Employers expect compliance with the health care reform law to account for nearly one-third of the projected 10% average increase next year in health benefit costs, but most are taking steps to keep that increase at or below 6% — a move that will cause many to lose grandfathered status, according to a survey by Mercer LLC.
Small employers will feel the pinch more than large employers, according to the survey, which found that companies with fewer than 500 employers expect that Patient Protection and Affordable Care Act requirements will add about 3% to their 2011 health care tab, pushing their annual rate of increase up to 11.7%.
By contrast, employers with 5,000 or more employees expect that PPACA compliance will add only about 1.9% to their annual increase, which is expected to crest at 9.1%; employers with 500 to 4,999 employees project that health care reform will add 2.2% to their 9.7% projected cost increase next year.
Towers Watson consultants predict a 1% to 2% cost increase resulting from the addition of preventive services alone.
HIGHER PROJECTIONS
The projections are significantly higher than the 1% average added cost that members of the National Business Group on Health projected in a survey conducted this summer, perhaps reflecting the fact that many of the employers responding to that poll hadn't yet calculated precisely how much the mandated plan design changes will cost them.
In fact, that is why Chris Whipple, executive director of the Pittsburgh Business Group on Health, is conducting a follow-up member survey this month, just before annual open enrollment begins.
“We did a survey of our members two weeks after reform passed, and 100% said they expected an increase in premiums, claim costs and administrative fees,” but at the time they didn't know how much the increase was likely to be, she said.
“In the follow-up survey, we will be asking whether they are seeing that increase and how much it actually worked out to be,” Ms. Whipple said.
The PPACA provision that costs employers the most is extending coverage to employees' adult children up to 26, said Beth Umland, Mercer's research director for health and benefits.
“Our actuaries have done the analysis, and extending dependent eligibility was the biggest-ticket item,” she said.
The No. 2 cost driver is eliminating lifetime limits on benefits, according to the survey. Seventy percent of employers traditionally have imposed such caps on benefits in preferred-provider-organization plans, Ms. Umland said.
Many employers planning to change their benefit plans next year to address rising costs also are finding that it will cause them to lose their grandfathered status, according to the Mercer survey.
If employers don't make certain changes to their health care plans, such as raising deductibles or out-of-pocket limits by more than 15 percentage points beyond the increase in medical inflation, their plans will be “grandfathered” and thus exempt from certain PPACA mandates.
However, for many employers, the cost advantages of making changes to their plans outweigh those of avoiding some of the reform provisions, Ms. Umland said.
GRANDFATHERED STATUS
Mercer's survey found that 32% of employers expect to lose grandfathered status for all plans, while 15% expect to lose it for at least one plan.
Increasing deductibles and/or out-of-pocket maximums by more than the allowed amount is the most prevalent action being taken by employers that will result in the loss of grandfathered status, the Mercer survey found. Although 35% of employers plan to make that change, 31% will increase the percentage of employee coinsurance, and 23% will increase copayments by more than the allowed amount of either $5 or less than 15 percentage points above rate of medical inflation.
“The rules [issued by the Labor and Health and Human Services departments, and the
Internal Revenue Service] for maintaining grandfathered status were tougher than many employers expected,” said Tracy Watts, a Mercer partner, who worked with Ms. Umland on the survey.
At the same time that employers are addressing near-term cost increases, they also are preparing for the possibility that their health care plans will trigger PPACA's excise tax on high-value plans. A survey conducted this summer by the International Foundation of Employee Benefit Plans found that 48% of respondents are focusing on redesigning their health plans so they remain under the threshold of $10,200 for individual coverage and $27,500 for family coverage in 2018, when the tax begins.
Joanne Wojcik is a senior reporter at sister publication Business Insurance.
