While the announcement that employer shared responsibility penalties will not apply until 2015 was a welcome relief for employers, addressing the fundamental challenges raised by the reform law remains a priority. At the heart of the matter is cost.
In the short term, new fees, plan design changes and the expectation of additional enrollment will add an estimated 2%–3% or more to health plan cost in 2014, even if employers table plans to extend coverage to all employees working 30 or more hours per week. Longer-term, avoiding the excise tax on high-cost plans slated for 2018 remains a daunting challenge. More than a third of employers surveyed by Mercer in May said that they were taking steps in 2014 to help bring down cost by 2018.
“The delay will give employers more time to cope with some of the requirements, but they know it’s no free pass,” said Julio A. Portalatin, President and CEO of Mercer. “We expect employers to stay 100% focused on cost management. Last year they slowed benefit cost growth to its lowest level in 15 years, but in 2014 they have the new fees and the likelihood of new enrollment to contend with, on top of normal medical inflation. As employers evolve their go-forward benefit strategies, private exchanges, such as Mercer MarketplaceSM, continue to be a powerful strategy for corporate cost management and expanded employee customized choice.”
Mercer expects employers will continue to prepare for compliance. In May, about a fourth of employers surveyed hadn’t yet decided how they would track and report variable employee work hours and a third hadn’t decided what look-back period to use. The delay gives them more time to address these administrative challenges. The Treasury department has suggested that proposed Reporting and Disclosure regulations will be provided this summer. However, public exchanges, which are slated to be operational in 2014, may still reach out to employers to verify applicant eligibility for health insurance.
Half of employers surveyed in May were concerned about handling employee questions about the exchanges, and 43% were concerned about establishing processes and systems for interacting with exchanges. Employers must still prepare to address employee confusion about their need to have health coverage and their options for coverage – both from their employer and the public exchanges.
Will employers move ahead with plans to expand coverage?
According to Mercer’s survey, about a third of employers currently do not extend coverage to all employees working 30 or more hours per week, and many of these employers had already made plans to do so in 2014. “While we don’t know for sure whether these employers will choose to expand eligibility early, they have sufficient lead time to decide to hold off,” said Tracy Watts, a Senior Partner in Mercer’s Washington, DC, office. “Most have not announced changes yet, and if they have an extensive part-time work force, the money to be saved by not expanding coverage in 2014 could be considerable.”
The delay creates a “gap year” for employees that had been enrolled in mini-med plans. These limited coverage plans may not be offered after the end of 2013 plan years. This may provide another reason for employers to consider offering a private health exchange in 2014 – to allow employees who do not qualify for subsidies in the public exchanges to purchase lower cost medical plans and supplemental medical benefits. Because employers don’t have to make their coverage affordable for another year, employers can choose whether, or how much, to contribute to the cost of coverage.
Mercer’s private exchange, Mercer Marketplace, offers several types of supplemental medical benefits, accident insurance, critical illness insurance, and hospital indemnity, as well as many other lines of coverage. It also provides a platform for employers to offer a range of medical plans, including lower cost consumer-directed health plans, which many employers see as critical to holding down cost in the face of rising enrollment and avoiding the excise tax in 2018.
“Offering employees lower cost plans through private exchanges is one way employers can reset plan value while giving employees the option to buy up for richer coverage,” said Ms. Watts. “Creative cost management is going to be a fact of life under reform, and the delay doesn’t change that.”
Mercer is a global consulting leader in talent, health, retirement and investments. Mercer helps clients around the world advance the health, wealth and performance of their most vital asset – their people. Mercer’s 20,000 employees are based in more than 40 countries. Mercer is a wholly owned subsidiary of Marsh & McLennan Companies (NYSE: MMC), a global team of professional services companies offering clients advice and solutions in the areas of risk, strategy and human capital. With 53,000 employees worldwide and annual revenue exceeding $10 billion, Marsh & McLennan Companies is also the parent company of Marsh, a global leader in insurance broking and risk management; Guy Carpenter, a global leader in providing risk and reinsurance intermediary services; and Oliver Wyman, a global leader in management consulting.