April 27, 2010
A third of employers may be penalized for health coverage deemed 'unaffordable'
More than a third of the nation's employers – 38% – have at least some employees for whom coverage would be considered "unaffordable" under the newly enacted Patient Protection and Affordable Care Act (PPACA), according to a new analysis of data from Mercer's annual employer health plan survey.
According to Mercer's analysis, one of the more challenging provisions to interpret and apply may be the rule that employers provide "affordable" coverage – meaning that full-time employees must generally be asked to pay no more than 9.5% of their household income for coverage.
If employer coverage is "unaffordable" by this definition, and at least one employee receives government assistance to buy individual coverage through a health insurance exchange, the employer must pay a yearly penalty of $3,000 per full-time employee who gets government assistance and buys coverage in an exchange (to a maximum of $2,000 times the number of full-time employees in excess of the first 30), starting in 2014. For employers trying to understand their potential risk for incurring the penalty, determining each employee's household income presents a significant challenge. Without access to that information, employers can use a conservative approach by assuming that each employee's pay is the total household income.
Apart from employers that don't currently offer coverage at all, reform may have the biggest impact on employers with large part-time populations that don't provide coverage to any part-time employees or require them to work more than 30 hours per week for coverage eligibility. Under the "shared responsibility" requirement, all employees working an average of 30 hours per week or more in a month must be eligible for affordable coverage, or the employer may be subject to a penalty.
Mini-med, or limited benefit, plans, which typically limit coverage to $50,000 to $100,000 per year, will no longer be an option for part-timers or other employees who work an average of 30 or more hours a week.
How many employers don't have any of the three red flags – for unaffordable coverage, ineligible part-time employees, or mini-med plans – described above? Only about a third (38%) of them; close to half (48%) have one red flag and 14% have two.
Although they may require the most significant changes in benefit strategy, these aren't the only provisions affecting employer plans. Employers will have to discontinue lifetime maximums, most annual dollar maximums, and cost-sharing on preventive care – even something as modest as a $10 copay. The use of lifetime benefit maximums, banned under PPACA, currently is the rule rather than the exception. About three-fifths all employers (61%) and nearly three-fourths of large employers (71%) have lifetime benefit maximums in their PPO plans. Lifetime maximums are less common in HMOs, where 25% of sponsors currently use them.
"The design changes really have to be looked at in concert with the affordability requirement for contributions. Simply stated, it's going to cost an employer more to offer a generous plan and cap the contributions for low-income employees at 9.5% of their income," said (Tracy Watts, a partner in Mercer's Washington, DC, office). "An unintended consequence of reform may be that employers adopt a 'safety-net' plan that meets the minimum requirements as their new standard plan and offer a more generous plan at higher cost to employees."
May 3, 2010
Study: Many Health Plans Not Affordable
Nearly 40% of employers may be at risk for violating the Patient Protection and Affordable Care Act's (PPACA) mandate that company health-care plans be affordable, according to a recent Mercer analysis of close to 3,000 employer-sponsored health plans.
... experts say the level of health coverage would likely degenerate compared with current levels, in order to make the plans cheaper. Particularly if all plans must be affordable, "you'll probably see the level of coverage going down," says (Beth Umland, director of research for health and benefits at Mercer), with employers making additional, richer coverage available for workers to purchase with aftertax dollars.
The law does require a minimum level of coverage — specifically, that health insurance plans cover 60% or more of medical costs — but most appear to be well within that constraint, says Umland, offering plenty of leeway for downgrading.
Comment: One of the more important reasons given for choosing the model of reform that was eventually enacted (PPACA) was that the administration and Congress did not want to disrupt the portion of health plan coverage that was working fairly well: employer-sponsored health plans.
Not only did this represent the largest sector of those already insured, the benefits in the plans were relatively generous compared to the individual insurance market, and, most importantly, policymakers were reluctant to forgo the massive infusion of health care funds already provided by the employers. Though these funds actually represent forgone wage and salary increases for the employees, the financing was already in place, thereby eliminating the need to try to fit this enormous expense into the federal budget.
Although the individual and small group insurance market was a disaster, Congress recognized that employer-sponsored plans also were facing difficulties. Because of rising health care costs, plans were becoming less affordable. Employers began shifting more costs to employees through benefit design changes (high-deductibles, etc.), and some employers were even dropping coverage altogether. To reduce the financial burden on the employer, Congress decided that the plans would not be required to have an actuarial value of greater than 60 percent, even though that shifted more costs to the employees and their families. Congress also realized that employees would not be able to bear an excessive share of the increasing insurance premiums, so they limited the employee premium contribution to 9.5 percent of household income. Further, to be sure that employers did not bail out, they established a $3000/$2000 employer penalty for any employees that purchased government subsidized plans in the exchanges.
Put those numbers together and then ask yourself, was Congress effective in its effort to avoid disrupting the employer-sponsored segment of private health plans? The structure of the reform leaves employers with almost no other option than to significantly downgrade their plans, shifting more costs to individuals and families who actually need health care. They may continue to offer their employees the option to purchase better plans, but only those employees who can afford the additional costs of after-tax premiums will do so. Thus Congress has further intensified the economic divide between the wealthy and the rest of us.
Although disruptive innovation has great appeal on Wall Street, Congress's disruptive innovation for employer-sponsored health plans will be a disaster for our workforce and their families who need health care.
It's not too late to dump the highly flawed PPACA and move on with a program that actually would work: an improved Medicare for everyone.