”Charge” Accounts

By Nevin Adams, EBRI

Adams

Adams

I was a late convert to the convenience of NetFlix, and while I appreciated the convenience of delivery, when they expanded the offering to include online movie viewing “at no additional charge,” I didn’t really “get” it. Aside from the fact that, at that time, my DVD player wasn’t wireless compatible, the selection (certainly in those early days) was unremarkable at best. In fact, I remember telling a friend once that the online movies were free, and worth every penny.

The quality and breadth of selection improved over time, until of course, there came that fateful decision to charge a fee for that online movie access separate and apart from the home DVD delivery. All of a sudden, a service that had been a nice-to-have “at no additional charge” had to be viewed through a whole new prism―it was now a benefit with a cost.

Under the Patient Protection and Affordable Care Act (PPACA), group health plans that offer dependent coverage are required to extend coverage to workers’ children until they reach age 26, regardless of student status, marital status or financial support by the employees. It has been estimated that 3.1 million young adults have acquired health coverage as a result of the adult-dependent mandate (ADM) provision, and overall, 31 percent of employers enrolled adult-dependent children as a result of the mandate, according to a recent EBRI report (online here).

However, under PPACA, employers are not allowed to directly charge higher premiums for the cost of this “adult-dependent” coverage. An EBRI analysis of the experience of a single large employer during the period Jan. 1, 2010, through Dec. 31, 2011, found that nearly 700 adult children enrolled in the employer plan in 2011 as a result of the adult dependent mandate―and this group used about $2 million in health care services in 2011 (about 0.2 percent of the over $1 billion in total spending on health care services by that employer that year).

The EBRI report also looked at the claims behaviors of the ADM group compared with a group of dependent children ages 19–25 that were covered prior to Jan. 1, 2011, some 13,000 young adults. Both groups had health coverage for the entire 2011 calendar year through the employer examined in this study. Average spending in the ADM cohort was higher: 15 percent higher than the comparison group, in fact. While the period of review was short, and the experiences associated with that of a single large employer, the ADM group used more inpatient services than the comparison group, and, in what is perhaps the most interesting finding of the analysis, were more likely to incur claims related to mental health, substance abuse, and pregnancy.

So, while this adult-dependent coverage is currently offered “at no additional charge” (certainly for those already carrying family coverage), there are almost certainly additional costs―costs that employers and workers will (and indeed already have begun) to share through claims payments, cost sharing, and worker premiums.

Of course, as a result of this expanded coverage, there also are individuals who might otherwise not have the benefit of the coverage, either because they wouldn’t have access, or would find it to be prohibitively expensive―and this coverage might well be less expensive than the alternative consequences. Little wonder that the debate continues as to whether the provisions of PPACA will serve to increase or decrease long-term health care spending trends.

It will be interesting to see how the health care spending trends of this younger demographic change over time, and how employers respond. It also underlines the importance of ongoing research on these spending and usage patterns as implementation of the PPACA proceeds, even as it serves to remind us that there can be a difference between no additional charge, and no additional cost.

Most Workers Would Look for Alternatives if Health Benefits Are Taxed

What if Congress decides to start taxing workers’ health benefits as a means to raise revenue as part of an effort to rein in the federal deficit? More than half of American workers would either switch to a less costly plan, shop around, or drop coverage, according to new research from EBRI.

The 2012 EBRI/MGA Health Confidence Survey (HCS) finds that if current tax preferences were to change and employment-based coverage became taxable to workers, 26 percent would want to switch to a less costly plan, 21 percent say they would want to shop for coverage directly from insurers, and 9 percent say they would want to drop coverage altogether.  However, nearly 4 in 10 (39 percent) individuals say they would continue with their current level of coverage, up 10 percentage points from last year’s HCS findings.

While changes resulting from the Patient Protection and Affordable Care Act (PPACA) have raised concerns as to whether employers will continue to offer health coverage in the future, the 2012 HCS finds that health benefits remain a key a factor for workers in choosing a job, and health insurance in particular continues to be—by far—the most important employee benefit to workers.

“Most Americans are satisfied with the health benefits they have now and prefer not to change the mix of benefits and wages,” said Paul Fronstin, director of EBRI’s health Research and Education Program and author of the report. “About three-quarters say they are satisfied with the health benefits they currently receive, while 15 percent say they would trade wages to get more health benefits, and 9 percent say they would surrender health benefits for higher wages.”

Full results of the 2012 Health Confidence Survey are published in the December 2012 EBRI Notes, “Views on Employment-Based Health Benefits: Findings from the 2012 Health Confidence Survey,” online at www.ebri.org

The HCS examines a broad spectrum of health care issues, including Americans’ satisfaction with health care, confidence in the future of the nation’s health care system and the Medicare program, as well as their attitudes toward certain aspects of health care reform.

