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Reform result: Brace for higher health costs

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in Employee Benefits Program,Human Resources

Employers are preparing for a spike in employee health costs now that health care reform has become law.

A U.S. Chamber of Commerce analysis of the Patient Protection and Affordable Care Act (PPACA) says the law “is largely about the worthy goal of expanding access to coverage, rather than the pressing imperative of addressing explosive health care costs … several provisions will actually increase health care costs.”

Ninety-four percent of employers polled by Towers Watson said they believe health care reform will raise their organizations’ costs.

A study by Mercer found similar pessimism. It asked employers to forecast their costs related to PPACA mandates taking effect this year: covering dependents up to age 26 and elimination of caps on lifetime benefits. Here’s the percentage that predict:

  • Increases 1% or less: 13%
  • Increase 1% to 2%: 28%
  • Increase 3% to 4%: 13%
  • Increase by 5% or more: 12%
  • Don’t know: 30%
  • N/A—already comply: 3%

Those cost hikes are on top of the much-higher-than-inflation increases employers have suffered for years.

“Average health benefit cost per employee has been rising consistently at about 6% for the past five years,” says Tracy Watts, a Mercer consultant. “That seems to be employers’ threshold of pain. If compliance with health insurance reform pushes the cost increase up toward double digits, employers will be exploring ways to bring it back within their comfort zone.”

Looking further into the future, employers say the excise tax on high-cost plans, which takes effect in 2018, is their top concern.

In order to cope with expected cost increases, Towers Watson found that employers plan to cope by:

  • Passing on increases to employees (88%)
  • Reducing health benefits and programs (74%)
  • Absorbing costs (33%)
  • Passing on increases to customers (20%).

For more details on the law, including a year-by-year employer compliance calendar, go to www.theHRSpecialist.com/healthlaw.

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