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save 30-40 percent more than they currently are to pay for higher drug costs if President Obama’s health reform law is repealed.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EBRI takes no position on whether or not the law should be repealed; rather, its analysis is designed to measure which groups would be affected and provide estimates of additional savings needed by those who would be affected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.

Understanding Employer Surveys That Address the Future of Employment-Based Health Coverage

Paul Fronstin, EBRI

Fronstin

The June 2011 release of a report by McKinsey created a firestorm over the impact that PPACA may have on whether employers offer coverage in the future.  McKinsey reported that “30 percent of employers will definitely or probably stop offering ESI [employer-sponsored insurance] in the years after 2014.”

Republicans responded by calling into question initial projections that very few people would lose employment-based coverage. Karl Rove, for example, reflects the sentiments of Republicans when he recently wrote in the Wall Street Journal (subscription required): “We are now, to our horror, finding out how harmful this measure is.”  The administration referred to the report as an “outlier” and described it as “raising more questions than answers.” Congressional Democrats pressured McKinsey into releasing more information on the methodology, which it eventually did.

What Did McKinsey Really Find?

While the original headline referred to the 30 percent estimate, much more detailed results were eventually released:

As seen in the table above, McKinsey found that only 9.2 percent of employers reported that they definitely would eliminate coverage.  Among employers with 500 or more workers, only 5.1 percent reported that they would definitely drop coverage.

An important question is how to interpret the 20.5 percent of employers who report that they probably would drop coverage.  If focusing only on the percentage of employers reporting that they definitely would drop coverage, the McKinsey estimates are more in line with other surveys. For instance:

• April 2010, Workforce Management Magazine found that 5.2 percent of employers somewhat disagreed and 3.5 percent strongly disagreed with the following statement: “We Will Continue to Offer Our Own Health Care Coverage Because It’s a Crucial Part of Our Recruiting and Retention Efforts.”
• May 2010, IFEBP found that 2.4 percent disagreed and 1 percent strongly disagreed with the following statement: “My Organization Will Continue to Offer Health Care Benefits Because They Are Critical to Employee Recruitment and Retention.”
• May 2010, Towers Watson found that 3 percent of organizations will likely “pay” [to stop offering health benefits] and not “play.”
• June 2010, Fidelity found that 20 percent of employers were seriously considering eliminating health care.
• September 2010, HR Policy Association found that 19 percent of companies surveyed were not likely to be providing health coverage in 2020. Perhaps more honestly, 47 percent reported that were not sure.
• March 2011, HR Policy Association found that 6 percent of employers were giving serious consideration to discontinuing providing health care benefits over the next 10 years.
• May 2011, IFEBP found that 2.7 percent of employers are considering terminating health care programs for active employees as a result of reform. Another 0.7 percent plan to “pay” and not “play.”
• June 2011, Lockton found that 18.8 percent of employers will consider terminating group health plan and pay penalties when the “pay-or-play” mandate takes effect in 2014.
• April–May 2011, the NFIB found that 26 percent of small employers currently offering health benefits are very likely to explore dropping their health insurance plans and another 31 percent are somewhat likely to do so if workers dropped employment-based coverage for insurance in the exchange. The survey also found that a key factor in a small employer’s decision to drop a current health insurance plan will be the proportion of employees who leave their health plan for an exchange. Forty-three percent report that a majority of employees would have to leave before they would drop their plan and 35 percent claim it would require all of them.
• June 2011, Mercer found that 2 percent of employers were very likely to terminate coverage and 6 percent were somewhat likely to terminate coverage after health insurance exchanges are operational.

It’s the Dynamics, Stupid
What is more important—the percentage of employers no longer offering health coverage in 2014, 2020, or 2025?  A recent 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 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.”

As noted above, the fact is a number of surveys have found a small number of employers plan on dropping coverage in 2014 or thereafter.

The most important take-away may be the fact that none of the surveys found the percentage of employers that are likely, considering, not likely, agreeing, or disagreeing with the various questions to be zero.  Whether it be the small number that plan on paying instead of playing, the small number giving serious consideration to dropping coverage, or the small number that disagree that they will continue to provide coverage, 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.  Neither did the movement to managed care or consumer-driven health benefits.

These are all examples of changes to benefits that may not be indicative of what might happen as a result of PPACA; but  the movement away from providing retiree health benefits (an elimination of a benefit) also did not happen overnight.  These changes took years, some would say decades, to play out and 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.  But, as Avalere concluded, it only takes a few employers to trigger a change, and the sentiment in the surveys certainly supports that:

• June 2010, Fidelity found that 26 percent of small employers and 36 percent of large employers would seriously consider eliminating health care if other employers did.
• September 2010, HR Policy Association found that 80 percent reported that other companies moving away from health coverage would influence their decision to offer coverage.
• June 2011, 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.

Are Surveys of Employer Opinions on Future Behavior Valid?
It is very difficult to address employer behavior through a survey.  Past surveys of employers have not accurately predicted behavior.  For example, in March 2004, a web-based survey of 991 mostly large employers found that 19 percent were very likely and 54 percent were somewhat likely to offer a health savings account (HSAs) by 2006.  In reality, only 11 percent of large employers offered either an HSA or a health reimbursement arrangement  (HRA) by 2006, with 37 percent of jumbo employers offering them and 6 percent of employers with 500-999 workers offering them, according to Mercer.  By 2010, only 23 percent of large employers offered either type of plan, still far below the survey findings from 2004.

There are many issues that employers will consider when weighing the pros and cons of dropping coverage.  Some are as follows:

• Is there a concern about recruitment and retention?
• Is there a concern about the impact on worker health and productivity?
• Will the health plans offered in the exchange be an acceptable substitute for employment-based plans?
• Will dropping coverage really save money?
• What are other employers doing?

There is no reason to believe that any survey conducted today can be used to determine the percentage of employers that might be dropping coverage three or more years from now as a result of a major component of health reform—insurance exchanges combined with insurance market reforms—that is still years away from being up and running.

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.

The Early Retiree Reinsurance Program: $5 Billion Will Last About Two Years

An advance release of EBRI’s July 2010 Notes is online here, and finds that a $5 billion temporary reinsurance program designed to help employers maintain health benefits for early retirees likely will be exhausted within two years—well before the 2014 termination date for the program.

Key points of the analsysis:

PPACA’S EARLY RETIREE REINSURANCE PROGRAM: The Patient Protection and Affordable Care Act (PPACA) of 2010 created a temporary reinsurance program for sponsors of employment-based health plans that provide retiree health benefits to retirees who are over age 55 and not yet eligible for the Medicare program. The program provides an 80 percent subsidy for retiree claims of between $15,000 and $90,000. Congress appropriated $5 billion for the program, which is effective June 1, 2010, and the subsidy will be available through the earlier of Jan. 1, 2014, or the date when the funds are exhausted.

EMPLOYER INCENTIVE: One goal of the program is to provide an incentive for employers to maintain retiree health benefits and assist retirees with their costs for health coverage. Under the early retiree reinsurance program, plan sponsors must be able to show that the subsidies were not used to reduce their level of support for the plan. Subsidies can be used to reduce retiree costs, and sponsors must also show that the subsidies were used to generate savings or had the potential to generate savings.

EXHAUSTION LIKELY WITHIN TWO YEARS: An important question is whether the $5 billion will be exhausted before 2014. This article finds that if the subsidy were drawn down for all early retirees and their dependents, $2.5 billion of the $5 billion available would be exhausted in the first year of the program. The $5 billion would last no more than two years and would not be available in 2012 or 2013.