Large employers’ response strategies to ACA mandates are keeping health insurance costs stable

Employer-provided health care plans in the large employer market are stable and employers are effectively adjusting to the Patient Protection and Affordable Care Act’s (ACA’s) mandates, according to results from an ADP health benefits report. ADP further reports that cost changes have been modest and that shifting demographics leading to a younger workforce are keeping overall growth of cost per employee lower than in the past. The full report is available a www.adp.com.

Communication can be key. According to Christopher Ryan, vice president, Strategic Advisory Services at ADP, one strategy for containing costs has been to offer “ . . . more low-premium, high-deductible plans, also referred to as ‘consumer-directed health care plans.’ However, there can be [a] lack of understanding around these plans among employees, or fear that a high deductible ultimately results in high out-of-pocket health care costs. Effective education programs on the benefits to employees are a key to encouraging greater participation.”

Modest yearly increases. Total health premium cost per employee rose 5.0% from 2014 to 2016. ADP posits that this moderate cost trend is likely due to focused cost management on the part of employers, including the use of self-funding, high deductible health plans, employee health and wellness programs, and resources to assist with provider selection.

It is also possible that employers are trying to make plans more affordable for lower-wage workers, ADP theorizes. More specifically, ADP reports that, while total plan cost increased by 2.8% for 2014-2015 and 2.1% for 2015-2016, the amount of premiums that employers paid also increased, by 3.1% and 2.5% for the same periods, respectively. ADP also reports that employer contribution share increased slightly in most age groups and decreased only slightly for those 55 and older.

Premiums and increases vary by industry. Over the period studied, the largest occurred in Health Care and Social Assistance at 10.2%. Manufacturing had the lowest increase at 2.1%, but also the second highest total monthly premium in 2016, at $949. Retail Trade had the lowest monthly premium at $7.19. Demographic composition of employees and variations in industry benefit practices may explain some of these differences, ADP said.

Plan costs directly tied to compensation. Health premiums correlated directly with employee earnings. Lower income workers tended to have lower premiums, and higher income workers tended to have higher premiums. But ADP reports that when premiums are adjusted to account for dependents covered, premium costs tend to be similar for employees across all income levels. The key insight, says ADP, is that income is highly correlated with number of covered dependents, resulting in the higher premiums. While employer contributions increased slightly across all dependent groups (0.3% for employees with one dependent, 0.4% for employees with two or more dependents), the employer contribution percentage share for employees with no dependents was 78% and for those with one or more dependents, it was between 74% and 75%. Employer contributions to health premium costs also decreased slightly as income rose.

“Another trend is that the workforce is getting younger, helping to keep overall growth of cost-per-employee lower than in the past,” added Ryan. “While cost per covered life has increased, employees are more likely to be unmarried and have fewer dependents. The annual cost per employee increase of only 5.0% from 2014 to 2016 is the result of this trend.”

SOURCE: ADP press release, 6/15/2016, and ADP Health Benefits Report

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