The Supreme Court has decided. The Affordable Care Act (ACA) is the law of the land. Employers can now be more certain of their obligations as they set up health insurance plans for their workers.

“The Supreme Court decision (California v. Texas) has added a degree of certainty around the ACA,” said Julie Stich, vice president of content at the International Foundation of Employee Benefit Plans (www.ifebp.org). “Given the history of the law’s legal challenges, employers weren’t sure it would remain in force. Now they know they can count on it.”

Employers, however, are likely to see new developments in the health care law over the coming months. “The Biden administration is doubling down on the ACA,” said Michael Thompson, president and CEO of The National Alliance of Healthcare Purchaser Coalitions, a Washington, D.C.,-based umbrella organization for employers and health insurance purchasers in nearly 40 states. “They want to do a more diligent job in marketing the exchanges and improving the number of employees and families that have access to insurance.”

Other moves are afoot. In March the Biden administration passed the American Rescue Plan, which increased the health insurance premium tax credits for 2021 and 2022. This was followed up in July with an executive order directing federal agencies to seek ways to lower drug costs, including the possibility of importation of drugs from Canada and encouraging support for generic and biosimilar drugs.

 

Costs Rise

If the nation has accepted the ACA as the law of the land, employers face the daunting task of finding economical health insurance that will not short-change employees when they get sick. “Affordability is still job one for employers,” said Thompson. “They are managing affordability in part by increasing the amount employees are paying for coverage.”

Annual premium increases make the employer’s job tougher. The average premium for employer-provided health insurance have reached $21,342 for family coverage and $7,470 for single, according to the “2020 Employer Health Benefits Survey” from the Kaiser Family Foundation (www.kff.org). Both figures represent rises of 4 percent from the previous year, a pace greater than the same period’s 3.4 percent wage hike and 2.1 percent inflation.

The higher costs continue a long-term trend, notes the Kaiser report. Since 2010, average family premiums have increased 55%, at least twice as fast as wages (27%) and inflation (19%).

The good news is that the rate of premium increases has actually been moderating in recent times. “The marketplace for employer-based health coverage had another stable year in 2020,” stated the Kaiser report. “Premium increases were modest and consistent with recent years, contributions and cost sharing largely did not change, nor did the shares of workers offered coverage or covered at their jobs.”

A major damper on premium increases has been the growth of managed care. Kaiser reports that 47% of all workers are enrolled in a PPO, and 13% in an HMO. Outside of managed care, some 31% of people are enrolled in a high deductible plan with a savings option; 8% in a POS; and only 1% in a conventional indemnity plan.

 

Smaller Employers

Will the continuation of the ACA lead to a more economical and comprehensive health insurance environment? The answer is “yes” for one group of employers: Those with poor experience ratings resulting when one or more workers incur expensive treatment. Such organizations — largely smaller or medium-sized — had long encountered roadblocks obtaining reasonable policies. The ACA changed that by mandating insurance at the same rate as that for employers with good experience ratings.

“Smaller employers and their employees will continue to benefit from guaranteed issue,” said Stich. “That means participants can’t be turned down because of previous health status, age or gender.” ACA rules prohibit huge premium hikes when someone in a group experiences a life-threatening condition.

Even the largest employers will benefit from a continuing prohibition of exclusions for preexisting condition, adds Stich. “A person can feel confident they will have access to health insurance even if they are a diabetic or have had cancer in the past.”

Keeping Insurance

Despite the hassles and expenses required to compare competing plans and manage paperwork, employers as a whole do not want to drop health insurance as a benefit. Some 56% of all firms offer some health benefits, according to Kaiser. Yet these figures differ drastically by company size: Only 48% of firms with three to nine workers offer coverage; virtually all firms with more than 1,000 workers do so. “Firms not offering health benefits continue to cite cost as the most important reason they do not do so,” stated the Kaiser report.

The portion of employers offering health insurance has remained remarkably steady over the past couple of decades. For competitive reasons, few businesses that offer the benefit drop it. They realize that their best workers expect a good plan and will jump ship if they don’t get it. That’s a particularly high risk today when employers large and small are reporting difficulties finding a sufficient number of capable job candidates.

Too, some elements of the ACA are popular. “Employers and employees like the fact that policies cover everyone,” said Cheryl Larson, president and CEO of Midwest Business Group on Health, a Chicago-based consortium of 135 member companies employing more than four million people (www.mbgh.org). “They also like the coverage for pre-existing conditions and for employees’ children up to age 26.”

Many businesses offer insurance only to find that their employees decline it — either because they find it too expensive, or they already have the benefit from another source. “A big issue is affordability on the part of the employee,” said Ryan Moulder, lead counsel at Accord Systems, a consulting firm specializing in ACA reporting (www.accord-aca.com). “People who are paid $15 an hour don’t want to pay $200 a month for health insurance, especially when they’re young and healthy. The end result is that the employers view the whole thing as kind of a song and dance.”

Employers even have difficulty determining if they are obligated to offer health insurance and file the requisite annual paperwork — actions required only of businesses with 50 or more full time workers. “In many cases it can be difficult to determine who is a full-time employee (FTE),” said Moulder. “A lot depends on the quality of a business’s internal data.” (Employers can get help calculating their FTE number at www.healthcare.gov/shop-calculators-fte).

