Mercer Survey: How Employers Are Responding to Health Care Reform

health insurance2.JPGThe vast majority of employers with 50 or more employees plan to continue offering their employees health care coverage when the Affordable Care Act’s “pay or play” requirements take effect in 2014, a survey conducted by the Mercer consulting firm has found. Beginning in 2014, employers with at least 50 full-time employees are required to either provide minimal essential health coverage to their full-time employees or pay a penalty if at least one such employee receives federal financial assistance to buy insurance through health insurance exchanges. Full-time employees are those working at least 30 hours a week calculated on a monthly basis. This penalty will amount to $2,000 annually multiplied by the total number (less 30) of full-time employees. Mercer’s survey of more than 2,800 employers indicates that many do not believe it will be advantageous to drop coverage and face the penalty imposed by the new law. According to Mercer Partner Tracy Watts, “Employers are reluctant to lose control over a key employee benefit,” adding, “But beyond that, once you consider the penalty, the loss of tax savings and grossing up employee income so they can purchase comparable coverage through an exchange, for many employers dropping coverage may not equate to savings.”

The survey results show that the larger the employer, the less likely it is that it will drop health care coverage. Only 6% of employers with 500 or more employees stated they are likely to stop providing coverage. Employers with more than 10,000 employees are even less likely to drop coverage. Just 3% of these employers indicated they plan to stop providing this benefit after 2014. Predictably, smaller employers (those with 10-499 employees) responded that they are more likely to terminate coverage. Approximately one-fifth of employers in this category claim they are likely to abandon coverage once the pay or play rules take effect. Smaller employers – particularly those with low-wage workers and high turnover – are more vulnerable to health care cost increases.

The cost of providing coverage will clearly be a factor influencing an employer’s decision to continue coverage, although the survey points out that the Affordable Care Act’s impact will vary from employer to employer. Those that already offer generous health packages will not be affected as much as those employers that previously imposed lifetime benefit limits and did not offer dependant care coverage to age 26. On the other hand, the survey explains, large employers that offer generous packages could face substantial cost increases as a result of the Affordable Care Act provisions extending coverage to more individuals, such as the expansion of coverage to adult children.

Moreover, the survey notes that plan membership is likely to rise in 2014 when the provisions requiring individuals to obtain health coverage or pay a penalty, take effect and large employers will be required to automatically enroll new full-time employees in a plan. Mercer estimates that 19% of all eligible employees currently opt out of health plan coverage.

According to the survey, the excise tax on high-cost plans is the requirement that most concerns employers. The survey found that most employers with 50 or more employees will take steps to avoid being impacted by the excise tax on high-cost insurance plans. This 40% excise tax on so-called “Cadillac” plans – those with premiums of $10,200 for an individual employee or $27,500 for dependent coverage – will be imposed starting in 2018. Many (37%) believed their plans would not likely trigger the excise tax, while an additional 37% stated that they would attempt to bring down costs below the threshold amounts, but acknowledged that this might not be possible. Nearly a quarter (23%) of employers responded that they would take whatever steps necessary to sufficiently reduce costs below the threshold levels. Based on current plan design, 39% of employers with 50 or employees expect to trigger the excise tax in 2018.

In response to the expansion of coverage to dependents up to age 26, 41% of employers with 50 or more employees claimed that they would require the adult dependents to verify that they have no other employer health coverage available to them. 17% of large employers stated that they will change their premium tier rates to require employees with more dependents to pay more, while 18% of large employers surveyed stated will change their contribution strategy to impose a higher premium share for all dependents.

The survey found that nearly a third of employers with 50 or more employees do not offer coverage to all employees working 30 or more hours a week, which would trigger the “play or pay” penalty in 2014. Forty-five percent of these employers claimed that they would make coverage available to all their employees working 30 hour or more a week. Thirty-two percent responded that they would reduce their employees’ hours to less than 30 hours per week, while only 6% stated that they would make no changes to their plans and pay the shared coverage penalty for not offering coverage.

The Affordable Care Act requires that employers offer at least one health plan for which the employee’s premium contribution is deemed affordable by not exceeding 9.5% of the employee’s household income, or face a penalty. As for plan affordability, 39% of employers with 50 or more employees claimed that their health plans are either likely or very likely to be unaffordable for some employees. The majority of the employers (81%) said they would most likely make changes to ensure their coverage is affordable.

The results of this survey are part of a more comprehensive study – Mercer’s 2010 National Survey of Employer-Sponsored Health Plans – which is slated to be released later this month.

This entry was written by Ilyse Schuman.

Photo credit: MBPHOTO, INC.

Information contained in this publication is intended for informational purposes only and does not constitute legal advice or opinion, nor is it a substitute for the professional judgment of an attorney.