”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.

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

How Repealing PPACA Would Affect Needed Savings for Health Care

The August 2011 EBRI Notes contains an aricle on “The Impact of Repealing PPACA on Savings Needed for Health Expenses for Persons Eligible for Medicare.”

New modeling by EBRI finds that Medicare beneficiaries with high levels of prescription drug use would have to save 30-40 percent more than they currently are to pay for higher drug costs if President Obama’s health reform law is repealed.

Medicare beneficiaries with median prescription drug costs would not see any change in their savings targets, EBRI’s analysis finds.

EBRI takes no position on whether or not the law should be repealed; rather, its analysis is designed to measure which groups would be affected and provide estimates of additional savings needed by those who would be affected if it was

The Notes press release is online here.

The full report is 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.