Confusion aside, incorrect reporting can spark penalties. “The IRS is penalizing with more scrutiny now,” said Moulder. “With each passing year, the IRS is looking harder at the 1094-C and 1095-C forms. So it’s more and more imperative that the reporting is accurate.” Moulder says it is particularly important to be accurate as to the type of coverage offered, cost of coverage to the employee, employee response, and whether an affordability Safe Harbor is applied. And it’s important to file on time. “The IRS doesn’t miss. If you file late, it’s guaranteed you’re going to get a penalty notice.”

 

Sharing Costs

Most covered workers contribute toward the cost of premiums. On average, covered workers contribute 17% ($1,243 out of $7,470) of the premium for single coverage and 27% ($5,588 out of $21,342) of the premium for family coverage, according to the Kaiser report. (At smaller firms with lower wage workers, worker contributions for family coverage can go as high as $6,820). Worker contributions have increased 13%  as a portion of total premiums over the past 5 years and 40% over the past decade.

Additional employee contributions to health insurance costs — often dubbed “cost sharing” — take the form of deductibles (annual dollar amounts paid before services are covered), copayments (fixed dollar amounts for services) and coinsurance (percentages of service charges).

Kaiser reports that 83% of workers are in plans that have a general annual deductible for single coverage (up from 70% in 2010). The average is $1,644 (up from $917 in 2010), an increase of 25% over the past 5 years and 79% over the past decade. (The deductible can go as high as $2,295 at smaller firms.)

The average deductible amounts for covered workers in plans with an aggregate annual deductible for family coverage are $3,035 for HMOs; $2,716 for PPOs; $3,902 for POS plans; and $4,552 for HDHP/SOs.

As for copayments, the average is $26 for primary care and $42 for specialty care. The average coinsurance rates are 18% for primary care and 19% for specialty care.

Finally, out-of-pocket maximums place a ceiling on how much employees must pay before insurance takes over. “Out-of-pocket maximums vary widely, with 11% of covered workers in plans with maximums of less than $2,000 and 18% in plans with maximums of at least $6,000,” stated Kaiser. (The ACA requires that non-grandfathered health plans have an out-of-pocket maximum of no more than $8,150 for single coverage and $16,300 for family coverage.)

Altogether this cost sharing has been rising faster than wages and faster than the premium increases themselves, said Thompson. “At the same time, what employees are buying for those premiums has been going down, because deductibles and out-of-pocket maximums have been increasing at the same pace.”

Shopping Around

Employers can reduce their own health insurance costs by shopping around, surveying all the available plans in a region. “It’s important for smaller employers to go out to bid for plans,” said Larson.

Employers with fewer than 50 full-time workers might consider The Small Business Health Options Program, or SHOP, an ACA-sponsored Internet-based insurance marketplace that promises reduced pricing. Tax credits are available to SHOP participants with fewer than 25 FTEs, with average annual wages of less than $50,000.

So far, though, SHOP has received little interest. Some awkward sign up procedures and a lack of sufficient publicity has kept the program from expanding very quickly. “In certain states SHOP is going well and other states it’s not doing much,” said Steven Eastaugh, a Washington, D.C.,- management consultant. “What needs to be done to make the growth speed up is to allow small business tax credits to be available for up to 6 years, not just 2, and to increase the amount of tax credits by at least 40% more than the current level so that it really helps employers.”

Employers can find more information about SHOP at www.healthcare.gov/small-businesses/.

 

Alternative Plans

Employers have access to a number of alternative sources for health insurance, each with benefits and drawbacks. Here are the main ones:

• Private exchanges. (Not to be confused with the public health insurance exchanges established by the ACA). Often created by consulting firms, insurers or brokers, these regional virtual marketplaces allow employers to provide workers with a choice of several different health care options.
• Short term policies. These cheaper plans offer monthly premiums as low as $200 while cutting corners on coverage. State insurance commissioners have closed many of them and the Biden administration does not support them.
• Association plans. These allow employers to pool workers within similar geographic or industrial groups. One problem: Businesses with healthy individuals often end up subsidizing the steep medical bills of others. Again, state commissioners are closing down many of them and the Biden administration will likely reduce their attraction.
• Health Reimbursement Arrangements (HRAs). These tax-sheltered, employer-owned accounts reimburse employees for health care received on the open market. A drawback is that care received on the open market is expensive.

One final option for employers with fewer than 50 FTEs is to increase salary levels and invite (but not require) workers to spend the money to buy their own insurance. That increase, however, would be subject to payroll taxes.

 

New Channels

In the year ahead, high expenses incurred in treating COVID-19 infections may well put health insurance cost control on the front burner at many businesses. “I think you’re going to see employers get more aggressive in bringing their companies back into a more sustainable environment,” said Thompson. “They are going to be looking for strategies that allow them to provide affordable coverage without sacrificing quality.”

Those employers looking to shave costs are advised to start by understanding how their workers currently utilize medical care. “The only way to create a long-term strategy for healthcare is to create a plan for cutting expenditures for high-cost claimants,” said Jessica Du Bois, an insurance broker in the Washington, D.C., region. She adds that small groups without adequate claims data should have employees fill out personal health questionnaires. “Then employers can target costs which are driving premiums by helping claimants navigate to the lowest cost and highest quality option for care.”