New Reports Indicate Disturbing Trends for Costs and Employer-Sponsored Coverage PriceWaterhouseCoopers (PwC) issued two new reports last week on the cost of health insurance and its resulting impact on employer-sponsored coverage. The first study shows that on average, employers can expect an 8.5 percent increase in their medical costs next year due in some part to the health care reform law. A separate survey of large employers released by the firm showed that as a result of PPACA and its cost-impact, many employers are being forced to make disturbing choices about their health benefit plans. The cost report report identified the following drivers as the reasons for the price increase: Consolidation among hospitals and physicians. Increased cost-shifting to private insurers by providers seeking to make up the difference between low Medicare and Medicaid reimbursements; and Stress-induced illnesses following the recession. “The big question is how much of the medical cost increase will be passed on to employees, as employers recognize the economic burden on their workers given that wages have been stagnant over the past few years,” PwC said. But the firm’s own employer survey, also released last week, answers some of those questions. According to that study, more than four in five (84%) employers are likely to make changes—e.g., raise premiums, deductibles, and co-payments—to offset increased costs. Other key takeaways include: More than five in six (86%) employer respondents are likely to re-evaluate their overall benefits strategy; More than half (51%) of employers did not expect to maintain “grandfathered” health status—meaning employees will forfeit their current health coverage and pay higher premiums as a result of federal mandates introduced on their new coverage; Nearly two in three employers (65%) expect to be affected by the “Cadillac” tax on employer health plans; Almost half (45%) of companies “indicated they were likely to change subsidies for employee medical coverage” as a result of the law—quite possibly “dumping” their employees on to government-run exchanges; and Exactly one-half (50%) are considering “significantly changing or eliminating company subsidies for dependent medical coverage.” The PWC survey covers primarily large employers—more than three-quarters of firm respondents have more than 500 active employees, and over a third have more than 5,000.

by Jerry Geisel, Business Insurance

 The budget deal, reached late Friday, narrowly averted a large-scale shutdown of the federal government after congressional leaders and the Obama administration agreed to a package that cuts about $38 billion in federal spending.

 The health care reform voucher provision was originally inserted in the health care reform measure by Sen. Ron Wyden, D-Ore., as the legislation was working its way through Congress.  

“After weeks of closed-door negotiations to keep the federal government open, Free Choice Vouchers were placed on the chopping block even though there is no budget savings from cutting them this year,” Sen. Wyden wrote in an article published in the Huffington Post after he learned that budget negotiators agreed to repeal the voucher provision.

 How vouchers would work:

Under the provision, employees would have to meet two conditions to be entitled to the employer-funded vouchers: their family income could not exceed 400% of the federal poverty level, and the premium contributions their employers require them to make must be between 8% and 9.8% of their income.

If those conditions are met, those employees would be entitled to receive a voucher from their employers, and the value of the voucher would not be tied to the plan in which the employee was actually enrolled.

Instead, the voucher’s value would be equal to what the employer would pay if the employee were enrolled in whichever of its plans offered the “largest” premium contribution by the employer. Then, the employee could use the voucher to purchase health insurance coverage from a state health insurance exchange. The exchanges are authorized under the reform law and are supposed to be set up by 2014.

If the cost of a policy purchased by an employee through the exchange is less than the value of the voucher, the employee could pocket the difference in cash, which would be considered income and taxed.

Costly for employers

The provision, to go into effect in 2014, would have a huge and costly impact on employers with large numbers of low-paid workers-such as retailers-who are required to pay a high percentage of the premium.  And, depending on how the legislative language is interpreted in subsequent regulations, it also could prove costly to employers that offer employees a choice of health care plans ranging from relatively low-cost to very expensive plans.

Experts say the provision is almost certain to result in adverse selection, inflating employer costs. For example, a young, low-paid employee working for a company with a high concentration of older, less healthy and expensive-to-insure employees likely would receive a voucher whose value would be much higher than the cost of buying coverage in an exchange, especially if the employee purchased a lower-cost high-deductible plan. Underthe reform law, exchanges can base premiums on the age of policyholders.

As a result, employees remaining in the employer’s plan would be the most costly to insure, pushing up employers’ health insurance premium costs. Business lobbyists hailed the deletion. “Employers intensely dislike this provision,” said Gretchen Young, senior vp-health care for the ERISA Industry Committee in Washington.

The broader measure is expected to be considered by the House and Senate this week. Congressional negotiators hammering out a deal to slash tens of billions of dollars in federal spending have agreed to strip a provision in the health care reform law requiring employers to give low-paid employees company-paid vouchers to purchase coverage in state health insurance exchanges.