Healthcare costs remain the top concern of CFOs, according to a recent survey, and the Obama administration’s decision to give companies another year to comply with the requirement to provide insurance for all full-time workers isn’t likely to improve the outlook for next year’s cost increase.
Last month, the government announced that the employer mandate of the Affordable Care Act (ACA)—which says companies must offer health coverage to all employees who work 30 hours a week or more, or else pay a penalty—has been delayed until 2015. That postponement gives companies more time to rework their healthcare offerings. But they still face higher costs in 2014 related to fees and other plan changes mandated by the ACA, as well as the possibility that more employees who are already eligible for health coverage will sign up as the law’s individual mandate kicks in.
Plan changes that go into effect starting in 2014 include a 90-day limit on eligibility waiting periods and limits on the out-of-pocket maximums for new self-insured plans, said Tracy Watts, U.S. leader for healthcare reform at consultancy Mercer. There are also new fees coming next year, most notably the transitional reinsurance fee of $63 per participant.
“All of these things add up, and they end up costing 2% to 3%” of health plan costs, Watts said
While the employer mandate has been postponed, she predicted some companies will go ahead and provide expanded coverage in 2014, especially if they’ve already started to talk to their employees about it. But companies that will take a financial hit from expanding eligibility will take advantage of the postponement and wait for 2015, she said.
“We’ve definitely seen cases where employers were looking at expanded coverage, but they’re now going to defer on that till 2015,” said Geoff Kuhn, a senior vice president at consulting company Aon Hewitt.
One area of uncertainty is how many employees who don’t currently use their company coverage will sign up next year. Watts said 16% to 18% of workers currently opt out of company health plans, with the percentage much higher in some industries, such as retail.
“One of the big questions that employers have been struggling with is: When we go through open enrollment with the individual mandate, does that mean that people might come into the plan that haven’t been enrolled?” Watts said. “Obviously the more people who are covered in your plan, the more it costs.”
The individual mandate isn’t the only factor that could encourage more employees to sign up for coverage, she said. If employees were getting health insurance through their spouse because the spouse’s plan had better benefits or lower costs, they may shift back to their own company’s plan if the spouse’s plan becomes less generous. “It could be you attract employees back into your plan because you’re trying to maintain something that isn’t the standard in the market,” Watts said. “If you’re the last one to change, you’re going to be that dependent magnet.”
Steve Wojcik, vice president of public policy at the National Business Group on Health (NBGH), an organization that represents large employers on healthcare issues, argued that companies will also start to see higher costs next year as healthcare providers like hospitals and doctors charge private payers more to offset the smaller payments they get to treat individuals covered by Medicaid or through public exchanges. “We call it shifting revenues to private payers, especially employers and others who are more generous in terms of paying for care,” Wojcik said.
A Mercer database that tracks negotiated network arrangements between insurers and their customers does not show any upward pressure from such shifts, said Watts, pictured at left. But she added, “As Medicaid grows, that could certainly put pressure on the system.” She doesn’t expect that kind of pricing pressure from the public exchanges, though. “From what I’ve seen so far they are going to advantage their costs through more narrow networks or their plan design features,” Watts said.
A recent survey of CFOs by Bank of America Merrill Lynch points to the extent of businesses’ worries about healthcare costs, with 58% of CFOs citing such costs as their top concern, up from 56% in 2012. That was far and away the CFOs’ top worry; revenue growth, which came in second, was cited by just 43% of CFOs.
Watts noted that healthcare reform has already spurred big changes in companies’ health plans, changes that have moderated the pace at which healthcare costs are growing. Mercer’s annual survey of 3,000 employers found healthcare costs rose just 4.3% last year, the lowest annual increase in 15 years, she said. Watts cited a big increase in the number of employers that offer consumer-based plans and a pick-up in enrollment in those plans.
Of course, last year’s 4.3% rise in healthcare costs was still significantly higher than overall inflation; the U.S. consumer price index rose just 1.7% in 2012. NBGH’s Wojcik argued that the ACA does nothing to limit the rate of healthcare cost increases.
“Rising healthcare costs, that really hasn’t been dealt with yet,” he said. “That’s the thing we really need to tackle: the payment and delivery reforms that will drive down costs, as opposed to our current payment and delivery system, which drives up healthcare costs.”
Aon’s Kuhn agreed. “Healthcare reform is going to give more people access to coverage, but we think the net impact of the fees and everything else in healthcare reform is likely to do more to push healthcare costs up than push costs down,” he said.
“The one piece where there’s some potential hope is exchanges and people competing for consumers,” Kuhn said. “We think there’s the potential for some innovation in the market. That’s where we need to get to to bring down healthcare costs.”