Although the employer shared responsibility provisions of the Affordable Care Act (ACA) in the US were delayed until 2015, several key elements of the new law went into effect in 2014, most notably the opening of the public health exchanges and the individual mandate requiring all individuals to obtain coverage or face a tax penalty.
Mercer’s latest survey on health care reform queried employers on their open enrollment results for 2014 to determine how plans have been affected thus far. The survey also asked how employers are preparing to meet the shared responsibility provisions in 2015 and the excise tax on high-cost plans coming in 2018.
Heading into the open enrollment season, it wasn’t clear how much enrollment growth — if any — we would see in 2014. Employers thought they had to extend coverage to all employees working 30 or more hours a week for the 2014 plan year, and although that requirement was delayed until 2015, many employers had already geared up to make those changes and some stuck to their original time frame. In addition, the individual mandate did go into effect for 2014.
Typically, 15% to 20% of employees who are eligible for health coverage opt out of their employer’s plans every year. Many of them may have coverage elsewhere, but some simply choose to go bare. The question was, would these employees now enroll due to the individual mandate penalty?
Despite these two factors, there was no significant change in enrollment. On average, 69.3% of respondents’ employees enrolled in health plans in 2014, up only slightly from 69.1% in 2013, and employers predict that this number will rise only to 69.8% in 2015. (See Figure 1.)
Figure 1: Minimal Increase in Employer Health Plan Enrollment in 2014
Will there be a jump in enrollment in 2015? It seems likely there will be at least some growth, given that the individual mandate penalty for not having coverage will be higher, and, as the shared responsibility rules go into effect, more employers will open their plans to newly eligible employees. The retail and hospitality industries (which have a higher proportion of low-wage, part-time workers) are the most concerned about higher enrollment in plans, followed by higher education, in which adjunct professors can comprise a significant portion of faculty yet typically are not eligible for health benefits.
To manage potential growth in eligibility, some employers are making adjustments to their workforce strategies. Ten percent of respondents said they will have fewer employees working 30+ hours per week by 2015. Another 14% are taking some other step in response to this ACA rule.
Employers also are taking steps to manage potential growth in the number of employees electing dependent and spousal coverage to avoid becoming a “dependent magnet” as more employees become eligible for coverage and the individual penalty for not obtaining coverage becomes stiffer. About one-fifth of employers said they would raise the employee contribution for dependent coverage in 2014.
Employers are also looking at special provisions for employees’ spouses who have other coverage available. Although only one-fifth of employers currently have a provision in place — 12% require a surcharge and 8% exclude spouses with other coverage entirely — many more are considering it. (See Figure 2.) This may be partly due to the announcement last summer by a major employer that it would no longer cover spouses of employees who had coverage through another employer.
The largest employers are most likely to have a spousal provision in place, but among those with 5,000 or more employees, a spousal surcharge is more than twice as common as an exclusion.
Figure 2: Special Provisions Concerning Employee’s Spouses With Other Coverage Available
Number one on the list of significant or very significant employer concerns about the ACA is the increase in administrative burden. (See Figure 3.) Although higher enrollment may be a headache for employers that don’t already cover most employees, new administrative tasks are required of all employers.
Figure 3: Areas of Greatest Concern for Employers Under the ACA
Coming in a close second was concern about the possibility of having to pay a 40% excise tax in 2018 (the so-called “Cadillac tax”) if plan cost exceeds $10,200 for individual coverage or $27,500 for family coverage.
This tax affects industries such as higher education, manufacturing, financial services, transportation/communication/utilities, and health care services the most — industries that tend to offer richer benefits — but it is a concern for employers across the board.
Employers are making changes in anticipation of the 2018 excise tax to avoid it if they possibly can. The most common step already taken (by 35% of employers surveyed) or being considered (by 47%) is adding or improving wellness programs. Employers view wellness as a long-term cost management strategy and as a win-win for the organization and its employees. Employers are focused on building engagement by giving employees meaningful financial incentives to participate or even rewarding them for positive health outcomes, such as improving or maintaining a healthy cholesterol level or quitting smoking.
Four in 10 (41%) have implemented a consumer-directed health plan (CDHP) or are considering this action (27%), whereas some of those that already have CDHPs are steering more employees into this option (33%) or are considering it (22%). Many employers also have raised deductibles or other cost-sharing provisions (32%) or are considering it (48%).
Some employers (33%) are considering offering a private health exchange to help them avoid the excise tax — a strong level of interest for such a new model. Exchanges give employees the option to choose lower-cost plans, which many do.
Despite the challenges and changes ahead, most US employers are very committed to offering benefits. Large employers are least likely to terminate benefits, with only 6% of those with 500 or more employees saying they are likely to terminate and send employees to public exchanges for coverage, down slightly from 7% in 2012.
Employers with fewer than 50 employees — which are the least likely to offer coverage — have expressed growing interest in terminating plans. In 2013, 34% said they were likely to terminate their plans within five years, up from 23% in 2012.
Mercer’s Health Care Reform Survey was fielded in January–February 2014 for three weeks, with 767 employers responding. Respondents included employers of all sizes, industries, and geographic locations in the US. The mix by employer size was 26% with fewer than 500 employees, 49% with 500– 4,999 employees, and 24% with 5,000+ employees.
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|Tracy Watts (Washington, DC)
Senior Partner, Employee Health & Benefits
+1 202 331 5252
|Beth Umland (New York)
Director of Research, Employee Health & Benefits
+1 212 345 2464