to undermine their economic stability, said Larry Boress, president and CEO of the Chicago-based MBGH.

According to Mr. Webber, whether employers drop coverage will greatly depend on a major unknown: the ability of the yet-to-be established exchanges to offer affordable coverage.

Interestingly, employers are most opposed to health care reform provisions that will have little direct effect on their costs. For example, 72% of respondents said they want Congress to repeal a provision, which begins next year, that bars employees from tapping their flexible spending accounts to reimburse themselves for over-the-counter medications not prescribed by a doctor.

Similarly, 64% want to repeal another FSA-related provision, which caps the maximum FSA contribution that employees can make at $2,500 a year effective in 2013. Prior to the health care reform law, there was no legal limit on FSA contributions, though employers typically impose annual limits between $4,000 and $5,000.

“Employers don't like the feds telling them how they can design their plans,” Mr. Webber said.

Another provision strongly opposed by employers requires them to report the cost of health insurance coverage on employees' 2012 W-2 wage and income statements. Nearly 70% want that provision repealed.

Aside from being an administrative headache, employers don't see the relevance of the reporting provision to health reform, Mr. Webber said.

On the other hand, opposition is much less when it comes to other health care reform law provisions. For example, only 32% of employers backed repeal of the requirement of fully covering preventive services. Fifty-two percent of employers said the provision should be retained, while 16% said it should be modified in some way.

Many employers voluntarily have expanded coverage of preventive services, believing that it will be cost-effective in the longer term if medical conditions are detected before they become more serious and expensive to treat, Mr. Webber said.

Summaries of the survey, “Employer Reaction to Health Reform After the November 2010 Elections,” are available at www.mbgh.org. The full survey, which costs $100, will be available at the end of January. For more information, contact Mr. Boress, 312-372-9090, ext. 101 or lboress@mbgh.org.