Report: Costs of PPACA exceed previous estimates
By Kathleen Koster
July 15, 2010
Two integral provisions of the health care reform legislation, “dependent eligibility” and “affordability,” will likely result in much higher health care costs for employers than previously estimated by government officials and other industry consultants, according to a new report.
The bswift Special Report on the Impact of Health Reform on Employers analyzes the 2010 benefits premium, contribution and dependent data of 242 bswift client organizations. The sample includes mid-sized and large employers with 50 to 15,000 employees representing a variety of industries, including retail, manufacturing and professional services.
“The bswift Special Report highlights the dramatic differences in impact of PPACA among employers. For some, the impact is negligible. For many others, PPACA may increase costs substantially for 2011 and may also require a complete overhaul of the organization’s health strategies in the next three years,” says bswift CEO Rich Gallun.
“Dependent eligibility” provision’s impact on employers
HHS had originally determined the effect of requiring organizations to cover employees’ children up to age 26 to be 0.7% of total health care costs for employers. On the other hand, the bswift Special Report found the likely impact to be 1.6%, more than double the initial HHS estimate.
The HR and benefits administration firm looked at the statistical median and discovered that a company with 1,000 enrolled employees and a median health premium cost of $8,325 per employee annually is likely to experience $133,200 in additional costs for 2011 because of this provision.
Nevertheless, the bswift Special Report found a widely disparate impact of the provision among employers.
On the high end of the spectrum, the impact could be more than 13% of an employer’s total health care costs. On the low end, the impact could be less than 0.3% of total health care costs.Impact varies based on size, age and family composition of the company’s workforce, as well as the employer’s current dependent eligibility rules.
In order to minimize employee confusion surrounding the dependent eligibility extension and reduce administrative hassle, many companies have already changed their dependent eligibility rules in advance of the law’s 2011 deadline, analysts at bswift found.
The “affordability” provision’s impact on employers
Companies with more than 50 employees will face stiff penalties beginning in 2014 if they do not offer full-time employees an affordable health plan option that costs less than 9.5% of the employee’s total household income.
Under the provision, the new law will penalize employers $3,000 per year for each full-time employee who receives a federal tax credit or subsidy to buy coverage within a state-based insurance exchange because his or her health plan is considered unaffordable. To qualify for the credit, employees must disclose household income information to the government.
Using employee salary data, bswift analysts estimated an organization’s risk of failing the “affordability” test in 2014. They uncovered that 52% of employers are likely to have more than 5% of employees in the “danger zone” (who pay more than 9.5% of their compensation for health premiums).
Again, bswift looked at the statistical median and found that a company with 1,000 employees is likely to have 5.8% (58 employees) in this “danger zone,” which entails $174,000 annually in penalties or 2% of the employer’s total health care costs.
Unfortunately, some employers face a more expensive problem. For employers with more lower-salaried employees and less generous health contributions, the “affordability” provision has even more costly repercussions.
In this case, bswift found that a company with 1,000 employees and 20% in the “danger zone” could experience penalties of $600,000 annually or 7.5% of the employer’s total health care costs.
Overall, the bswift Special Report finds that approximately one in three employers has more than 20% of their employees in the “danger zone.”
“For employers, this legislation puts a whole new level of urgency not only around compliance but also around the evolution of their health and employee benefit strategies. In response to PPACA, employers are modifying their health plans and employee contribution programs for 2011 and beyond. We are also seeing employers re-visit how health care fits into their employees’ total compensation package,” says Gallun.
The bswift CEO concludes, “As employers modify their health programs over the next several years, the role of the Exchanges should remain top of mind – not just as a negatively perceived ‘dumping ground’ (‘Pay or Play’) but rather as an opportunity to refine the implicit health care contract between employer and employee. Some leading edge employers are looking seriously at a Defined Contribution approach – with the Utah Health Exchange and also in the large employer market – as an incremental pathway out of the relentless burden of providing increasingly expensive health coverage to employees.”
Source: Employee Benefit News article used by permission
Tags: Costs of PPACA exceed previous estimates, impact on employers, PPACA