Notes.Dec12.HCS.Fig5

Self-Insured Health Plans Growing, Driven by Large Employers

Large private-sector employers are driving a trend toward more “self-insured” health plans, according to a new report by EBRI.

Among employers that offer health coverage to their workers, there are two basic types of insurance plan:

* A self-insured plan, in which the employer assumes the financial risk related to health insurance; or

* A fully insured plan, in which an insurance company is paid to assume the risk.

Historically, large employers have been far more likely to self-insure than have been small employers, the EBRI report notes, and there are significant incentives for them to do so: Large multi-state employers can provide uniform health benefits across state lines if they self-insure (lowering administrative costs) and also are not required to cover state-mandated health care services—as are fully insured plans.

Following the passage and implementation of the Patient Protection and Affordable Care Act (PPACA), there has been speculation that an increasing number of smaller employers would opt for self-insurance. As the EBRI report explains, some employers think that components of PPACA, such as the strict grandfathering requirements, the minimum-creditable-coverage requirement, the breadth of essential health benefits, affordability requirements, as well as taxes on insurers, medical-device manufacturers, and pharmaceutical companies and reinsurance fees will work to drive up the cost of health coverage.

“Employers generally, and small employers particularly, concerned about the rising cost of providing health coverage may view self-insurance as a better way to control expected cost increases,” notes Paul Fronstin, director of EBRI’s Health Research and Education Program and author of the report. “This new analysis provides a baseline against which to measure future trends.”

Among the findings of the EBRI report:

  • The percentage of workers in private-sector self-insured health plans has been increasing. In 2011, 58.5 percent of workers with health coverage were in self-insured plans, up from 40.9 percent in 1998. To date, large employers (with 1,000 or more workers) have driven the upward trend in overall self-insurance. The percentage of workers in self-insured plans in firms with fewer than 50 employees has remained close to 12 percent in most years examined.
  • Massachusetts, the only state to have enacted health reform similar to PPACA, has seen an increase in the percentage of workers in self-insured plans among all firm-size cohorts, except among workers in firms with fewer than 50 employees.
  • Overall, 58.5 percent of workers were in self-insured plans in 2011, but the percentage ranged by state, from a low of 30.5 percent to a high of 73.8 percent.

Full results are published in the November 2012 EBRI Notes, “Self-Insured Health Plans: State Variation and Recent Trends by Firm Size,” online at www.ebri.org

Everybody Into the Pool?

By Nevin Adams, EBRI

Adams

As a teenager, I remember the occasional visits to the local swimming pool. I also remember that about once an hour, the lifeguards on duty would periodically clear the pool, ostensibly to clean out debris, to enforce a certain rest break on the swimmers (and doubtless for the lifeguards), and perhaps to assure that all the swimmers were still able to get out of the pool. Then, after what seemed to my teenage senses like an eternity, the lifeguards would blow a whistle—the “all-clear” signal for everyone to jump back in the pool. They were very strict about this—and kids were routinely banned for an hour, or even the rest of the day for jumping in “early.” As a result, even after the whistle, most of us would hesitate and look around to make sure that we weren’t the only ones going in.

With the Supreme Court’s recent decision on the constitutionality of the Patient Protection and Affordable Care Act (PPACA) behind us, industry surveys suggest that employers are turning to the issue of the next phase of implementation. Moreover, the combination of insurance market reforms and the embodiment of the exchange structure in the PPACA have brought a renewed focus on limiting employer’s health care cost exposure, much as changes in funding requirements and accounting treatment led many to reconsider their approach to retirement benefits.

A recent EBRI Issue Brief¹ notes that it was only about a decade ago that defined contribution (DC) health plans, arrangements that shift choice of health insurance from employers to employees, were the focus of much attention. As far back as the late 1990s, more than 62 percent of health care leaders predicted that employers would move to DC health plans by 2010.

That trend never fully emerged, of course—employers were hesitant to drop group coverage in favor of offering individual policies, some were likely concerned that many employees would not be able to secure coverage in the individual market, some others drawn to the tax advantages. Many viewed the benefit as an important tool in attracting and retaining a strong work force, and surveys, including EBRI’s Health Confidence Survey (HCS), suggest that workers do, in fact, appreciate the offerings.

