Employers Say Highest Cost Impact of ACA Yet to Come

The Patient Protection and Affordable Care Act has increased health care costs for many employers, but the majority believe the largest cost increases are yet to come.

One-third of employers (33%) expect the greatest cost increase from Patient Protection and Affordable Care Act (ACA) implementation to take place in 2016, according to a new survey report, “2015 Employer-Sponsored Health Care: ACA’s Impact,” published by the International Foundation of Employee Benefit Plans.

More than one-quarter (27%) expect the largest cost increase in 2018, which is the year the impending excise tax, or Cadillac tax, takes effect. Twenty percent expect this Cadillac tax to be their future top cost driver, followed by general administrative costs (19%) and costs associated with reporting, disclosure and notification requirements (13%).

“The extensive amounts of data that employers are required to collect can take hours of manpower and even require complex IT infrastructures. The process has meant a cost increase for many, especially smaller organizations,” says Julie Stich, director of research at the International Foundation.

Most employers (71%) think the costliest years are yet to come, but that doesn’t mean they aren’t already feeling a financial impact. Eighty-two percent say the law is increasing their organization’s costs this year, with most projecting a 1% to 6% increase.

The unknown outcome of the pending ACA Supreme Court case, King v. Burwell, adds to employers’ uncertainties about the future. Nine in 10 organizations say they are following the discussion surrounding this case, which involves critical questions about the use of federal government premium subsidies within certain federally-run health care exchanges not established by one of the states.

Employers are taking a number of steps to help control costs due to the Affordable Care Act. 

A significant number report that, due to the law, they have increased their emphasis on, have added or are considering adding a high-deductible health plan (HDHP). Forty-two percent have or are considering an HDHP with a health savings account (HSA) component, while 13% are considering an HDHP with a health reimbursement arrangement (HRA). Another 11% are examining or implementing an HDHP with no supplemental account. Nearly one in 10 organizations has adopted a full-replacement HDHP due to ACA requirements, and an additional 19% are considering doing so.

"As employers face the upcoming Cadillac tax, it's likely that HDHPs will continue to gain popularity," says Stich.

The survey found that slightly more than half of the employers are on pace to trigger the Cadillac tax in 2018, but only 3% actually plan to pay the tax. Of those looking to avoid the tax, 53% have added or plan to add a high-deductible health plan. Thirteen percent report they will not incur the tax because they have already taken action to avoid it.

Despite the three in five respondents who feel the law has had a negative impact on their organization, nearly all employers (96%) anticipate they will be continuing to offer health care coverage five years from now.

"Health care benefits are seen as essential for attracting future talent and retaining current high-quality employees," says Stich. "Employers may change the structure of their health care plans or shift some of the cost burden to their employees, but it doesn't appear they will stop offering health care benefits anytime soon."

The survey was conducted in March and is the sixth survey in a series about how single employer plans are being affected by the Affordable Care Act. Responses were received from 598 human resources and benefits professionals in the databases of the International Foundation of Employee Benefit Plans and the International Society of Certified Employee Benefit Specialists (ISCEBS). The organizations represent a wide base of employers from nearly 20 industries and range in size from fewer than 50 employees to more than 10,000.

Download the full survey report at www.ifebp.org/ACA2015.