Employers See More Cost and Less Benefit from Health Care Reform

May 25, 2010 (PLANSPONSOR.com) - Few employers believe that the recently enacted Patient Protection and Affordable Care Act (PPACA) will stem the tide of rising costs, according to a May 2010 survey by Towers Watson.

When asked how important specific health care reform goals were to their organization, 96% of respondents pointed to the containment of health care costs as an essential or high priority, 88% said encouraging healthier lifestyles, and 75% pointed to the improvement of quality of care. However, nearly all employers (94%) believe that health care reform will raise their organization’s costs, 61% believe reform will have a minimal effect on encouraging healthier lifestyles, and 73% believe it will have either a negative or no impact on the quality of care.   

According to a Towers Watson press release, in order to cope with anticipated cost increases, employers plan on:

  • Passing on increases to employees (88%)
  • Reducing health benefits and programs (74%)
  • Absorbing costs in the business (33%)
  • Passing on increases to customers (20%)


Despite these anticipated increases, nearly three-quarters of all large employers (74%) indicated they expect to continue to provide subsidized health care coverage for active employees.   

Employers remain committed to many of the initiatives offered prior to health care reform, which were designed to hold the line on rising medical costs and improve employee health. Only 12% of employers said they would eliminate or reduce their wellness/health promotion programs in the wake of health care reform, and 48% of employers believe that reform will increase employer offerings of wellness programs.

In addition, employers expect health care reform will result in an increase in adoption of total replacement consumer-directed health plans (58%), and transparency of provider prices (37%) and of provider quality (35%).   

Although employers remain firmly committed to providing health benefits for active employees, the same cannot be said for their retirees. Most employers surveyed (77%) believe that reform will reduce the number of large employers offering employer-sponsored retiree health benefits, and 43% of employers that currently offer retiree benefits plan to reduce or eliminate them.   

This trend is even more pronounced for employers likely to be subject to the excise tax on expensive plans, the announcement said. Of that group, 55% are likely to eliminate or reduce retiree medical programs.

Health Care Reform Drivers of Cost  

The Towers Watson survey found the primary cost driver that will affect many employers is the implementation of an excise tax cap on high-cost benefit plans. Nearly half (43%) of the employers surveyed believe they will be subject to the excise tax. 

Based on average annual cost projections, Towers Watson estimates that the tax cap will affect more than 60% of employers by its first year of implementation in 2018, with many more to follow soon after.   

The requirement for employers that offer dependent coverage to extend coverage to employees’ children up to age 26 will also drive up costs. Only 16% of survey respondents indicated that they would implement this coverage extension before the mandatory deadline, and 78% said they would wait until 2011.  

As employers consider whether to contain costs by reducing benefits, coverage subsidies, and/or plan options, many understand that an ancillary impact of reform will be new challenges to employee reward programs. More than a third (35%) of employers surveyed said they believe reform will have a negative impact on their ability to offer a competitive total rewards package.  

The Towers Watson Health Care Reform Pulse Survey drew responses from a cross section of 661 large organizations in the U.S. At the time of the survey, 90% of employees at respondent companies, on average, were eligible to receive health benefits. 

More information is available at http://www.towerswatson.com/research/1935.