Taxing insurance contributions will raise healthcare costs for employees

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If the new healthcare law that replaces the Affordable Care Act were to tax employee insurance contributions, 67% benefit and HR managers believe that the cost of healthcare would rise, according to new research from the Society for Human Resource Management.

The SHRM study, which was conducted between February 9 and 24 and before the House of Representatives passed its AHCA bill, found that 60% of respondents predicted that out-of-pocket health costs could increase if both employer and employee insurance contributions were taxed. (The survey polled 918 benefit and HR professionals.)

“These results are in line with what we would expect,” says Evren Esen, SHRM’s director of workforce analytics. “We know healthcare costs are raising anyway and have been over five to 10 years. In 2017, respondents said healthcare costs increased by 11% [last year] and that is despite having a tax break or not having healthcare premiums taxed.”

With healthcare costs increasing, employers would most likely pass those costs onto employees via more costly heath plans. “If they are taxed, that will definitely lead to increased costs overall,” she adds.

Healthcare costs in 2017 increased for 79% of the survey’s respondents.

When asked about what aspects to the ACA they would like to see remain in Congress’s AHCA plan, respondents favored coverage for pre-existing conditions by a wide margin. SHRM found that 83% of respondents said it was important that employees and their dependents with pre-existing conditions not be excluded from receiving health insurance.

Survey respondents also favored preventive care coverage (52%), benefits for dependent children up to age 26 (37%), and no lifetime limits (also 37%) as the most important elements of Obamacare.

Despite the concern that costs for healthcare may continue to rise, Esen doesn’t think that employers will gut the quality of healthcare plans.

“Based on the data, they will not cut healthcare but costs will increases and employees will be paying for that. I don’t think companies are keen on cutting employee healthcare and benefits because it is something employees value,” she says. “Even if they don’t cut it, there will be increased costs and they will look to employees to pay some of those costs.”

Fifty-five percent of survey respondents changed their healthcare coverage. Of those responding benefit managers, 39% modified their existing health plans and 17% added new insurance plans.

Esen believes that employers will continue to offer high-deductible health plans that will be supplemented by health savings and health reimbursement accounts.

HSAs and HRAs “do require that employees think a bit more about their healthcare options, so they are expected to be more informed about how much things cost and make decisions on their healthcare and medical procedures accordingly,” she says.

“If they have a certain amount of money to cover medical needs, they are going to have to think if they have the sniffles and if they have money paid out of the HDHP plan to try to find some other options.”

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