Some employers altering health plans in reaction to ACA, rising costs
The University of Virginia last week joined the small but fast-growing cohort of major employers making dramatic changes to their healthcare plans for 2014, which many are blaming on rising healthcare costs and the implementation of the Patient Protection and Affordable Care Act.
Working spouses who can get health benefits through their own employer will no longer be eligible for coverage under the university’s plan. Moreover, premiums will rise for those who fail to join the university’s wellness program, which includes a biometric screening and online health assessment.
“The significant changes reflect difficult decisions in some cases, but in all cases the modifications are being made with an eye on long-term strategic results,” said Susan Carkeek, chief human resource officer at the university. She estimated the ACA will add $7.3 million next year to the cost of its health plan, which covers more than 13,600 employees, plus family members.
Atlanta-based UPS announced similar cuts in coverage for its employees’ mates last month, declaring that it would no longer provide healthcare benefits to about 15,000 spouses of UPS employees.
While instances like these have received major media attention, scaling back healthcare coverage in this fashion is hardly a widespread phenomenon. According to a 2013 survey conducted by the International Foundation of Employee Benefit Plans, only 1.3% of respondents had dropped spousal coverage, and just another 4.2% said they planned on doing so in the next 12 months because of the Affordable Care Act.
“Denying coverage for working spouses who are eligible is a rare practice,” said Cynthia Weidner, vice president of client development at benefits consultant HighRoads. Weidner instead points to spousal waivers or surcharges, methods that she says have been in use for a while now when the spouse has another option for coverage.
At Penn State, for instance, a monthly insurance surcharge of approximately $100 will be added to benefits-enrolled spouses who are eligible for healthcare coverage through their own employer but who elect to use the university’s coverage instead. And similar to what will happen at the University of Virginia, another $100 surcharge will be assessed on top of that for employees and spouses who do not complete an online wellness profile and an annual preventive physical exam.
“There’s a focus around wellness, putting more teeth into wellness programs and achieving outcomes,” said Mike Thompson, a principal in PricewaterhouseCoopers’ global human resources services practice.
“Regardless of healthcare reform, companies are trying to address rising healthcare costs and the declining health of the population,” added Craig Rosenberg, health and welfare national practice leader at Aon Hewitt.
Wellness initiatives, like the ones at the University of Virginia and Penn State, seek to tackle both issues. It’s a holistic approach that, according to Aon Hewitt’s 2013 Health Care Survey, more than 70% of employers have considered. “It’s not just direct health cost,” Rosenberg says. “If people are not healthy, you’re going to have more absenteeism, leaves and disability, and cost the company in terms of productivity.”
But discussions surrounding direct costs still remain on the table, with a major focus on shifting those costs from employer to employee. For some, this means moving to or adding a high-deductible health plan, usually with a health savings or health reimbursement account attached to it to pay for eligible medical expenses.
“That was going on before healthcare reform,” said Melissa Rasman, legal and benefits consultant and senior principal at management consulting firm Hay Group. “But it’s increased because of the Cadillac tax.”
Beginning in 2018, a 40% excise tax— referred to as the Cadillac tax because it hits the more generous health insurance plans—will be assessed on health insurance benefits exceeding $10,200 for an individual and $27,500 for a family. Although the tax doesn’t go into effect until 2018, benefits consultants say that employers need to start planning now.
“The larger organizations are taking a careful look and redesigning their plans to mitigate the tax,” Weidner said. Any of the techniques employed to reduce cost of coverage, she said, have the added benefit of helping companies avoid falling subject to the 40% tax.
And there is no shortage, it seems, of ways that employers are seeking to cut healthcare costs.
“It seems to me to be all over the board,” Rasman said.