Cost of Health Care Reform: 60% of Businesses Expect an Increase

Now that the Supreme Court has ruled and the dust is starting to settle on health care reform, employers are starting to focus — especially on what the Patient and Affordable Care Act (PPCA) will do to their bottom line.

And as a new survey by global HR consultant Mercer found, some employers will be impacted more than others by health care reform.

The headlines from the survey shouldn’t be surprising, but they may give you some feel for how businesses are starting to cope with the changes and key provisions of Obamacare that go into effect in 2014. They found:

Some 60 percent of employers expect some increase in health plan costs as result of health care reform law.
One-third of those companies that expect an increase in costs expect it to be 5 percent or more.
Health reform poses biggest challenges to companies with the most part-time and low-paid employees.
Employers in retail and hospitality expect the sharpest increases.
Nearly half of these employers (46 percent) expect that health care reform will push up costs by at least 3 percent in 2014 – and another third don’t yet know what the impact will be.
By contrast, just 31 percent of respondents in service industries expect that PPACA provisions will result in increases of this size.

“A significant new expense”

As Mercer’s analysis put it, “Sometimes lost in the furor surrounding health reform is the fact that the Patient Protection and Affordable Care Act will affect some employers far more than others.”

“With health benefit cost already rising at twice the rate of general inflation, an additional increase of 3 percent or more will be very tough for employers to absorb,” said Sharon Cunninghis, leader of Mercer’s U.S. Employee Health & Benefits business, in a press release about the survey.

The major provisions of PPACA scheduled to take effect in 2014 affect employers with large numbers of part-time and low-paid workforces. For example, beginning in 2014 employers will be required to extend coverage to all employees working 30 plus hours per week or face possible penalties.

About a fourth of all survey respondents said they will have to take action to avoid possible penalties. This ranges by industry, from just 16 percent of financial services employers to 46 percent in the retail and hospitality sectors.

“Extending coverage to more employees will be a significant new expense for these employers,” said Tracy Watts, U.S. health care reform leader, “especially because other provisions regulate how much an employer can require employees to contribute to the cost and how good the coverage must be.”

How will employers respond?

How employers will respond to the mandate to extend coverage to all employees working 30 or more hours per week seems to depend largely on how many additional employees could potentially gain coverage. For example:

In industries that typically don’t use many part-timers (like manufacturing), employers that are not already in compliance are likely to make employees eligible for the full-time employee plan or add a new, low-cost plan for the newly eligible employees (68 percent).
On the other hand, retail/wholesale employers not currently offering coverage to all employees working at least 30 hours a week are more inclined to change their workforce strategy so that fewer employees meet that threshold – 67 percent say they will do this compared to just 41 percent of manufacturing employers who say they are likely to take this approach.

Some other interesting findings from the Mercer study:

Very few survey respondents – just 6 percent – believe it is likely that they will drop their medical plans after the public insurance exchanges come online. This rises to 9 percent among retail and hospitality employers.
Employers have a lot to do to get ready for health care reform, especially those that were waiting to develop a strategy until last June’s Supreme Court decision (56 percent of survey respondents). While 11 percent say they will continue to wait until after the November elections, most will now move ahead.
Short-term, employers need to produce and distribute summaries of benefits and coverage (SBCs) and more than a third of respondents (36 percent) say they haven’t yet begun or are behind schedule.
Employers are doing better with other near-term tasks, include preparing for 2012 W-2 form reporting in early 2013, implementing the new $2,500 cap on health care flexible spending account contributions and implementing coverage with no cost-sharing for women’s preventive services under non-grandfathered plans – about three-fourths say these tasks are on schedule or complete.

Mercer surveyed 1,203 employers, so it’s a pretty good sized sample and probably a fair look into where organization’s stand. Your mileage may vary, of course, but this should give you a good point of comparison for what your organization has done to get ready for health care reform.

Somehow, I don’t think you want your company to be part of the 11 percent still holding out and waiting to see what happens in the November election.