Companies Prepare to Pass More Health Costs to Workers
November 25, 2013
The Wall Street Journal
Companies are bracing for an influx of participants in their insurance plans due to the health-care overhaul, adding to pressure to shift more of the cost of coverage to employees.
Many employers are betting that the Affordable Care Act's requirement that all Americans have health insurance starting in 2014 will bring more people into their plans who have previously opted out. That, along with other rising expenses, is prompting companies to raise workers' premium contributions, steer them toward high-deductible plans and charge them more to cover family members.
The changes as companies roll out their health plans for 2014 aren't solely the result of the ACA. Employers have been pushing more of the cost of providing health insurance on to their workers for years, and firms that aren't booking much sales growth due to the sluggish economy are under heavy pressure to keep expenses down.
Some are dealing with rising expenses by making employees pick up a bigger share of the premiums for coverage of family members. Employees this year are responsible for an average 18% of the cost of individual coverage, but 29% of the cost of family coverage, according to a survey of employee health plans by the Kaiser Family Foundation and the Health Research & Educational Trust.
"We have seen employers do more cost-shifting, if you will, for an employee to pay a higher portion of the cost of dependent and spouse coverage," said Tracy Watts, U.S. health-care reform leader at Mercer, a benefits consulting unit of Marsh & McLennan MMC -0.08% Cos.
Between 15% and 20% of eligible workers nationwide tend to skip insurance, benefits consultants say.
Towers Watson TW -0.34% & Co., a benefits consulting firm, figures that about half of the usual opt-outs will sign up for next year—meaning an enrollment increase of about 7% or 8%, and a corresponding increase in costs of about 5%.
Haverty Furniture, HVT -1.80% an Atlanta-based retail furniture chain with stores in 17 Southern and Midwestern states, expects health-care costs to rise by about $2 million, or 20%, next year.
The company expects the bulk of that to come from enrollment increases, and it is raising premiums, deductibles and copayments in response, Chief Financial Officer Dennis Fink said.
"We do think our per-capita cost is going up, but the bigger piece is just people who've chosen not to have coverage," he said.
A quirk of the Affordable Care Act could make it more appealing for companies to raise rates for family coverage than for individuals, said Vivian Ho, a Rice University health-care economist.
Starting in 2015, companies employing 50 or more people must offer affordable health-care coverage to anyone working 30 hours a week or more.
But affordability is measured using the cost of individual coverage, capping the cost at 9.5% of income, Ms. Ho said.
Raising family rates could help companies recoup costs without running afoul of that limit, she said. Starting now, instead of next year, would allow a more gradual change.
U.S. Department of Health and Human Services spokeswoman Joanne Peters said that the health-reform law is keeping a lid on health-care costs overall, and makes it easier for employers to offer coverage. "Since the Affordable Care Act became law, health-care costs have been slowing and premiums are increasing by the lowest rates in years," she said.
Gannett Co. GCI +0.11% , which owns more than 80 newspapers and 23 television stations, expects one factor in its increased health costs to be the addition of more employees to its insurance plans due to the ACA rules, according to a person familiar with the company's projections.
To address an overall increase in costs, Gannett has replaced the two plans for families it used to offer its workers with a single high-deductible plan that requires employees to pay the first $3,000 of medical costs each year, according to workers at the Indianapolis Star, one of the company's papers. For those with individual coverage, who make up a little over half of Gannett's insurance pool, the figure is $1,500.
The company also scrapped a sliding scale that let lower-income workers pay lower premiums. For some employees, the result was a 60% jump in monthly premiums for family coverage, to $575 from about $360.
Gannett said more than half of its employees will see premiums fall by 12%.
United Parcel Service Inc. UPS +0.10% made headlines in August when it said that it would bar spouses from its nonunion health plan if they could get coverage at their own jobs. The company said it expected to see an increase in its health-care costs in part from adding employees to its plan who currently opt out.
About 6% of employers ban coverage for spouses who can get it elsewhere, and another 6% impose an explicit surcharge for covering a spouse, according to Mercer. American Electric Power Co. AEP +0.20% , for example, began imposing a $50 monthly surcharge this year to cover spouses with access to insurance at their own workplace. AEP said 92% of its employees usually sign up for coverage, so it doesn't expect a surge of new enrollment.
In another shift this year, companies have become increasingly aggressive about steering employees toward plans in which they pay more of the initial costs for their care in exchange for lower premiums.
Trucking and logistics company Ryder System Inc. R +0.07% has replaced one of its two insurance options with one such high-deductible plan. Ryder is encouraging employees to choose the new option in part by raising the cost of more traditional coverage.
These changes are expected to keep Ryder's total premium cost lower even as it keeps the share of employee premiums that it pays steady at about 70%, executives said. They accompany earlier decisions to close Ryder's plan to spouses who can get insurance elsewhere.
"In some ways, the low-hanging fruit has been plucked," said Boon Ooi, Ryder's vice president of compensation and benefits. In response, he said, "what organizations frequently do is to look at trying to encourage employees to move into the more efficient plan."
Health-care cost growth has slowed in recent years, and benefits consultants expect an increase of about 5% for 2014, below recent averages. The ACA isn't expected to raise health-care costs significantly for most companies in 2014 either.
The employer mandate was postponed until 2015, and other major provisions have already largely kicked in, including a requirement to cover children as old as 26, ending lifetime limits on coverage, and covering preventive care without out-of-pocket charges.
But for industries dependent on hourly workers, including retailers and hospitality companies whose young and low-wage workers more often opt out of coverage, the individual mandate may have an effect.
The problem isn't per-person costs—indeed, companies' average costs could fall with an influx of the younger, generally healthier workers who had previously tended to opt out. But adding more enrollees will nonetheless raise a company's total costs.