Employers Foresee Increased Costs From Health Reform Law

Although one-fourth of employers anticipate that compliance with six major mandates of the Patient Protection and Affordable Care Act (P.L. 111-148), will boost their health care costs in 2011 by at least 3%, the greater proportion (41%) of employers see modest increases of 2% or less, and 30% did not know what the impact would be.These are among the findings of a recent survey by Mercer of nearly 800 employers.

In the survey, Mercer asked employers about the estimated impact of six mandates in the Affordable Care Act. The excise tax on high-cost plans (IRC Sec. 4980I, as added by Sec 9001(a) of the Affordable Care Act), which first takes effect in 2018, is of highest concern to employers—29% view it as a significant or very significant concern, another 29% see it as a “concern,” and 42% think it is not an issue or of slight concern.

The dependent coverage expansion to adult children up to age 26 (PHSA Sec. 2714, as added by Sec. 1001(5) of the Affordable Care Act) and the ban on lifetime dollar limits (PHSA Sec. 2711(a)(1), as added by Sec. 1001(5) of the Affordable Care Act), both effective in 2011, are each of significant concern to one-fifth of employers. Only 6% of survey respondents currently extend coverage to dependent children up to age 26. And although many insurers have agreed to begin to extend dependent coverage to adult children before the provisions’ effective date, for plan years beginning on or after Sept. 23, 2010, only about one-fourth (24%) of the survey respondents that don’t already cover children up to age 26 say they are likely to begin before their next renewal, which for most plans is January 2011. Large, self-insured employers are even less likely to act before they have to, Mercer reports: among respondents with 5,000 or more employees, just 16% say they are likely to implement this provision early.

To offset the potential increased cost of adding adult children to dependent coverage, half of surveyed employers would seriously consider requiring proof that adult children do not have coverage available to them through their own employers (before Jan. 1, 2014, grandfathered plans can exclude from dependent coverage adult children who have coverage available through another employer). One-fifth would seriously consider changing contribution rate tiers – for example, from just two rates for employee-only and family coverage, to four or more rates based on the number of dependents covered, shifting the additional cost to employees covering the most family members. Others (16%) likely will require higher contributions for all dependent coverage.

Another major provision of concern to employers is the requirement that they offer affordable coverage to part-time workers working an average of at least 30 hours per week during one month (IRC Sec. 4980H(c)(4)(A), as added by Act Sec. 1513(a) of the Affordable Care Act). This provision is of particular concern to retailers, 24% of them expressed a high level of concern, who use mostly part-time workers. Among the 26% of respondents that currently do not comply with the part-time worker health coverage offer, which goes into effect in 2014, one-fifth say they will strongly consider changing their workforce strategy so that fewer employees work 30 hours or more a week; 16% will strongly consider adding a lower-cost plan for these newly eligible employees rather than adding them to an existing plan for full-time employees. Few (8%) say they would pay the required penalty rather than make no or minimal changes to increase the number of eligible employees.

Automatically enrolling new hires in an employer-sponsored plan also is of significant concern for 16% of employers (FLSA Sec. 18A, as added by Sec. 1511 of the Affordable Care Act). Currently, the great majority of employers (88%) do not automatically enroll new hires into one of the employer’s plans. More than two-fifths (43%) of employers are strongly considering using the lowest cost plan as the default enrollment option (23% offer only one plan), and about one-fifth is considering imposing the maximum allowable waiting period (90 days) for eligibility.

Only 7% of respondents found of significant concern  one other provision, that a plan pay for 60% of covered services to be a qualified plan in 2014 (Sec. 1301 of the Affordable Care Act).

“Average health benefit cost per employee has been rising consistently at about 6% for the past five years,” said Tracy Watts, a consultant in Mercer’s Washington, DC, office. “That seems to be employers’ threshold of pain. If compliance with health insurance reform pushes the cost increase up toward double digits, employers will be exploring ways to bring it back within their comfort zone.”

For a comprehensive analysis of the Patient Protection and Affordable Care Act, including the full text of the law and additional information on health reform and other developments in employee benefits, just click here.