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:

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:

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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