How Are Employers Responding to the Health Care Law?
The good news is companies seem to have moved beyond having to explain and rehash the Affordable Care Act’s major regulations and instead are now discussing how to respond to those regulations.
In 2014, more than 2,800 employers responded to a survey on health care reform to better assess how corporations nationally were adjusting to the new law. Are there aggressive changes? A wait-and-see stance? Is the response somewhere in between those goal posts?
What’s clear, and not at all surprising, is employers have their hands full. Most said the law has increased their administrative burden. That burden includes communicating with employees about public exchanges, tracking and reporting hours, and eligibility and certification of plans. More than a third of respondents said complying with those administrative demands was a “very significant” concern. Another 44 percent said it’s a “significant” concern.
Despite the extra administrative pressure, 76 percent of the employers surveyed are not considering a change in strategy. Some employers — one out of ten survey respondents — said they’ve reduced workers’ hours, or will do so by 2015.
What Are Employers Doing or Thinking?
A small number of employers have had success reducing their health care obligation by instituting a surcharge for covering spouses who have access to health insurance at their respective jobs. Survey respondents with spousal provisions reported 13 percent of covered spouses exited the plan the first year.
Overall, employers have not had to make major changes to meet the affordability requirements of the health care law. Employers in the hospitality industry were most affected, with 24 percent of survey respondents saying they’ve made changes to comply this year and another 18 percent of employers in the hospitality industry saying they plan to make changes next year. In both hospitality and retail, many employers were no longer able to offer “mini med” plans to their part-time or ineligible employees. Many are now exploring facilitating access and enrollment in public exchanges via intermediaries.
The Cadillac Tax
The next highest response to the question asking employers about their level of concern came from those who said the law would force them to pay an excise tax on high-cost plans. Beginning in 2018, any company health plan with employee premiums exceeding annual limits of $10,200 for individual coverage and $27,500 for family coverage will be assessed a 40 percent excise tax on the dollar amount.
The law’s architects designed the tax to both slow the growth rate of health costs and finance the expansion of health coverage. It’s often dubbed the “Cadillac” tax because it targets those plans giving workers extra benefits, beyond what may be necessary.
The Cadillac Tax does not adjust for demographics or morbidity (health status) of the population measured, meaning there are no “outs” for plans exceeding the defined cap.
Only about one out of ten employers offer a plan near the law’s minimum requirement, even when they offer multiple plans. The average employer plan’s actuarial value is between 80 and 86 percent, but the legislation’s minimum is 60 percent. That’s quite a difference. The average plan value in the survey was roughly equal to the gold plan offered on the public health care exchange. This indicates the health care law has effectively established a new floor, or threshold for plan design. Many employers are likely to be offering plans close to the “floor” as an alternative not as a replacement, in anticipation of what may come in 2018.
With proper planning and realigning, employers may be able to avoid the tax. Employers have taken several measures to lessen the impact of the excise tax, including instituting wellness programs. They’ve also raised deductibles or implemented other cost-sharing provisions, like adding consumer-directed health plans and unbundling dental and medical coverage.
Though only two percent have moved to a private exchange so far, a third said they were considering a move. Some employers see private exchanges as a way to minimize the impact of the excise tax by giving employees choices of lower-cost plans in a consumer friendly experience.
The ground swell of employers directing employees to private exchanges is growing faster than analysts initially expected. It’s really following the same pattern as the retirement world. Faced with rising expenses and risks, employers began shifting away from traditional “defined benefit” pension programs nearly 30 years ago. The emergence of employee-funded 401(k) plans in the early 1980s forever changed retirement benefits with 401Ks allowing or requiring participants to choose their investments. This theme has been carried into the private exchanges where employees may choose from multiple insurance companies and plans.
One of the benefits of the consumer-directed health plan is employees typically only buy what is necessary, because it’s their money. It is common knowledge that most people with employer-sponsored health insurance buy far more coverage than they need. The so-called ‘right sizing’ of benefits occurs when employees use money from their employer, themselves, or a combination of the two to purchase benefits that best fit their family’s needs.
The results of ‘right sizing’ benefits are quite dramatic . . . buying behavior changes when employees use their own money in a private exchange. Employees in an exchange tend to buy lower cost plans, reducing their plan cost by an average of 8.5 percent. The savings can accrue to the employer, the employee, or both depending on contribution design. Either way, the savings is significant. On average, ‘right sizing’ medical benefits combined with other savings within a private exchange resulted in an average savings of $800.
Care Management = Cost Savings
The previous savings outlined above focus on eligibility, plan design and choice (within a private exchange). To continue to address the impact of ACA there’s a seismic shift in health care to improve care delivery and quality, while simultaneously lowering per capita costs.
Across Texas, communities are implementing their own cost-saving strategies. In an informal survey of North Texas health plans sponsoring exchanges, it is apparent that small, efficient networks are driving much of the cost savings. The efficient network, or concentric network concept, focuses on delivering health care to a specific population within a fully integrated network of high-quality providers. Typically, contracting with a specific health system accomplishes this cost-saving integration. The payoff for concentrating the population, fully integrating care and leveraging the financial arrangements will result in higher quality and lower cost.
The cottage industry system is moving to one with more cooperation from physicians, hospitals and ancillary providers. Fragmented care — where a patient hopscotches across town to piecemeal care for their medical condition — has given way to continuum care, with a coordinator incentivized to drive efficiencies in the patient’s care management journey. In this new era of health care, caregivers will receive fewer payments for individual health care services. Instead risk-adjusted outcomes will determine their payments.
Are We There Yet?
Even with many questions about the legislation’s “survivability,” the drive it has created to control expenses, manage eligibility and improve health care delivery should survive whatever happens to the legislation.
Mercer MarketPlace Results, 2014
Eric Bassett is a senior partner and leader of Mercer’s Health and Benefits business in the Central market, based in Dallas.