Has the Affordable Care Act changed employer behavior? It’s beginning to and advisers need to be aware of this trend.
From 2003 to 2013, the percentage of workers covered by their employers’ health plans fell from 63% to 58.2%. This declining coverage rate was often cited as one of the leading contributors to the growing ranks of the uninsured, and portions of the ACA were designed to reverse this trend.
During this same ten year period, employers did not change their offer rates, which hovered around 78% throughout. Yet, over the same timeframe, take-up rates declined from 80.3% to 74.8%.
The employee coverage rate is derived by multiplying the offer rate (the percentage of employees eligible for a health plan) by the take-up rate (the percentage of employees who enroll in the plan), meaning the reduction in coverage rates was largely due to employee, not employer behavior.
While some of the scale-back in employee take-ups was due to a growing number of two worker households, the bigger reason was the low enrollment rate among lower income employees who are especially sensitive to any increase in payroll deductions. As cost sharing and their deductions for health coverage grew, lower wage employees were the first to drop their employer’s health plan.
But what happened after the ACA became law?
Behaviors at odds
In 2014, the employee coverage rate fell slightly once again by 0.4%. The offer rate, however, which had remained relatively steady throughout the pre-ACA period, actually dropped by 2.4%, as employers who had previously offered it withdrew coverage for employees working less than 30 hours a week. Even more significantly, however, the decline in the take-up rate reversed itself, increasing by almost two percentage points from 2013 to 2014.
So while employers saw the ACA as an opportunity to reduce their costs by trimming the rolls of their health plan, employees perceived it as an opportunity to gain coverage and increased those rolls—and thereby the cost of those plans to their employers.
This trend will probably continue, since the ACA’s individual mandate penalty continues to increase over time and will likely drive more employees to seek out insurance options. In addition, many low wage employees, who previously had opted out of employer coverage in order to try and take advantage of subsidized coverage through the public health exchanges, will “snap back” once the exchanges get better at eligibility management.
Employers, meanwhile, will be more interested than ever in controlling access to their health plans, introducing eligibility exclusions where feasible and improving procedures to verify that enrolled individuals actually qualify for coverage.
"Has the Affordable Care Act changed employer behavior? It’s beginning to and advisers need to be aware of this trend."
In their initial efforts at full-time equivalent management under the ACA’s definitions, most employers took a simplistic approach to the allowable measurement, administrative and waiting periods. Their aim was to minimize the law’s complexity and simplify compliance—not to reduce their costs. But cost increases are the single greatest catalyst for employers to modify their benefit strategy, so that will undoubtedly change.
Employers are also likely to make more use of spousal exclusions, since the ACA does not mandate coverage for spouses. One area of focus should be spousal employment verification, since failing to do this results in a less than 50% compliance rate.
These are some key areas where employers can respond to ACA-driven changes in employee behavior to hold down their costs. Brokers and advisers would be well advised to initiate these efforts with their clients as they plan benefit changes for 2017 and beyond.
