Companies trimming healthcare costs in view of Affordable Care Act concerns
In 2014, when the full effects of the Patient Protection and Affordable Care Act PPACA) take effect, companies with 50 or more full-time employees have to either provide health insurance benefits or pay a penalty. According to a new report, released by Mercer on November 14, these companies are currently curbing healthcare costs in preparation for full implementation of the act.
Mercer is an American global human resource and related financial services consulting firm, headquartered in New York City. The survey comprised 2,809 employers with 10 or more employees. Mercer’s findings explains why the cost of providing health benefits grew in 2012 at the lowest rate in 15 years (a 4.1% increase), compared with 6.1% the year prior, according to a Mercer survey of 2,809 employers with 10 or more employees. In the report, Sharon Cunninghis, Mercer U.S. business leader for health and benefits, wrote: “[The] PPACA requires that health plans cover, at a minimum, 60% of eligible health plan expenses. Some employers are resetting their health plan value to move closer to that minimum, and saving money as a result.”
Companies reined in costs by shifting to lower-cost consumer-directed health plans, or by raising deductibles for those who stayed with a preferred-provider organization (PPO). Ms. Cunninghis noted, “If we’re not already at the tipping point for CDHPs [consumer-driven health plans], and we may well be, at this rate of growth it’s coming soon.” The report noted that, on the average, the cost of coverage in a CDHP with a health savings account costs companies $7,833 per employee, compared to $10,007 per employee in a PPO. She noted, “Over the past decade, employers have figured out how to stabilize health benefit cost increases through cost-shifting and other cost management techniques. Now we’re seeing a move toward even greater control through defined contribution strategies.”
Most (56%) of employers in the survey said they would consider private exchanges, a private-sector alternative to the state-run exchanges mandated by the PPACA, as a potential option to restrain future cost growth, once cost growth has been restrained as much as possible through CDHP conversions and hikes in deductibles. The companies surveyed noted that in the long-term they would adopt a strategy of workforce health management, or wellness plans to control healthcare spending. Among employers with more than 500 employees, 78% said that senior leadership at their company is supportive or very supportive of the programs as a way to encourage healthier behavior among employees; however , though “proving ROI [return on investment] remains a challenge,” noted Tracy Watts, a partner in Mercer’s Washington, DC office.
Based on expected changes in their plans, the companies surveyed anticipate that their costs will increase 5% in 2013.If no such changes are made, they noted that they were expect their costs to go up by approximately 7.4%. In the report, Mercer President and CEO Julio A. Portalatin wrote:
“Employers are very aware that in 2014, when the health reform law’s provisions kick in, they will be asked to cover more employees and face added cost pressure.”