Nearly 20 Percent Of Employers Expect Costs To Rise Significantly Due To Health Reform: Mercer

Nineteen percent of employers believe that health care costs will rise significantly (by 5 percent or more) due to the provisions of the Patient Protection and Affordable Care Act (ACA) going into effect next year, according to recent research from Mercer. This is up from the 15 percent who thought costs would rise by 5 percent or more last year, the study noted. In 2011, 25 percent of survey respondents expected the ACA would have little or no impact on cost (adding less than 1 percent). In 2013, only 9 percent expect to get off so easily, Mercer found.

“As we approach 2014, it’s a bit concerning that 32 percent of employers know little about the actual cost impacts of the new changes,” said Julio A. Portalatin, president and chief executive officer at Mercer. “The ACA affects each organization differently as the impact on many fronts will persist well beyond the 2014 period with many variables to consider.”

More employees may select coverage. While employers can calculate how many employees will be newly eligible for coverage, they can only guess how many will actually elect coverage, according to Mercer. All individuals are required to have health coverage in 2014, but because the tax penalty for not obtaining coverage insurance will be relatively low in 2014—just $95 per individual or 1 percent of household income, whichever is greater—some employees may still choose to go without coverage.

Changes in contribution strategy also will make it harder to predict enrollment levels, Mercer noted. Some employers are attempting to protect themselves from large increases in enrollment by raising employee contributions for coverage, particularly for dependents. Thirty percent of employers said that they will require a bigger paycheck deduction for dependent coverage next year, and 13 percent will raise the contribution percentage for employee-only coverage. These changes may affect enrollment decisions in families where both spouses have coverage available.

When employers were asked if they were budgeting for an increase in enrollment in 2014, just 17 percent said they are; 42 percent said they are not; and 41 percent still have not decided.

Counting employees. Mercer also found that 23 percent of employers still are unsure of how they will track and record the hours of employees who work variable hours, as is required by the ACA in order to verify that all employees working 30 or more hours are offered coverage. “Tracking employee hours and maintaining accurate records will be critical for employers, since they will need access to this information later in the event of an audit or to defend themselves against penalties for 2014 and beyond,” said Tracy Watts, Mercer’s health care reform leader.

Excise tax. In 2018, an excise tax will be placed on high-cost employer-sponsored plans. Mercer noted that this provision may ultimately have the biggest impact on employer-sponsored coverage. To avoid a 40 percent excise tax, employers must keep total health plan cost below a threshold of $10,200 for an individual and $27,500 for a family in 2018.

Over a third of employers said that they have begun taking steps now to avoid the tax in 2018. Most commonly, they are focusing on high-deductible consumer-driven health plans (either by adding a plan or taking steps to increase enrollment in an existing plan). Many say they will add or expand health management programs in an effort to reduce health care spending by improving workforce health.

“This provision could be the real game-changer,” said Watts. “Employers have consistently told us that they will do whatever is necessary to avoid the tax, and given the rate of increase in health benefit cost, that may require fundamental changes in the type of health benefit they provide and how they provide it.”

The survey includes responses from nearly 900 employers. For more information, visit

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