The Cost of ACA Compliance
With a key Affordable Care Act mandate taking effect in 2014, a recent study finds many employers still wrestling with how healthcare reform will impact their bottom lines. Time will tell, experts say, how creative HR and benefits leaders have to get in designing robust benefit plans while keeping costs in line.
By Mark McGraw
When The Patient Protection and Affordable Care Act was signed into law in March 2010, many companies feared the additional costs they'd incur would force them to drastically cut employee benefit plans.
Now, with less than a year until the ACA's controversial "pay-or-play" mandate kicks in -- requiring employers with 50 or more employees to offer health coverage to certain employees or pay a penalty - the corporate world is still getting its head around what healthcare reform will mean in the long run. But a new survey finds some organizations starting to get a clearer picture of how the ACA will ultimately affect their bottom lines, and responding with a measured approach to rethinking benefit plan design.
New York-based Willis North America Human Capital Practice's Health Care Reform Survey 2013, which polled more than 1,200 employers with varying benefit plans, found more than 60 percent of companies indicating healthcare reform has already increased their costs.
Companies have generally seen steady increases in costs specifically connected to ACA compliance each year since the law has gone into effect, says Tracy Watts, a partner in the Washington office of Mercer and the organization's U.S. leader for healthcare reform.
This trend will certainly continue into 2014, "with additional people coming onto the employer plans due to the individual mandate and the requirement to cover anyone working 30-plus hours per week," she says, noting there's potential for even more enrollment growth when the auto-enrollment requirement goes into effect sometime after 2014.
The survey also found 51 percent of respondents indicating they have yet to calculate the real cost of healthcare reform to their companies, with respect to plan design and benefits. This finding may be at least partly attributed to the difficulty employers face in forecasting the long-term expenses associated with ACA, says Watts.
"There are some non-benefit costs which could be significant and are difficult to predict at this point," she says. "Systems enhancements will be required for tracking hourly workers, and also to comply with reporting and disclosure requirements -- not yet released -- that will be something akin to an eligibility feed to the government, so they know who has access to employer-sponsored health coverage that complies with the employer mandate."
In addition, she says, many employers have yet to start planning for the additional communication efforts that will be necessary.
For example, some companies have yet to consider how to explain to employees at the lower end of the pay scale that their eligibility for employer-sponsored coverage means they and their dependents won't be able to purchase coverage from a public exchange, when "for some, the subsidized public coverage might be better and cheaper than the employer's plan," she says.
It's worth noting, however, that 49 percent of the employers surveyed have made efforts to measure the cost of ACA compliance to date, says Rebecca Lawrence, employee benefits attorney, assistant vice president of the national legal and research group for Willis and the survey's lead project manager.
Among those companies, "the majority indicated cost increases from 2 percent to more than 5 percent hitting their bottom lines already," she says. "That's a fairly moderate price increase at this point in the process."
A majority of responding organizations said they still hope to comply with healthcare reform and expand health coverage as necessary without reducing other benefits. Doing so presents employers and HR with a challenge, but there are ways to keep costs in line while continuing to offer key employee benefits, says Watts.
Historically, insurance carriers adopted a "bigger is better" strategy, developing networks including as many healthcare providers as possible, in order to appeal to the most people, she says. An updated approach is to be more focused in contracting with providers who have the best outcomes and are efficient in how they provide care - driving better results, continues Watts.
"Because there are fewer doctors in the network, the providers get a greater volume of patients. The network may actually pay the providers more as a reward for the higher value. The network still includes the full spectrum of providers, just fewer of them, focusing on those who deliver the highest quality," she says, adding that many carriers have high-performance networks available.
In addition, a defined contribution strategy using a private healthcare exchange - which Mercer does offer -- delivers "the full array of benefits choices and decision support to assist the employee in making purchasing decisions that meet his or her needs."
Whatever strategy the organization takes, "HR really has to work with the benefits side" to achieve success, adds Lawrence.
"And, HR needs to watch the bottom line. So, the discussion turns to what benefits the company may change, and what benefits will be kept in place," she says.
"HR is also going to be looking at the company's goals for providing benefits. So a factor HR should consider is the impact on employee morale if the company would dramatically adjust its benefit structure. HR has to think about that, and has to consider [the potential effect such adjustments] would have on the recruitment and retention of employees.
"I think a best practice would be to send a memo to employees [expressing] the company's desire to do the very best for employees," continues Lawrence. "I think it would be good to include a paragraph noting what the company has historically done for employees [with respect to benefits] and what percentage of contributions the employer has typically picked up for employees."
She also suggests stressing that the organization wants to continue offering rich benefits, and wishes to continue subsidizing them, while explaining that the costs attached to healthcare reform will likely equate to employees seeing some additional costs for their contributions to medical benefits.
"A communication piece like this, showing employees how well they've historically been treated, would do a lot for helping employees understand [any changes made to] their benefits."
Looking ahead, however, Lawrence doesn't see HR professionals making drastic changes to their benefits.
"Many organizations don't want to be the first ones to cut benefits," she says. "They may think about waiting to see if their competitors just down the road might want to make that decision first."
Indeed, the survey found 55 percent of respondents saying they felt their competitors would shift costs to employees, but only 34 percent said they might take similar actions.
"We're not seeing that companies anticipate dropping coverage," adds Lawrence. "Our survey results tend to say employers are going to continue offering benefits, and work on figuring out ways to afford doing so," such as introducing more voluntary benefits.
Theoretically, the ACA was designed to drive costs down in the long-term, or at least stunt the rate of cost increases as uncompensated care drops due to higher insured rates, says Dallas Salisbury, president and chief executive officer of the Washington-based Employee Benefit Research Institute.
And, as employers recognize that providing better health insurance is in the best interest of employees and organization alike, better employee coverage -- and more individual care being provided earlier as a result of expanded coverage -- "will make for a healthier population and lower relative costs," he says.
"Keeping workers healthy now is the essence of the more consumer-centric, integrated health delivery system that employers and the nation are embracing," says Salisbury. "The Affordable Care Act encourages even faster movement in that direction. Time will tell whether it works."