Group health care plan costs rose just 6.1 percent on average in 2011, but CEOs looking for certainty about the financial impact of health care reform will have to wait until June when the Supreme Court is expected to rule on the legality of the Patient Protection and Affordable Care Act (PPACA).
The 2011 increase in health care plan costs is less than the 6.9 percent increase in 2010, but it is still in line with similar increases since 2005, according to a study of 2800 employers from Mercer. How the court rules next year will greatly affect employer health care costs.
What Cost Control Steps Are Employers Taking in 2012?
- Employers say they will continue to focus on cost shifting as a primary means to control costs. Some 47 percent of firms said they will either increase the percent of premiums paid by employees next year or increase deductibles, according to Mercer’s study.
- One-third of companies with more than 500 employees indicate that they are aiming to increase employee participation in wellness and health management programs by increasing incentives and adding penalties.
- Just slightly under one-third (32 percent) of large employers are focusing on consumer directed health plans, up from 23 percent in 2010. These plans cost much less than HMOs or PPOs due to the high-deductible feature.
- Large employers continue to drop retiree health care plans – just 24 percent offered coverage to retirees under 65 and 16 percent to Medicare eligible retirees, compared to 29 percent and 21 percent the year before.
- Use of lower cost generic and over the counter drugs helped to slow the increase in prescription drug costs to 5 percent in 2011, compared to 10 percent just five years ago.
What Health Care Reform Strategies Are Employers Following?
Since the reform legislation was passed in March 2010, employers have been amending their plans to comply with new rules that extend coverage to adult children of employees up to age 26, and rules that have eliminated lifetime dollar coverage limits.
In addition, employers have begun to assess the impact of the 40 percent excise tax to be imposed on health care premiums that exceed certain amounts typically found in the most costly plans. Nearly half of survey respondents with at least 50 employees said they have ‘significant’ or ‘very significant’ concerns about the excise tax which would take effect in 2018.
Experts believe there are four possible outcomes when the Supreme Court rules:
- The court could strike down the one provision that requires individuals to enroll in a qualified health plan or pay a penalty as unconstitutional
- The court could rule that the entire health care reform law is unconstitutional
- The court could decide that any court decision is premature until individuals actually pay a penalty for not enrolling in a plan, something that is not expected until 2015
- The court could put off any action until 2015
If the Supreme Court strikes down the health care reform law, employers would immediately begin to shift from implementation to removing any health plan changes they may already have implemented. But, even if health care reform is struck down, many believe that most employers would continue to extend coverage to adult children, since that has been a well-received addition.
The last possibility, that of not taking any action until 2015, would be very difficult for employers, since a delay in any decision would prolong uncertainty for another three years.
Reforms May Have Bigger Effects for Small Employers
Smaller employers, those with between 10 and 499 employees, saw their health care plan costs increase by 9.9 percent in 2011, compared to just 3.9 percent for larger firms. One contributing reason for this is that the cost of complying with the law has been greater on small firms, according to the study.
In addition, nearly one fifth (19 percent) of small employers indicated that they were likely to drop coverage in 2014, when key provisions of the law kick in, as opposed to just 9 percent of employers with at least 500 employees, and 4 percent of the largest employers with more than 5,000 employees.