Tuesday, January 20, 2015

How is the ACA affecting employer-sponsored insurance?

I am working on a reported piece that looks at how employer-sponsored insurance (ESI) is changing and how it compares to insurance offered on the ACA exchanges [update: here it is]. The basic framework is provided by the Kaiser Family Foundation's 2014 Employer Health Benefits Survey.  Here are the premises as they now stand.  Informed input welcome!

1. The ACA has not strongly driven premium increases or cost-shifting to employees in ESI  -- though employers offering more generous plans are  beginning to react to the Cadillac tax, which takes effect in 2018. While premiums, deductibles and out-of-pocket (OOP) expenses have risen steadily, premiums rose more steeply from 2004 to 2009 than from 2009-2014, and deductibles have risen more or less steadily. The phase-out of grandfathered plans that don't comply with ACA coverage rules has meanwhile proceeded steadily; in 2014, just 26% of workers covered by ESI plans were in grandfathered plans, down from 36% in 2013, 48% in 2012 and 56% in 2011.

2. All that said, the constant cost-shifting has hit employees at small firms particularly hard. On average, they pay deductibles almost twice as high as employees of larger firms (an average of $1797 for individual coverage at firms with 3-199 employees, vs. $971 at larger firms). A higher percentage of small-firm employees (3-199 employees) remain in grandfathered plans (35%  vs. 22% in larger firms).

3. On the whole, ESI remains superior to insurance bought in the individual market -- with the significant exception of silver plans sold on ACA exchanges to buyers whose household incomes are less than 200% of the Federal Poverty Level (FPL).  For these buyers, Cost Sharing Reduction (CSR) subsidies raise the actuarial value of their plans to either 94% (for those under 150% FPL) or 87% (for those from 150-200% FPL). In New York, which reports the metal level selections of ACA private plan buyers by income level (and which may be a decent proxy for the nation as a whole), 35% of ACA private plans buyers are in this category.

4. Along with increased cost-shifting, increasing numbers of employers are pushing their employees into high deductible health plans coupled with Health Savings Accounts, partially offsetting the cost-shift by contributing to employee HSAs. Tax-sheltered HSAs, traditionally a favored vehicle of the wealthy self-employed or LLC partners, are moving down the food chain, and at least some lower income HSA holders are getting used to using them.

5. While most businesses can best serve their employees by maintaining ESI, those with a high percentage of workers whose incomes are under 200% FPL might serve them as well or better by sending them to the ACA exchanges, while providing broker services to help them navigate the unfamiliar terrain. Low-wage part-time workers hovering around the 30-hour threshold at which the employer mandate kicks may in many cases do better on the exchanges.

Update: three clarifications offered by Kaiser's Larry Levitt:

1. Premiums have likely increased modestly as a result of the ACA. For example, the medical device and drug taxes mostly get passed on to employers, as does the reinsurance fee. For insured employers, the premium tax is also having an effect. On the other hand, premiums have been growing very slowly, and at least part of that may be indirect effects of the ACA’s cost containment efforts.

2. Total costs have also been influenced by a couple ACA-related factors. Allowing young adults to stay on their parents’ policies until age 26 has led to more people covered by employer-based plans, increasing costs for employers. It is also likely that the individual mandate has led to higher take up of employer coverage, particularly in low-wage industries. Walmart has indicated that this is something they have seen [thanks also to IBD's Jed Graham for alerting me to Walmart's claims].

3. Insurance market changes in the small group market – particularly the elimination of health status and industry rating and limits on age rating – will ultimately lead to premium increases for some small businesses and decreases for others, but shouldn't have any meaningful effect on average across small businesses. The full effects of those changes have yet to be realized because many small businesses have been able to keep their older policies under transition rules.

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