Employers Anticipate HCR Driven Cost Hikes

May 20, 2010 (PLANSPONSOR.com) – A new Mercer survey finds a quarter of the 791 employers polled are looking for health care reform to tack on at least 3% in additional costs to their 2011 plan expenses and one in 10 are looking for a 5%-cost hike or more.

Two-fifths (41%) predict a relatively modest increase of 2% or less, and 3% said their plans are already in compliance and would see no cost increase, Mercer said. The remaining 30% could not estimate the impact.

“Average health benefit cost per employee has been rising consistently at about 6% for the past five years,” said Tracy Watts, a consultant in Mercer’s Washington, DC, office, in a press release. “That seems to be employers’ threshold of pain. If compliance with health insurance reform pushes the cost increase up toward double digits, employers will be exploring ways to bring it back within their comfort zone.”

Dependent Coverage

Also in the polling results were indications that comparatively few employers would implement provisions dealing with dependent coverage of adult children before they have to despite the number of insurers announcing they would put the provision into effect early (see UTC Extends Adult Dependent Health Coverage Early ).

Only about one-fourth of the survey respondents that don’t already cover children up to age 26 say they are likely to begin before their next renewal, which for most plans is January 2011. Large, self-insured employers are even less likely to act before they have to: Among respondents with 5,000 or more employees, 16% say they are likely to implement the rule early.

Only 6% of survey respondents currently extend coverage to dependent children up to age 26.

Dependent Coverage Cost Offsets 

Mercer's survey found employers are considering a number of possible actions to take to offset the increased cost that adding adult children dependents can bring.

About half of surveyed employers would seriously consider requiring proof that dependents do not have coverage available to them through their own employers. A fifth would seriously consider changing contribution rate tiers – for example, from just two rates for employee-only and family coverage, to four or more rates based on the number of dependents covered, shifting the additional cost to employees covering the most family members.

Others (16%) say they are likely to simply require higher contributions for all dependent coverage.

Meanwhile, the health reform law’s excise tax on high-cost plans, which takes effect in 2018, emerged as employers’ top concern despite the fact that it is the last provision to be implemented. While other provisions hit from 2011 through 2014, the excise tax poses a significant or very significant concern for 29% of the survey respondents (an additional 29% say it is “a concern” while 42% say it is either not an issue or only a very slight concern). 

The requirement that employers auto-enroll new hires into a health plan, is a significant concern for 16% of respondents. Some 88% currently do not automatically enroll new hires in a plan.

Employers are already considering how to manage the cost of the auto-enrollment requirement. About 43% of the survey respondents say they will strongly consider using their lowest-cost plan as the default (another 23% only offer one plan). About a fifth of the employers say they are strongly considering imposing the maximum allowable waiting period – 90 days – before enrolling new hires.

The rule that employers must offer “affordable” coverage to all employees working an average of 30 hours or more a week in a month (or else be subject to penalties) is a significant concern for 24% of respondents in the retail industry, which relies heavily on part-time labor, the survey found. This compares to just 11% of survey respondents overall.