The Patient Protection and Affordable Care Act presents employers with new choices regarding their employee benefit plans. Indeed, while the act may be full of bad news for employers (fees, complicated provisions, uncertainty on specific requirements), there is good news, as well.
As a result of both the act and unsustainable, unbridled cost increases, the benefits industry is innovating rapidly.
The following is an overview of what employers in Indiana and around the country are choosing. All data is from Mercer’s National Survey of Employer-Sponsored Health Plans, 2012.
Defined contribution health care
As retirement benefits have evolved from defined-benefit pension plans toward the defined-contribution structure of 401(k) plans, employers are considering a similar approach to health care—in short, by defining what the employer will pay toward health benefits each year. In Indiana, just over half of employers with 500 or more employees are using or considering a defined-contribution approach. Across the Midwest, that drops to 36 percent of employers.
This trend can shield employers against rampant health-plan cost increases, and will continue to gain traction.
Yet many benefits managers are asking whether this simply shifts cost increases to employees. The answer: not necessarily, especially if employee health benefits are purchased and delivered through a private benefit exchange.
Private benefit exchange
Insurance carriers, consulting firms and technology firms are all offering private benefit exchanges in parallel to the federal and state public exchanges launching this year. Providing access for employees to shop for their health benefits in an online marketplace allows for compelling integration with a defined-contribution health care benefit.
Employees shopping for health benefits for the first time will likely buy down to coverage they need rather than what they have always had.
In 2012, 56 percent of employers nationally said they would consider a private exchange, up from only 18 percent in 2011. In Indiana, 41 percent of large employers said they would consider a private exchange.
Dozens—if not hundreds—of early-adopting employers will move into private exchanges in 2014. If their objectives—to control costs and simplify administration while offering more choice to employees—are generally achieved, the market will flood with employers exploring private exchanges.
Termination of coverage
Despite the additional costs and complexities the act places on employers, benefits will remain a key ingredient in the value proposition that attracts and retains employees. Since the act was signed into law in 2010, some 20 percent of employers with fewer than 500 employees and less than 10 percent of employers with more than 500 have said they are likely to terminate their medical plans within five years.
This is consistent across the Midwest and in Indiana, where 7 percent of large employers said they are likely to terminate their medical plan.
Wait and see
Perhaps the majority of employers will fall into the so-called “wait and see” category. Wait and see how the exchanges operate. Wait and see whether the provisions regarding the excise tax on high-cost plans will remain in place by their 2018 implementation date.
In reality, these benefits managers are planning much more than they are waiting.•
Rosenberg leads the health and benefits business in the Indianapolis office of Mercer, a global human resources consulting firm. Views expressed here are the author’s.