Health Care Reform Could Result in Unintended Consequences
June 10, 2010 (PLANSPONSOR.com) – A new report from Mercer suggests that the
Patient Protection and Affordable Care Act (PPACA) will result in the U.S.
continuing to operate short term with disparate and conflicting approaches to
provider payment, outcomes measurement, consumer engagement, and plan
administration.
Mercer noted that as a result of the new insurance reforms, employers
face new pressures to control costs, expand eligibility, comply with new
coverage and contribution requirements, absorb new fees and, at the same time,
try to avoid paying excise taxes for having a high-cost plan. Mercer assumes
that in the near term employers will absorb an additional 4% to 6% increase
above current health care cost trends.
According to the report, this is due to new sources of cost,
including:
- Expanded eligibility for groups of employees who are not currently
eligible and for dependent children up to age 26;
- Higher contributions for low-income employees who are currently
paying more than 9.5% of income for coverage;
- Expanded benefit coverage to eliminate any copayment or coinsurance
on preventive care and to eliminate lifetime and annual plan
maximums;
- Industry fees on suppliers, manufacturers and health plans that add
billions of dollars that are likely to be passed through to employers as part
of the cost of materials and administrative expense; and
- Per-participant fees for effectiveness research.
A recent Mercer survey of 791 employers found that the excise tax was
their most significant concern (29%), followed by changes to lifetime limits
(21%), and dependent eligibility
(20%).
In addition to these new costs, Mercer says health insurance reform did
not address the inequities between provider costs paid by government-sponsored
plans and those paid by employer-sponsored plans. Medicare and Medicaid have
negotiated extremely favorable payment rates, leaving providers looking to the
private sector to make up any insufficiencies or profitability
losses.
Mercer says the legislation assumes that Medicare will make payment
cuts in both the basic Medicare program and in Medicare Advantage. However, if
the cuts do not materialize (as has been the case with planned cuts to Medicare
physician payments), the shortfall will increase the federal deficit and
potentially increase taxes and fees for employers and individuals, and if the
cuts occur, then providers will turn to employer-sponsored plans and individuals
to make up the differences in their payments, Mercer
contends.
The report says employers face not only new sources of cost, but also
the risk of continued and more intensive cost shifting from government-sponsored
programs. As a result, it is highly likely that the cost trend may increase at a
higher rate than expected over a 10-year period.
Health Care Reform Impact on
Workforce
The new report from Mercer suggests the new health care law creates
some positive outcomes, some new risks, possible changes in workforce strategy,
and some unintended conflicts and
consequences.
For example, Mercer said increased access to coverage creates
conflicting outcomes. Increased enrollment in Medicaid, individual, and employer
plans will reduce the uninsured population, theoretically benefitting employers
that would not be charged the cost for uncompensated care; however, the cost of
individual coverage is likely to increase in the short term, making it less
attractive to new enrollees unless they are eligible for a significant
subsidy.
The report says the average cost for individuals may be impacted by
several factors:
- New enrollees will include people who had previously been denied
coverage due to pre-existing conditions. Thus, they come into coverage with
health conditions that must be addressed – particularly if they have delayed
care due to the lack of coverage. As a result, initial utilization for this
group will be high.
- The weak individual mandate increases the risk of adverse selection.
The low penalty for not having coverage provides an incentive for individuals
to opt in and out of coverage as needed. Individuals who think they have
little to no risk of needing coverage may continue to go without it. Including
these healthier risks would be very helpful in stabilizing cost and reducing
the financial risk of adverse selection.
While many employers place a high value on health plans as a way to
drive productivity and retain employees, that view is not universal. Mercer
found some employers are looking into the option of eliminating health care
benefits and giving some type of contribution to help employees buy
coverage.
In addition, employers that are facing significant cost increases
because of the shared responsibility requirements to cover new groups of
employees have to weigh all possible alternatives – increase their cost by
adding new employees, pay a penalty or evaluate ways to restructure the
workforce (for example, contract arrangements, reduced work hours). Thus, rather
than expanding access to coverage, the law may result in reducing the number of
hours employees are eligible to work, thereby reducing employee
income.
Mercer found a third (34%) of employers would consider changing their
workforce strategy so that fewer employees work 30 hours or more per week, and
38% would consider offering only a lower-cost plan for part-timers.
Rebecca Moore
editors@plansponsor.com
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