Employers are bracing for the financial impact of the new health care reform law, according to a survey from Mercer. A quarter of the nearly 800 employers surveyed said they expect compliance with the first round of mandates included in the law to add at least another 3% to their projected 2011 plan costs; 28% expect an additional increase of 1%-2%, and 13% project an additional increase of less than 1%.
Three of the “immediately” effective health care reform provisions — effective for plan years beginning after September 23, 2010 (January 1, 2011, for calendar year plans) — are discussed below. Given that these and other health care reform provisions include requirements for coverage expansion, for certain types of benefits and for restrictions on benefits limitations, concerns about cost increases are well-founded.
Three health care reform provisions that are likely to have some immediate financial impact on employers are:
1. Expansion of coverage to employees’ young adult children. The health care reform law requires that plans that provide coverage for dependent children now make that coverage available until a child turns age 26. (Until 2014, grandfathered plans can limit this coverage expansion to adult children not eligible for other employer-provided coverage.) In the Mercer survey, 20% of employers said this provision of health care reform was a significant or very significant concern to them. The impact of this coverage expansion will vary, of course, depending in large part on an employer’s demographics — and for some employers, adding a group of young, healthy individuals could possibly help their plan cost. To moderate the impact of this piece of health care reform, employers should take steps to ensure that only truly eligible dependents are on the plan, by conducting dependent audits. As indicated by the Mercer survey, other steps employers said they are considering to blunt the impact of this mandate include requiring proof that dependents do not have coverage available through their own employers (49%); adding contribution tiers based on the number of dependents covered (20%); and imposing higher premium shares for all dependents (16%).
2. Elimination of lifetime limits on benefits. The law prohibits lifetime dollar limits on “essential” health benefits. And this list is long, encompassing most of the types of benefits found in the typical health care plan (e.g., ambulatory patient services, emergency services, hospitalization, maternity/newborn care, mental health and substance abuse benefits, prescription drugs, etc.). (This provision phases in to apply to annual limits, which are banned after 2013.) In the Mercer survey, 21% of employers said this provision was a significant or very significant concern.
3. Preventive care benefits. Plans must cover certain preventive care services without any cost-sharing (deductibles, copayments) required for the employee or dependent receiving the service. Many plans, in particular consumer-directed health plans, already provide full coverage for certain types of preventive care, as a strategy to enable the detection and treatment of illness or disease in the early stages, and as a means to alert employees to lifestyle issues that might be harming their health. Whether this provision “costs” all employers is yet to be seen; some research shows that preventive services, especially when part of a comprehensive health promotion and wellness strategy, generate a return on the investment that an employer makes in the program.
Noncompliance with these or other provisions in the health care reform law also has a cost for employers, in the form of excise taxes and penalties. Therefore, it’s essential to review the pending mandates, not only to ensure compliance, but also to determine how to fold them into an effective and comprehensive health care cost management strategy.