Health Care Reform Driving Up Costs for Employers

March 9, 2012 (PLANSPONSOR.com) - Compliance with health care reform is already driving up costs for some employers’ group health plans.

While only about a quarter of the responding employers have quantified the cost of compliance within their health plans, a majority (nearly 56%) of those employers said the cumulative cost amounted to an increase in cost; over 15% noted that the cost increase was between 2% and 5%, and over 15% said that the cost increase was more than 5%. Employers report that their most significant cost drivers are the provision of adult child coverage up to age 26 and the removal of the annual/lifetime limits for “essential health benefits, according to a health care reform survey released by the Willis Human Capital Practice, a unit of Willis Group Holdings. 

Surveyed employers have a sense of what similar employers will do in response to health care reform. More than half of the respondents believe others will pass more of the cost for dependent coverage on to their employees. One-third of respondents think other, similar employers will reduce coverage to the lowest-cost package that will avoid the “pay-or-play” penalty, and a majority of employers also think wellness programs will be expanded in scope. Nearly two-thirds of the employers expect employee contributions will be increased.

Even two years after the passage of the law, less than half of the surveyed employers have developed a health care strategy in order to comply with health care reform. When asked what would drive an employer to reassess its benefits strategies, by far, the predominant response is “cost” in one form or another—health cost, financial performance, corporate pressure to reduce costs, etc.  

Within the next 12 months, 40% of employers will be reviewing their strategies for internally communicating benefit rewards.  

Survey respondents indicate that into the second year of health care reform implementation, less than 30% of employers were able to maintain grandfathered status of their health care plans. This rapid loss of grandfathered status far outpaces the Department of Health and Human Services’ expectations. The preamble to the June 2010 Regulations speculated that by the end of 2011, 78% of employers would retain grandfathered status, by the end of 2012, 62 % would still be grandfathered, and by the end of 2013, 49% would retain grandfathered status. The accelerated loss of grandfathered status suggests that employers have had to make many plan changes to offset cost increases, and perhaps employers have been more willing to give up grandfathered status in order to take other steps to control costs.  

The responses to the Willis survey suggest that employers may, despite their desire to maintain group medical benefits for their employees, shift their focus to state-based exchanges. Respondents to the survey appear to take incremental steps in compliance rather than big steps to reach a particular strategic goal. This approach aligns most closely with employers who will be more likely to rely upon state-based exchanges in the future.  

The full survey report is here.

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