The Affordable Care Act is beginning to have an impact on employer plans. And one of those areas of difference is enrollment. Brokers who miss these emerging trends risk not setting proper client expectations and being unable to proactively manage the additional cost exposures created by these ACA impacts.

Prior to the passage of the ACA, there was significant discussion about the growing ranks of the uninsured. Since the primary vehicle for private coverage in the U.S. was (and is) employer-sponsored insurance, policy makers have tracked coverage rates (the percentage of workers covered by their employers’ health plans). Over the period from 2003 to 2013, the coverage rate was declining, from a high of 63% to a low of 58.2%. This was often cited as one of the contributors to the growing ranks of the uninsured. Portions of the ACA were designed to reverse this trend.

HHS Headquarters in Washington, D.C.
Brian M. Kalish/Employee Benefit Adviser

By unpacking the data around the coverage rate, we gain insights into what was really going on prior to the passage of the ACA and what has happened since. Unpacking the coverage rate also provides insights into how both employers and employees are reacting to the changes brought on by the ACA.

The coverage rate is derived by multiplying the offer rate (percentage of employees eligible for a health plan) by the take-up rate (percentage of employees who enroll in a health plan). The offer rate highlights employer behavior and the take-up rate highlights employee behavior.

Looking at offer rates over the period from 2003 to 2013, we see employers did not change their offer rates. With some slight variances from year to year, they hovered around the 78% level over this 10-year period. If coverage rates declined over this period, the source of the change must be in the third component of the equation.

Over the same 10-year period, take-up rates declined from 80.3% to 74.8%. Therefore, the reduction in coverage rates was largely due to employee behavior, not employer behavior. While some of this decrease in take-up rates was due to an increase in two worker households, the primary driver for the decrease is the low enrollment rate for lower income employees who are especially vulnerable to payroll deduction increases. When faced with large payroll deduction increases, lower wage employees are the first to drop out of the plan altogether.

Behavior changes in employers and employees
But what happened after the passage of the ACA? Let’s look at what happened in 2014 and see if we can gain some insight as to what employers are doing (and will do) with their benefit strategy going forward. The headline? In 2014, coverage rates were basically unchanged (actually a 0.4% reduction).

However, our work with clients (and a deeper look at the national data) tells a different story. What you actually see is that both employers and employees have changed their behavior in response to the ACA. Remember, we said that offer rates had remained relatively steady over the pre-ACA period. In 2014, offer rates actually dropped by 2.4%. This was probably not what the architects of the ACA had in mind. The primary contributor to this was a reduction in eligibility by employers who previously offered coverage to employees working less than 30 hours a week.

But the biggest insight can be gained by looking at the reversal in the declining trend of take-up rates. From 2013 to 2014, the take-up rates actually increased by almost two percentage points — reversing a 10-year declining trend. What changed? Could it be that employees were reacting to the individual mandate of the ACA? While we can argue whether this was “good risk” or “bad risk,” more belly buttons on an employer’s plan results in increased cost to that employer. These are cost increases in excess of their own experience with health care inflation. And we know that cost increases are the single greatest catalyst causing employers to modify their benefit strategy.

New focus on cost
So, what is the forecast? As you know, the individual mandate penalty continues to grow over time. This will continue to drive more people to seek out insurance options. Additionally, we expect that many low wage employees who previously opted out of employer coverage and wrongfully enrolled in subsidized coverage in the public exchanges will “snap back” once the public exchanges get better at their own eligibility management. Employers will be more interested than ever in properly controlling access to their health plans, introducing eligibility exclusions where possible and improving procedures to verify individuals enrolled in the coverage actually qualify for that coverage.

In their initial approach to full-time equivalent management under the new definitions of the ACA, most employers focused on compliance, rather than cost management. As a result, many employers took a simplistic approach to their implementation of the allowable measurement periods, administrative periods and waiting periods under the ACA. Their primary thought process was to minimize complexity to simplify compliance. Said another way, the emphasis was on compliance and not on cost. Employers with traditionally low take-up rates have the most opportunity in this area. Unfortunately, they are also the ones most vulnerable to cost increases from this trend of increased take-up rates.

We also see the growing use of spousal exclusions. The ACA said nothing about mandating coverage for spouses and more employers will implement these policies, growing to 63% of all employers by 2017. We have learned by working with our clients that a program without an active verification of spousal employment and access will lead to a less than 50% compliance rate.

By looking at the enrollment data closely, we see the ACA is beginning to have an impact on employer plans. And this impact is directly related to cost. Brokers and consultants will be well advised to lead these discussions with their clients as they plan benefit changes for 2017 and beyond.

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