EBRI’s Paul Fronstin notes that the combination of insurance market reforms and the embodiment of the exchange structure² in PPACA have brought a renewed focus on limiting the employer’s health care cost exposure by providing a fixed-dollar contribution that workers could use to purchase individual policies. He notes that the vehicle that some are interested in using for providing coverage is a private health insurance exchange, through which employers might be better able to accelerate the drive toward a more mass consumer-driven insurance market—and in the process gain more control over their health care contribution costs, while shifting to employees the authority to control the terms (and to some extent, the costs) of their own health insurance.

This should sound familiar to those who have watched similar motivations lead to the shift in retirement plan emphasis from pension plans to defined contribution/401(k) retirement benefits. The question is, will the combination of factors provide employers with the “all clear” sign to undertake changes they have, thus far, been hesitant to take? And if that all clear sign is given, will employers all jump in at once?

 Notes

¹ In addition to a historical perspective, the July 2012 Issue Brief examines the issues related to private health insurance exchanges, the possible structure of an exchange and how it can be funded, as well as the pros, cons, and uncertainties to employers of adopting a private exchange. MORE.

² Fronstin notes that private exchanges are already in development partly because of the uncertainty related to the status of state-based exchanges. Development of several of these were postponed, pending resolution of the PPACA’s constitutional challenge. Several Republican governors have said they will refuse to establish state-based exchanges, leaving them to the federal government to run. As recently as March 2012, the majority of states had still not taken the necessary steps to establish an exchange.

Provider Networks, Premiums Key Factors in Health Plan Choice

When given a choice, most individuals with traditional health coverage say they chose that option because it offered a good network of providers, according to new findings by EBRI.

In contrast, among those with so-called consumer-driven health plans, most cited the lower premiums and opportunity to save money in a health account.

While close to half of all private-sector workers who have health insurance are offered a choice of health plans, most of those with a choice work for large firms, according to the report.

“Most Americans get their health insurance coverage from employment-based plans, yet most employers do not offer a choice of health plans,” said Paul Fronstin, director of EBRI’s Health Research and Education Program and author of the report. “Health plan choices are likely to expand via the expansion of insurance exchanges under the Patient Protection and Affordable Care Act, so it’s important to know how people make their decisions when they do have a choice.”

The EBRI analysis examines issues related to private health insurance exchanges (an integral component of the Patient Protection and Affordable Care Act, or PPACA), possible structures of an exchange, and funding, as well as the pros and cons of adopting them. A summary of recent surveys on employer attitudes are examined, as are other benefit program changes that might serve as historical precedents for a move to some type of defined contribution health benefits approach.

Full results of the report are published in the July EBRI Notes, “Health Plan Choice: Findings from the 2011 EBRI/MGA Consumer Engagement in Health Care Survey.”  

 The Employee Benefit Research Institute is a private, nonpartisan, nonprofit research institute based in Washington, DC, that focuses on health, savings, retirement, and economic security issues. EBRI does not lobby and does not take policy positions. The work of EBRI is made possible by funding from its members and sponsors, which includes a broad range of public, private, for-profit and nonprofit organizations.

Starting Small

Are CBO Estimates on the Future of Employment-Based

Coverage Under PPACA Moving Toward the Herd Mentality?

By Paul Fronstin, EBRI

Fronstin

Trends in employment-based coverage start with small numbers.

The Congressional Budget Office (CBO) recently reported that it had revised its estimates on the net number of people with employment-based health coverage downward in 2016. In March 2011, CBO reported that about 1 million fewer people would have employment-based health coverage due to enactment of the Patient Protection and Affordable Care Act (PPACA), but in March 2012 it revised that number to about 4 million. CBO also estimates there will be about 2 million fewer estimated enrollees in insurance exchanges, which are to take effect in 2014.

The net reduction in the number of people with employment-based coverage—about 2 percent of the total health insurance market—is actually a function of total gains and losses in coverage. As the CBO notes in a footnote for its 2019 estimates, as a result of PPACA, about 14 million fewer people are expected to have employment-based coverage (about 11 million individuals will lose access to employment-based coverage, and another 3 million will decline employment-based coverage and enroll in health insurance from a different source), while about 9 million will newly enroll in employment-based coverage under PPACA.

The Herd Mentality

A report from Avalere assessed the validity of differing estimates of the effect of PPACA on employment-based coverage. Its analysis concluded that the employment-based market will be fairly stable after 2014, when key PPACA coverage provisions go into effect. However, the most important statement in the report may be the following:

“While near-term changes in aggregate ESI [employer-sponsored insurance] rates are unlikely, longer-term erosion—over 10 to 20 years—is possible under certain circumstances. … if a few [emphasis added] large employers drop coverage after 2014, others could follow in a “me too” effect. Both of these scenarios are difficult to model, but should be considered.”

