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What the Affordable Care Act Means to You

Even as the employer mandate is pushed back to 2015, businesses need to remain vigilant about provisions of Obamacare.
illustration by Shaw Nielsen

U.S. businesses have been granted a reprieve from the Affordable Care Act’s employer requirement to offer affordable insurance to their employees.

This was the second time the Obama administration pulled its punches on employer insurance. The small-business health insurance exchange was supposed to offer employees a choice of plans in 2014. Instead, the employer will pick one insurance plan for their employees next year.

It is easy to get the sense that the wheels are coming off health reform. It is dawning on the federal government just how big and complicated the health law will be to roll out, but the administration is plowing ahead relentlessly and optimistically.

Here are 10 things CEOs should know about healthcare reform as 2014 approaches.

1. It will change the circumstances of very few businesses.

 Firms that have fewer than 50 employees do not have to offer health insurance to their employees. That accounts for 96 percent of U.S. businesses. On the other end of the spectrum, 94 percent of businesses with 50 to 200 employees—and 98 percent of those with more than 200 employees—already offer health insurance. That leaves less than 12,000 employers that failed to offer insurance to about 1.4 million employees—or less than 2 percent of the U.S. workforce.

2. The law itself is unlikely to affect the trajectory of employer healthcare costs. This is likely the biggest issue for most CEOs. The chief goal of the ACA was to make health insurance more affordable, not control costs.

The good news is that healthcare cost increases are moderating. According to a Mercer employer survey, Dallas-Fort Worth employer health benefit costs rose 4.7 percent in 2012. That was slightly higher than the U.S. rate of 4.1 percent, which represents the smallest increase in 15 years.

DFW employers predicted that 2013 costs would rise by 7.7 percent if they made no changes in their health plans. However, they expect to hold that cost increase to 6 percent by altering plan design or changing vendors. Nationally, employers plan to hold 2013 cost increases to 5 percent.

Nearly three out of four Dallas-Fort Worth employers plan to shift more costs to their employees in 2013 by raising deductibles, co-payments or co-insurance, or out-of-pocket maximums, or increasing employees’ share of premium contributions.

A similar analysis by consultant Aon Hewitt estimated the Dallas-Fort Worth increase at 3.4 percent in 2012 and expected a 6.2 percent increase in 2013, while PwC expects 2014 healthcare costs to rise 6.5 percent nationally—or about 1 percent less than its 2013 percent forecast.

3. The ACA is accelerating broader changes in healthcare.

When gathered for a roundtable discussion before the 2012 election, DFW health system CEOs were asked: How will your industry be affected if Mitt Romney defeats President Obama? Their answer: Not at all. Then they were asked: What if the ACA is overturned? There were shrugs all around.

Healthcare CEOs understand runaway medical inflation is not sustainable. They accept the fact that the government and commercial insurers are increasingly insisting on paying for quality and health outcomes rather than quantity of services, and they are responding.

“We will create [healthcare] delivery models that give the right kind of care,” said Baylor Health Care System CEO Joel Allison. “It’s not going to be because the ACA was passed.”

Daniel Podolosky, president of UT Southwestern Medical Center, agreed, adding that when the future of the ACA was in limbo, hospitals took the view that much of what the future would look like was irrespective of what happened. They needed to deliver value at a lower cost, one way or another, he said.

4. The employer mandate may be—and should be—changed, but it won’t go away.

The mandate was included in the ACA to make sure employers would not dump their employees onto state-sponsored health insurance exchanges. The federal government does not want the headaches or added expense of insuring even more Americans. As long as the law exists, the mandate will never go away.

The mandate’s shape, however, may change prior to its 2015 implementation. Although it affects a tiny slice of the U.S. work force, it is loaded with perverse incentives. It discourages employers from hiring low-income workers who would qualify for subsidies on the health insurance exchanges, and encourages them to convert full-time workers to part-time, or below 30 hours a week.

The House bill’s employer mandate was based on a percentage of payroll spent on healthcare rather than how many workers a business employs. That is a cleaner policy and less of an administrative burden. Don’t be surprised if that re-emerges in the next 18 months.

The Senate has also approved raising the full-time definition to 40 hours, but House Republicans have not agreed because they do not want to “improve” Obamacare.

5. The penalties for wellness may shift costs to lower-income workers.

The ACA increased a firm’s ability to provide incentives for health and wellness criteria from 20 percent to 30 percent. An exception was tobacco: Smokers could face a 50 percent surcharge on the cost of health insurance.

An analysis by Jill Horwitz, a professor at the UCLA School of Law, challenged the cost savings of workplace wellness programs. There is little evidence that wellness programs could save money easily through health improvement, she said, without being discriminatory because lower-income workers generally have poorer health and are less likely to participate. Savings to employers instead may come from cost shifting, with those employees paying more for insurance because of poorer health and, in effect, subsidizing healthier colleagues.

6. The individual mandate means workers will be less likely to turn down coverage.

Employers will not have to offer insurance, but most Americans will have to obtain insurance or pay a penalty, which starts at $95 or 1 percent of household income in 2014, and rises to $695 or 2.5 percent in 2016.
Some have questioned the fairness of companies getting a pass while workers do not. Regardless, the penalty likely will boost employee participation rates in company plans. In Massachusetts, its 2006  individual mandate led to employees signing up for previously rejected coverage.

7. The fact that paying the penalties is less expensive than providing insurance benefits won’t necessarily mean more businesses will dump health insurance benefits.

Most employers offer health insurance to recruit and retain employees, not because of a government requirement. The administration’s one-year delay is unlikely to change that. Only 10 percent of companies are still undecided whether they will continue coverage in 2014. The rest are all in.

Some contend that businesses will pay the penalty of $2,000 to $3,000 per employee because it is far less expensive to do so than provide health insurance. However, when Massachusetts imposed its employer mandate in 2006, the percentage of employers who offered insurance increased—in part because more employees asked for it.

8. The most potent incentive may be the “Cadillac” tax, which penalizes companies that offer high-end health care plans.

By 2018, companies will pay a 40 percent excise tax on plans that cost more than $10,200 for an individual and $27,500 for a family. Nearly one in five companies are revising benefit plans this year specifically because of the tax.

The favorite method of doing so: high deductibles. The percentage of workers who have annual deductibles of at least $2,000 has doubled since 2009 to 14 percent, and one-third of workers now have deductibles of at least $1,000.

9. Without health insurance “job lock,” you may see more employees leave to chase their entrepreneurial dreams.

An estimated 124,000 more Texans will be self-employed in 2014 because of the ACA, according to an Urban Institute and Robert Wood Johnson Foundation report. Without the law, researchers estimated 955,000 Texans would be self-employed. With the ACA, 1,079,000 will be working for themselves.

The report cites the “job lock” U.S. workers feel because they fear losing health insurance because of pre-existing conditions or unaffordable individual health-insurance policies. Under the ACA, no applicant can be turned down or charged more because of health conditions, and insurance policies on the health exchanges will be subsidized for many.

10. The law will continue to have fits and starts, with plenty of political posturing along the way.

The Obama administration has delayed parts of the law, and said it will be lax about verifying consumers’ claims that they do not receive health insurance from their employer and the income they claim for subsidies on the insurance exchanges. Republicans say sloppy implementation proves the law is irretrievably broken. Democrats say it is unfair for Republicans to fight the law at every turn, and then say it does not work. Like the law itself, political acrimony is unlikely to go away.