Although containing healthcare costs was one of the aims of reform, many companies expect to see some increase next year as a result of two of the law's provisions, according to a survey by HR consultancy Mercer. However, the survey found that companies are most worried about the Patient Protection and Affordable Care Act (PPACA) component that mandates a 40% excise tax on generous corporate health insurance plans, even though that tax doesn't go into effect until 2018.
Short-term cost increases involve the PPACA's requirement that starting with 2011 plan years, companies extend health benefits eligibility to employees' children up to the age of 26, as well as require that employers eliminate lifetime limits on health benefits. Asked about the effect of those two provisions, 13% of the almost 800 companies surveyed said they expect costs to rise less than 1%, while 28% cited a cost increase of 1% to 2%, 13% see costs rising 3% to 4%, and 12% said they expect cost increases of 5% or more.
The cost of the two provisions will vary depending on a company's circumstances, says Beth Umland, Mercer's director of research for health and benefits. "If an employer has a young workforce, they're not going to have a lot of adult children," Umland says. "Employers with an older workforce might be getting a lot of adult children coming on." She also notes that currently about 70% of employers impose lifetime limits on health benefits.
Mercer's actuaries estimate that making dependents eligible for coverage up to age 26 could increase companies' 2011 costs by .5% to 2%, while removing lifetime benefit limitations could boost costs by 1% to 2% for companies that use limits.
Among companies changing their rules regarding dependent eligibility, 49% say they're considering requiring dependents above a specified age to verify that they do not have access to other coverage, 20% are considering changing their premium tiers, 16% say they may charge higher premiums for all dependents and 12% are considering using more restrictive eligibility rules for their dental or vision coverage.
Cost increases triggered by the PPACA provisions would come on top of the regular annual cost hikes for health benefits, which Mercer notes have run about 6% a year over the last five years. Companies "have been working pretty hard at keeping the increase at that tolerable 6% average," Umland notes. "Now if they want to stay at that level, they have to work that much harder."
The excise tax to be imposed in 2018 was cited as the reform provision that worries them the most by 29% of the companies surveyed, followed by the extension of eligibility to adult children, which was cited by 20%, and the elimination of lifetime limits, cited by 21%.
Umland says that while the excise tax is a few years off, it could strike at the heart of some companies' approach to attracting and retaining employees. "The excise tax is pretty severe, 40% of the additional cost above the threshold," she says. "Employers are going to work pretty hard to avoid that, and that could mean benefits plans are moving down toward a mean. If you have a strategy of using a plan as a way to get people and keep them, that's a change."
A separate survey by Towers Watson found that while 90% of companies expect healthcare reform to increase the cost of providing health benefits, 46% say they will definitely continue to provide healthcare coverage and 42% say they're likely to continue providing health coverage.
For more about the adult dependent coverage requirement, see Under 26 Coverage?