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The ACA and Uncertainty around Business Health Care Insurance Premiums
A number of recent articles and blogs have reported on the impact of the Affordable Care Act (ACA) on the individual health insurance market (for example see here, here, and here, as well as this recent analysis by the Department of Health and Human Services). While there has been considerable coverage of the effect of the ACA on premiums in the individual insurance market, a number of provisions also affect employer-provided health insurance. The coming changes are leading to quite a bit of concern and uncertainty among businesses, at least according to a recent poll of Atlanta Fed business contacts. (Note: This survey was conducted at the end of June, just before the announcement that the mandate for all employers to require health insurance will be delayed until 2015. Also note: The survey is not a perfect representation of U.S. businesses, and all statistics shown here are not intended to represent the views of the broad population of U.S. firms.)
The effect on premiums
Before we get into the survey results, I want to discuss a little background on aspects of the ACA that are relevant to business owners. The ACA attempts to fix the adverse selection problem that exists in the current health care market by bringing everyone into the insurance pool. Beginning in 2014, individuals will be required to have health insurance, and beginning in 2015, businesses of a certain size that do not offer health insurance will be penalized. (See this flowchart for details on which type of businesses will be subject to the law beginning in 2015.) This push towards including everyone in the health insurance market will significantly change the risk pool. In addition, new regulations for small-group plans (employers with fewer than 100 employees) will affect the way in which insurance companies can price plans. Beginning in 2014,there will be one small-group market pool for each state, and insurers will no longer be permitted to adjust premiums based on gender, group size, industry, or health status (other than tobacco use) when writing small-group plans. There will also be limitations on their ability to price based on age. These changes can have positive or negative implications, depending upon your point of view. If you are an employer in a state that currently allows for price adjustments by these factors (and most do) and you employ a workforce that tends to be low risk, your premiums might rise. Conversely, a small-group employer in a risky industry might see their premiums decline. So a retailer employing mostly young people might have higher premiums under the ACA, but a mining company might have lower ones, assuming all else (deductibles, coverage levels, etc.) remains equal.
What are businesses doing to adjust their health plans in anticipation of the ACA? Is concern over the ACA spilling over into other business decisions like hiring plans?
Changes to current health care plan offerings
The results of our survey indicate that the majority of businesses (73 percent) participating in the survey are not planning to make any changes to the health care plans they currently offer because either (1) they are too small (they have fewer than 50 full time employees) or (2) they already offer insurance that satisfies the requirements of the ACA. Relatively few (1 percent) firms said their costs were increasing because they will offer health insurance for the first time.
The graph below shows the percent that checked each option. (Note: Firms are instructed to check all that apply.)
While most firms do not anticipate making changes to their health care plans, a nontrivial portion (23 percent) said they were planning to make changes to their current plan offerings or were still deliberating. One thing that stood out in these results was that 8 percent of companies said they planned to cut back or drop insurance coverage. Uncertain as to why this would be, we pored over the “please explain” and “other comments” boxes to learn more.
When we looked at these open ended questions, we found that 19 percent of businesses in the survey specifically mentioned that their premiums were going up in a way that was forcing them to rethink the benefits they currently offer. Many anticipate passing the cost on to their employees. Still others plan to save money in other ways including changing to a consumer-driven plan such as health savings accounts, or switching to a self-insurance option. (Note: This could be a good option for firms with overall low-risk workforces because they will not have to subsidize the health insurance of more risky workers at other places of employment.) Eliminating so-called “Cadillac plan” options was also mentioned, since there will be excise taxes on these plans under the ACA. The most common response however, was that they would reduce the portion of the insurance the company pays and put more of the burden on the employee if higher premiums materialize.
These concerns over managing cost pressures were prevalent across the distribution of firm size, but those with more than 100 employees were about twice as likely to have mentioned it. While it’s true that the ACA will affect large groups (those with more than 100 employees) differently, it’s not clear why they would be more likely to experience cost increases. Under the new law, large groups are subject to the prohibitions on pre-existing condition exclusions, rescissions, and lifetime and annual benefit limits. However, large groups are not limited to the fair health insurance premium rules, minimum essential benefits package, the new rating rules, or limits on deductibles.
The effect on hiring plans
While many firms are facing cost pressures that might affect their bottom line or lead to less take-home pay for employees, very few are anticipating cutting employees as a result of the mandate. While 12 percent of firms (54 out of 437) said they are watching their count of full-time equivalent employees to be sure it stays under 50, only 4 percent of firms were closing in on this limit (16 firms out of 437 that said they were watching their head count currently have between 25 and 50 employees). Those checking “other” mostly consisted of people saying they were still gathering information to see if their business would be affected, waiting to see what their premiums would be, and/or reducing the hours of their part time employees to be under 30.
In conclusion, while higher price pressures seem to be a concern for many, most of these businesses plan to muddle through the increase in cost by passing it onto their employees or by rethinking the type of insurance offered. Relatively few are watching their headcount, although some did say the uncertainty around the ACA is causing them to delay hiring decisions. In general, it seems employers are working through these issues, but more information is needed before any final decisions can be made.
By Ellyn Terry, a senior economic analyst in the Atlanta Fed's research department
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