Measuring the ACA's Impact

Figuring out the true impact of the Affordable Care Act can be a tricky proposition for employers both large and small, but experts agree that you can't manage costs if you don't know what they are.

Thursday, June 26, 2014
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An interesting data point immediately stood out from this year's Willis Health Care Reform Survey when it was first released: Only 37 percent of employers identified the impact of healthcare reform on their 2014 health-plan costs. One would assume employers would rush to quantify the impact of the most important healthcare legislation of the last half-century. In fact, those that can, have. Willis' finding is illuminating, nonetheless, in understanding how employers of varying sizes have grappled with the Affordable Care Act.

The Willis survey, in large part, captures the reality of smaller employers. Of the 1,033 employers represented in the survey (both clients and non-clients of the global insurance broker), 36 percent had 100 to 499 employees, and 26 percent had fewer than 100. Only 7 percent of the respondents employed 5,000 or more people.

"[The 37-percent figure] is a reflection of the survey population," says Brian Marcotte, the CEO and president of the Washington-based National Business Group on Health.

Contrast the survey population with NBGH membership, primarily consisting of Fortune 500 and big public-sector employers, which in total have more than 55 million lives under their plans. These large, self-funding employers know what the ACA impact has been and project what it will be, Marcotte says."They have a clear line of sight to their claims history, to their administrative costs, and they know what the additive costs will be," he says.

Large, self-funding employers can get data from their plans from third-party claims administrators, other vendors and in-house sources, but smaller employers typically cannot afford (in manpower and money) self-insurance. Being fully insured is a disadvantage in this case, as they then cannot access their own data.

Though he can't speak for all small employers, as Marcotte understands, it is not as transparent for a small employer how ACA fees, premium taxes, other fees and underwriting margin get built into their health insurance premium.

"The large employer will most likely have the technical capability to understand the company's claims, administrative fees and ACA fees; whereas, a small employer may not have the staff on hand to fully understand it," he adds.

Most of the employers that Julie A. Stone, a senior consultant at Towers Watson, works with -- mid-market and large companies -- have a "reasonably good idea of the cost" of health care reform, yet she suggests that the Willis data may also show a distinction in the definition of "costs." She points to direct costs spelled out by the ACA -- such as the PCORI (the patient centered outcomes research fee) and the TRF (transitional reinsurance fee).

"There's no guesswork for an employer in terms of what these fees will be," she says.

In other words, any employer, tiny or not, ought to know what these costs are.

Then she points to the indirect costs, which are driven, for instance, by those newly insured joining a plan because of the individual mandate.

Again, many of Stone's midsize and larger clients have modeled these costs, but Stone says some of these costs cannot be known for sure.

Jay M. Kirschbaum, practice leader for the national legal and research group in Willis' human capital practice, also stresses the relevance and distinction between informal and formal costs. Particularly for fully insured employers without access to their populations' data, the challenge can be teasing out in their overall plan's cost inflation where "regular" medical cost increases end and the impact of health reform begins.

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Are smaller employers left powerless to know ACA costs, let alone control them? Not so.

To estimate costs, Kirschbaum recommends employers contact their brokers, many of which have created ACA cost calculators.

Marcotte advises smaller employers to look at the cost data that larger employers have measured and assume their experience mirrors it. NBGH's data shows larger employers have experienced an average one-year cost increase of 3.6 percent.

To manage these costs, Stone suggests smaller employers follow the lead of, again, larger companies -- for instance, modeling to determine if an employer will face the ACA's excise tax, going into effect in 2018. About 60 percent of Tower Watson's clients would exceed the so-called "Cadillac tax" threshold in 2018 with their current plans and would face the resulting 40-percent tax.

"That, to me, is the most critical issue," she says.

If employers determine they may be at risk, their next step would be to determine the magnitude of change needed and then set a "glide path" to get them there gradually between now and 2018.

Although employers in the Willis survey may seem unsophisticated in their approach to understanding ACA costs, it does not mean they are not trying to control costs.

"If they've got a double-digit increase, they want to address it," Kirschbaum says.

HR leaders across the employer spectrum, it seems, are also trying to continue to provide health benefits to workers, despite the cost inflation.

"I have seen a lot of conjecture," Kirschbaum says, "but when actually asked ... they are devoted to doing this and staying in the game."

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