PPACA’s Dependent Eligibility Rule Bumps Enrollment up 2%

August 1, 2011 (PLANSPONSOR.com) - In just over a year since the passage of the Patient Protection and Affordable Care Act (PPACA), employers have seen an average 2% increase in enrollment as they extended eligibility for dependent coverage to employees’ children up to age 26.

According to a survey of nearly 900 employers released by Mercer, PPACA’s rule requiring employers to automatically enroll newly hired, or newly eligible, full-time employees into a health plan will cause enrollment to grow by another 2% on average in 2014, when the provision is slated to go into effect.  

More than a fourth of respondents (28%) said that compliance with PPACA mandates slated to go into effect in 2014 – most significantly, extending coverage to all employees working on average 30 or more hours per week, auto-enrolling new full-time employees and ensuring that plans pay for at least 60% of covered services – will add at least another 3% to their projected 2014 plan costs, with 15% expecting an additional 5% or more. About the same number (27%) predict a relatively modest increase of 2% or less, and 15% said their plans were already in compliance and would see no cost increase. The remaining 29% could not estimate the impact.  

Despite concerns about cost, employers remain committed to offering medical coverage to their employees, according to a Mercer news release. Just 2% of survey respondents say they are “very likely” to terminate medical plansafter the insurance exchanges are operational, with another 6% “likely” to do so. Mercer asked the same question in a survey of more than 2,800 employers conducted a year ago, just a few months after health reform was signed into law, and employers’ opinions on this question are essentially unchanged.  

More Costs to Come  

Of the employer-related reform provisions slated to go into effect in 2014, auto-enrolling new full-time employees seems to be causing the most headaches. Auto-enrollment is seen as a “very significant” or “significant” concern by about a fifth of all respondents (21%), but by 28% of those with at least 5,000 employees.  

Employers are already considering how to manage the cost of the auto-enrollment requirement. Among survey respondents that currently offer only one medical plan, while most will simply use their current plan as the default plan for auto-enrolling new full-time employees, 10% say they will add a new, lower-cost plan to use as the default plan and 3% will change to a new, lower-cost plan for all employees.   

Among those respondents that currently offer a choice of medical plans, 65% will use their current lowest-cost plan as the default plan; 29% will use their standard plan (the plan with the highest enrollment) and 7% will add a new plan as the default for auto-enrollment. The largest employers – those with 5,000 or more employees – are the most likely to add a new plan (11%).

Excise Tax on High Cost Plans Employers' Top Concern  

According to the Mercer survey, the excise tax on high-cost plans, which is slated to take effect in 2018, emerged as employers’ top concern– even though it will not be implemented until 2018. The excise tax poses a “very significant concern” for 22% of the survey respondents and a “significant concern” for an additional 23%. About a fourth (28%) say it’s only a “slight concern” and a similar number (27%) say it’s “not an issue” for their organizations.  

The excise tax provides employers with a strong incentive to keep health plan cost down. Their top long-term cost management strategy is to add or strengthen programs or policies to encourage more health-conscious behavior – 54% say they are very likely to pursue this strategy while another 38% say they are likely to do so  

Another way to reduce plan cost is to carve out various non-medical benefits such as dental and vision and offer them to employees as voluntary benefits. Over a fourth of respondents (29%) say they are likely to take this approach.   

But, as enrollment levels climb, some employers are considering ways to control their own spending on health benefits through other means. Nearly two-fifths (38%) say it’s likely or very likely that they will reduce their spending on dependent coverage in relation to employee-only coverage.Of the largest survey respondents – those with 5,000 or more employees – 45% are likely to reduce spending on dependent coverage, compared to 30% of those with fewer than 500 employees.   

And some employers are considering moving to some type of “defined contribution” approach to paying for health coverage. More than a fourth of respondents (26%) say they are considering keeping the employer contribution the same for all plans offered, so that employees pay more for more expensive plans.  Fewer (8%) are considering raising the employer contribution by a set amount each year, regardless of the actual increase in cost, with employees absorbing the rest of the increase, or simply providing employees with a fixed dollar subsidy to purchase coverage on their own (9%).  

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 very significant or significant concern for just 17% of all respondents, but for 37% of those in the wholesale/retail industry, which relies heavily on part-time labor.  

Among the 28% of respondents that have part-time employees but currently do not offer coverage to all employees working 30 or more hours per week, one-half say that they are most likely to change their workforce strategy so that fewer employees work 30 hours or more a week. One-fourth are most likely to make all employees eligible for the current full-time employee plan, while 17% will offer only a lower-cost plan to part-timers. Only 7% say they would seriously consider making no or minimal changes to increase the number of eligibleemployees and instead pay the required penalty. No respondents thought they were likely to terminate employee health plan coverage as a result of this new rule.  

The survey was conducted in June 2011. Invitations to complete the online questionnaire were sent to the organizations that participated in Mercer’s National Survey of Employer-Sponsored Health Plans, which used a national probability sample of private and public employers; 894 employers completed the survey.