Dealing with the Effects of PPACA

We think it’s pretty important to stay on the forefront of the research, and we like it even more when the research parallels what we’re finding in our day to day work with your clients. Last week, the International Foundation of Employee Benefit Plans (IFEBP) released results from the third survey in a series dealing with the effects of PPACA on single employer plans. The responding 968 employers were asked questions about the actions they’ve already taken and anticipate taking in the next two years as a result of PPACA. We reviewed the results and would like to share some of our insights.

Eliminating Coverage

A key finding was that only 1% of respondents stated they will definitely not provide coverage to all full-time employees in 2014, with 95.3% at least somewhat likely to continue to offer coverage. This is a dramatic shift from the 30-50% of employers likely to drop coverage reported in the June 2011 McKinsey Quarterly and more consistent with what we’ve seen from the over 600 employers on our CHROME Compass platform.

Doing the footwork

Curiously, employers have shifted their view on offering benefits coverage but many have not conducted an analysis on the impact of health care reform on their organization. The findings in the survey are somewhat conflicting with a reported 47.2% of respondents stating they “have conducted an analysis on how health care reform legislation will impact their health care plan costs,” but only 24.9% of respondents stating they “have modeled the impact of reform on our organization.”

Regardless, even in a best case scenario, slightly more than half of all employers have done nothing to anticipate the impact of health care reform. 

Nearly 70% of respondents expect increased benefits costs in 2012 due to health care reform, and even more interestingly, “those reporting their organizations had analyzed costs are slightly less likely to predict a cost increase”. In other words, slightly more than two thirds of employers surveyed are expecting a cost increase, but those expecting an increase are more likely to have not conducted a cost analysis. Perhaps this is because, in our experience, if employers do the math at a very granular level, they gain insights about health care reform that might actually allow them to lower their health benefits costs. Employers who have not done the analysis are influenced by the political debate instead of the facts as they apply to their particular situation.

Anticipating the Costs

Also consistent with what we have seen, respondents are already making changes to deal with increased costs, either thru increased contributions or plan design changes, and if they haven’t, they are planning to do so in the next two years.

The most popular strategy currently in use is increasing participant premium contributions (23.1% of employers). In the next two years, the most popular strategy employers plan on using is increasing contributions for dependent coverages (20.1%).

Despite the popularity, or perhaps because of it, we do issue a caveat on that strategy alone: PPACA has provided employers with new benchmarks as to what is considered “affordable” contributions. With somewhere between only 24% and 47% of employers having conducted an analysis, some of these employers may be making shifts blind to the impact it will have on their plans in 2014. While their decision to increase contributions may be the correct strategy, if they have not conducted the analysis, they might not fully appreciate the implications in light of the affordability benchmarks of PPACA.

Extending coverage to adult children (up to age 26) was identified as the top cost driver by 38.7% of respondents, more than any other one driver. Three major carriers recently stated that, regardless of the Supreme Court’s decision, they will continue to allow coverage for adult children, putting pressure on employers to continue to offer this popular and costly benefit to their employees.

Employers are also taking other measures to contain costs such as plan audits or analyses, with the most popular tactic being dependent-eligibility audits. Of the employers surveyed, 18.7% had already conducted a dependent audit and 14.7% are planning on conducting one in the next two years. These findings are consistent with the growth in dependent audits we have seen at ContinuousHealth:  100% growth year over year in initial audits, and nearly 200% growth in ongoing audits since PPACA. As we mentioned a few weeks ago, contrary to the pervasive belief that PPACA has decreased the need for dependent audits, we’ve seen average rate of ineligibles grow from 6.5% to 7.99%. Survey results seem to indicate that employers see this continued need as well.

Proactive, not Reactive

Based upon the current law, the major changes established in health care reform will take place in 2014, but employers have to make changes to their benefit plans now as a response to continuing price increases in excess of inflation. For most employers, there are still two open enrollments left before the bulk of the changes become effective. This survey highlights the fact that the majority of employers are making tactical decisions about their benefit plans without informed analysis regarding the single greatest external event to affect employee benefits in our lifetimes.

As Mark Bertolini (CEO of Aetna) said recently in a Wall Street Journal interview, PPACA has provided a catalyst to change the conversation around employee benefits. While not all employers will specifically change their strategies based upon healthcare reform, feedback from our clients leads us to believe enough employers will make adjustments. These adjustments are likely to influence the overall marketplace.  We believe the employers who “sit this one out” will be at a disadvantage as they attempt to align their investment in employee benefits with their recruitment and retention programs.

This article was first featured in the June 19th edition of our e-newsletter, Directions. If you'd like to receive that weekly email, contact directions@continuoushealth.com. (Your email will never be shared, sold, or otherwise distributed, and you will receive only the type of content for which you sign up.)

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