Various surveys suggest that a significant number of employers will follow the market:

  • In a June 2010 survey, Fidelity found that 26 percent of small employers and 36 percent of large employers would seriously consider eliminating health care if other employers did.
  • In September 2010, HR Policy Association reported that 80 percent of chief human resource officers surveyed said that other companies moving away from health coverage would influence their decision to offer coverage.
  • A June 2011 survey of very large self-insured employers by the Benfield Group found that 21 percent were highly likely and 49 percent somewhat likely to drop coverage if their industry competitors stopped offering health benefits.

The trend in sentiment in these surveys may be reflected in a recent Towers Watson/National Business Group on Health Employer Survey that found that between 2007 and 2011, the percentage of employers reporting that they were highly confident that they would be offering health benefits a decade later fell from 70 percent to 23 percent.

The CBO seems to capture such a dynamic in its sensitivity analysis. CBO indicates that variation of estimates in employment-based coverage ranges from a net loss of 20 million to a net gain of 3 million by 2019. In fact, a number of surveys have also found that a small number of employers plan to drop coverage in 2014 or thereafter (see “Understanding Employer Surveys That Address the Future of Employment-Based Health Coverage,” online here.

As noted earlier, the most important take-away from this may be a reminder that trends in employment-based coverage start with small numbers. The movement away from defined benefit pension plans to defined contribution (401(k)-type) retirement plans did not happen overnight: It began with a mere 1 percentage point drop, between 1980–1981.  Neither did the movement to managed care, to consumer-driven health benefits, nor the movement away from providing retiree health benefits.

These changes took years, some would say decades, to play out. There is no reason to believe that 2014 will look much different from 2013 or 2011 in terms of whether or not employers offer health coverage.

What may be more important is the percentage of employers offering health coverage in 2020, or 2025.

New Health Law Increased Insurance Coverage of Adult Children

The new federal insurance law has increased the health insurance coverage of adult children between 2009 and 2011, according to a new report by the nonpartisan Employee Benefit Research Institute (EBRI).

The Patient Protection and Affordable Care Act (PPACA) enacted March 23, 2010, requires that group health plans and insurers make dependent coverage available for children until they attain the age of 26, regardless of tax or student status, or dependent status as it relates to financial support. The mandate to offer coverage to adult children ages 19‒25 took effect for policy years that began on or after Sept. 23, 2010, but since January is the beginning of the plan year for many employment-based health plans, many insurers adopted the requirements of the law before the effective date.

To determine whether the coverage mandate had an effect, EBRI examined data from two U.S. Census Bureau surveys (the Current Population Survey, CPS, and the Survey of Income and Program Participation, or SIPP), as well as from the National Health Interview Survey (NHIS) by the Centers for Disease Control. The data indicated:

  • The percentage of persons ages 19‒25 with employment-based coverage as a dependent increased from 24.7 percent in 2009 to 27.7 percent in 2010, according to the CPS.
  • The percentage of individuals ages 19‒25 with employment-based health coverage as a dependent averaged 26.9 percent during January‒September 2010, and increased to an average 27.1 percent during October and November, per SIPP.
  • The percentage with private insurance increased from 51 percent to 55.8 percent, and the percentage uninsured fell from 33.9 percent during 2010 to 28.8 percent during the first half of 2011 among those ages 19‒25, according to data from the NHIS.

“Data from these three surveys show that PPACA has had a positive effect on the percentage of young adults with employment-based coverage as a dependent,” said Paul Fronstin, director of EBRI’s Health Research and Education Program and author of the report.

Full results of the report are published in the January 2012 EBRI Notes, “The Impact of PPACA on Employment-Based Health Coverage of Adult Children to Age 26,” online here.

Employer and Worker Reactions to Health Care Reform

The January 2011 EBRI Notes  examines how employers might respond to health reform and employees’ expectations of changes to health coverage.

January 2011 EBRI Notes

As the Notes article details, both employers and workers say they are not very knowledgeable about health reform, but that employers say they are likely to pass along any health benefit cost increases to workers—and, mostly, workers are expecting such cost increases.

The findings are from the 2010 EBRI/MGA Consumer Engagement in Health Care Survey and the Society for Human Resource Management’s 2010 SHRM Organizations’ Response to Health Care Reform Poll.

Concerning the future of coverage, employers are evenly split as to whether they will change health coverage as a result of health reform while workers are split between thinking their benefits will remain the same or erode.  While few workers expect employers to drop coverage after 2014, and very few employers plan to drop coverage, employers are evenly split between having decided to continue to offer coverage and being undecided about the future of employment-based health coverage.

The full report is online here.  The press release is online here.