Sometimes lost in the furor surrounding health reform is the fact that the Patient Protection and Affordable Care Act (PPACA) will affect some employers far more than others.
When asked to estimate the cost impact of the key provisions that go into effect in 2014, a recent survey of 1,203 employers conducted by Mercer found that 60% expect some increase in cost; one-third of those expect an increase of 5% or more.
The employers that will be hit hardest are those with large part-time populations – employers in retail and hospitality services. Nearly half of these employers (46%) expect PPACA will push up cost by at least 3% in 2014 – and another third don’t yet know what the impact will be. Employers in the health care industry are also more likely to expect sharp cost increases (40% expect a cost impact of at least 3%). By contrast, just 31% of respondents in service industries expect that PPACA provisions will result in increases of this size.
- Few survey respondents – 6% – believe it is likely that they will drop their medical plans after the public insurance exchanges come online. This rises to 9% among retail and hospitality employers.
- Employers have a lot to do to prepare for reform – especially those that were waiting to develop a strategy until the Supreme Court decision (56% of survey respondents). While 11% will continue to wait until after the November elections, most will now move ahead.
- Short-term, employers need to produce and distribute summaries of benefits and coverage (SBCs) and more than a third of respondents (36%) say they haven’t yet begun or are behind schedule.
- Employers are doing better with other near-term tasks, include preparing for 2012 W-2 form reporting in early 2013, implementing the new $2,500 cap on health care flexible spending account contributions and implementing coverage with no cost-sharing for women’s preventive services under non-grandfathered plans – about three-fourths say these tasks are on schedule or complete.
“With health benefit cost already rising at twice the rate of general inflation, an additional increase of 3% or more will be very tough for employers to absorb,” said Sharon Cunninghis, leader of Mercer’s US Employee Health & Benefits business.
The major provisions of PPACA scheduled to take effect in 2014 affect employers with large numbers of part-time and low-paid workforces. For example, beginning in 2014 employers will be required to extend coverage to all employees working 30+ hours per week or face possible penalties.
About a fourth of all survey respondents said they will have to take action to avoid possible penalties. This ranges by industry, from just 16% of financial services employers to 46% of employers in retail and hospitality.
“Extending coverage to more employees will be a significant new expense for these employers,” said Tracy Watts, US health care reform leader, “especially because other provisions regulate how much an employer can require employees to contribute to the cost and how good the coverage must be.”
Also, in companies where pay is low, employees who are eligible for coverage are more likely to opt out of enrolling. For example, among large wholesale/retail and health care employers, opt-out rates average 19% and 18%, respectively, compared to just 8% among transportation, communication and utility companies, where pay is higher. Once the individual mandate goes into effect – which will require all individuals who can afford coverage to obtain it (or pay a penalty) – employers with high opt-out rates could experience a significant increase in enrollment.
How will these employers respond?
How employers will respond to the rule to extend coverage to all employees working 30 or more hours per week seems to depend largely on how many additional employees could potentially gain coverage. In industries that typically don’t use many part-timers, like manufacturing, employers that are not already in compliance are likely to make employees eligible for the full-time employee plan or add a new, low-cost plan for the newly eligible employees (68%). On the other hand, retail/wholesale employers not currently offering coverage to all employees working at least 30 hours a week are more inclined to change their workforce strategy so that fewer employees meet that threshold – 67%, compared to just 41% of manufacturing employers likely to take this approach.
States’ ability to opt out of Medicaid expansion adds complications
Employers that were counting on some of their low-paid employees qualifying for Medicaid when it expands to include individuals with household income less than 133% of the federal poverty level (FPL) may have to rethink their plans in light of the Supreme Court ruling that makes it easier for states to opt out of the expansion. A fifth of survey respondents have benefit-eligible employees earning less than 133% of FPL; in industries with large part-time populations this rises to as much as 50%.
Governors in some states – Florida, South Carolina and Louisiana – have already declared their intention to opt out of the expansion, but it’s too soon to tell whether or how much they might expand their Medicaid programs, especially because the federal government will initially pick up the entire cost of covering newly eligible individuals. “Because state Medicaid eligibility already varies greatly, it’s difficult to predict what states will do about expanding their programs to more individuals, and the impact of their decisions on employers,” said Branch McNeal, leader of Mercer’s Government Consulting business.