Tuesday, December 8, 2009

Employers Win or Lose?

Nearly two-thirds (63%) of employers responding to a recent Mercer survey said that they would cut health care benefits to avoid paying the excise tax included in the Patient Protection and Affordable Care Act, H.R. 3590, which currently is being considered by the Senate. In general, excess annual costs under the legislation are those above $8,500 for employee-only coverage or $23,000 for family coverage, starting in 2013. Mercer estimates that one in five employers offer health care coverage that would be deemed “too generous”and thus would be subject to the Act’s 40% nondeductible tax on the excess value.

Seven percent of plan sponsors would terminate those plans. About one-fourth of the respondents (23%) said that they would maintain their current plan but pass along the cost of the tax to their employees; and 2% said that they would keep their plan but absorb the new tax themselves

Many employers, particularly the largest ones, also would terminate their contributions to employees’ flexible spending accounts, health reimbursement arrangements, and health savings accounts: 19% of all respondents,, but 25% of employers with 5,000 or more employees, would terminate their contributions.

Some who support the excise tax have argued that it would lead employers to cut benefits and return the savings to employees in the form of higher wages. But fewer than one-fifth of the Mercer survey respondents (16%) said that they would raise wages in response to lower health care plan costs.

More than half of responding employers (52%) favored the individual mandate included in the House and Senate bills, 37% opposed it, and 11% had no opinion. The largest employers (those with 5,000 or more employees) overwhelmingly (65%) favored the individual mandate, but fewer than half (45%) of the small employers supported it However, the majority of employers (86%) agreed that if individuals were required to have coverage, Congress should allow employers and insurance companies to offer low-cost catastrophic plans. Limited coverage catastrophic plans would not be allowed under the current House and Senate proposals.

As health care costs continue to rise, the proposed tax is predicted to apply to about one-fifth of all employers if it becomes effective in 2013, Mercer noted. The percentage of employers affected by the cap would increase annually because the Act proposes that the baseline trend be raised by the annual Consumer Price Index plus 1%, which is about half the average health care trend, Mercer explained.

“For many employers, it’s a matter of when, not if, they will hit the cap,” said Linda Havlin, a partner with Mercer. “While some policy analysts expect the cap would prompt employers to make major changes to cut back on excessive health care spending, it’s important to note that not all the plans that would be subject to the tax are particularly generous. There are other factors beside plan design that drive up cost.”

In a fact sheet it released yesterday, the U.S. Department of Health and Human Services listed potential benefits to business of health reform, using a Congressional Budget Office (CBO) report issued last week (and discussed in one of our posts). The CBO. estimates that, under reform, large business premiums will drop by $100 per single policy and $200 per family policy. With 134 million people enrolled in such coverage, this translates into at least $13.4 billion in savings in 2016 alone, HHS noted. And at least $13.4 billion in savings for large businesses. Opening up health insurance options also would ease job-lock which prevents workers from moving to other jobs or entrepreneurship for fear of losing health insurance.

[Business] “Roundtable companies sponsor health insurance for some 35 million employees,” a December 6 Wall Street Journal editorial titled “CEOs and ObamaCare,” noted. “Not only would their wages continue to be depressed as costs continue to accelerate [under the proposed health care reform legislation], but large and unpredictable costs would remain on corporate balance sheets.” The Business Roundtable is an association of chief executive officers of large U.S. companies The Journal claims that the Roundtable’s member employers are activating for stronger public opposition to the current health reform proposals.

So, which will it be?--Will employers be winners, or losers, when pending health reform legislation is enacted?


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