Will the ACA Increase Participation in Employer Sponsored Health Plans in 2017?

By Bill Kerrigan

14868915_sAs employers prepare health benefit budgets and contributions for the 2017 Annual Enrollment cycle, the potential for employees who previously waived coverage to enroll has increased with the Affordable Care Act (ACA). The Individual Shared Responsibility provision of the ACA changes the outlook for many employees who had opted-out of an employer sponsored plan. If the monthly cost of coverage factoring in any wellness incentives is comparable to the fee imposed for not having coverage, then the ACA creates a financial incentive for the employee to enroll in the employer sponsored plan.

Individual Shared Responsibility is a fee assessed on individuals who do not have health insurance that qualifies as minimum essential coverage (MEC). By definition, employer sponsored plans are considered MEC so an employee who enrolls is exempt from paying the fee. In 2016, the fee for not having qualifying coverage is the greater of 2.5% of household income or $695 per adult to a maximum of $2,085 which equates to $57.92 per month at the lower end. In comparison, the average cost of an unsubsidized Bronze plan for a 40-year old male, non-smoker in 2016 is $236 [1] per month while the average contribution of a single employee enrolled in an employer sponsored HSA-qualifying HDHP is only $64 per month.[2]

Individuals are exempt from the fee if coverage is unaffordable (the minimum amount paid for employer-sponsored coverage or a Bronze level health plan is more than 8.13% of actual household income).[3] For most employees covered under a large employer sponsored plan, the cost of coverage is unlikely to meet this exemption definition. According to the Kaiser Family Foundation, 2015 Employer Health Benefits Survey, 96% of large employers with at least 100 full-time equivalent employees offer at least one health plan that meets both affordability and minimum actuarial value.[4] Additional exemptions are available related to religious beliefs and hardships (e.g., homelessness, eviction, foreclosure, domestic violence, death of a close family member, and unpaid medical bills).

According to the PWC, Health and Well-being Touchstone Survey[5] results from June 2015, 84% of employees on average participate in employer sponsored health plans. Employees have historically waived medical coverage for a variety of reasons including:

  • Other Coverage (e.g., through the plan of a spouse)
  • Risk Tolerance (e.g., willingness of the healthy, invincible to forego coverage to save payroll contribution)
  • Affordability

The issue of affordability is most pronounced in low-wage industries where medical participation rates are much lower. The Bureau of Labor Statistics, National Compensation Survey, March 2015 found the medical take-up rate in the retail and leisure and hospitality industries to be much lower than financial services, utilities, and professional firms.[6] Lower wage employees, particularly in states that expanded Medicaid, are more likely to be eligible and enrolled in public assistance.

An eligible employee who previously waived coverage for affordability reasons now must balance the cost of the Individual Shared Responsibility fee with Medicaid eligibility and the monthly health plan contribution. These employees will need to understand this complicated decision and the consequences of declining coverage. To the extent employees decide to enroll in the employer sponsored plan, it is presumable that many will elect the plan with the lowest contribution (potentially a high deductible health plan). Although the out-of-pocket cost may continue to be unaffordable, the employee at least avoids the Individual Shared Responsibility fee and gains both 100% preventive care and catastrophic coverage.

Employers setting budget rates for 2017 and beyond should weigh the potential consequences of higher participation rates. Although increasing health plan participation has many positive outcomes including spreading risk and increasing employee attraction and retention, the direct financial cost should be understood. In a self-insured plan, financial costs related to enrollment include the following:

  • Health Plan Administrative Service Fees
  • Stop Loss Fees
  • Medical Claims including greater exposure for catastrophic claims
  • Benefit Service Administrative Fees

For fully-insured plans, the premium applies whether or not the enrolled employee utilizes the plan. To the extent that utilization is lower for these individuals who enroll in the plan but are prevented financially from affording the cost-share, future renewals should be lower.

With imperfect employee understanding, increases in participation rates related to Individual Shared Responsibility are likely to be gradual. Employers should review their benefit strategy to weigh the impact of potential enrollment growth on both budgets and assist employees in navigating their options. Improving employee health literacy (e.g., understanding of insurance choices) maximizes the value of the benefit programs and fosters a more trusting environment for employers to pursue other health benefit initiatives focused on excess utilization.


[1] Kaiser Family Foundation, The Coverage Gap: Uninsured Poor Adults in States that Do Not Expand Medicaid – An Update, January 21, 2016, http://kff.org/health-reform/issue-brief/the-coverage-gap-uninsured-poor-adults-in-states-that-do-not-expand-medicaid-an-update/
[2] The Kaiser Family Foundation and Health Research & Educational Trust, Employer Health Benefits 2015 Annual Survey.
[3] Internal Revenue Service, http://www.irs.gov/affordable-care-act/individuals-and-families/aca-individual-shared-responsibility-provision-exemptions
[4] Kaiser Family Foundation, http://kff.org/report-section/ehbs-2015-summary-of-findings/
[5] PWC, Health and Well-being Touchstone Survey, June 2015, http://www.pwc.com/us/en/hr-management/publications/assets/pwc-touchstone-survey-results-2015.pdf
[6] Bureau of Labor Statistics, National Compensation Survey: Employee Benefits in the United States, March 2015, Bulletin 2782, Table 9, http://www.bls.gov/ncs/ebs/benefits/2015/ebbl0057.pdf

 

For more information contact Bill Kerrigan at info@kerriganreid.com

This document is intended for general information purposes only and should not be construed as advice or opinions on any specific facts or circumstances. The comments in this summary are based upon Kerrigan Reid’s preliminary analysis of publicly available information. The content of this document is made available on an “as is” basis, without warranty of any kind. Kerrigan Reid disclaims any legal liability to any person or organization for loss or damage caused by or resulting from any reliance placed on that content. Kerrigan Reid reserves all rights to the content of this document.

Health Insurance Options and College Affordability

By Bill Kerrigan

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Over the last decade health insurance premiums and the cost of college tuition have far outpaced general inflation.  For students struggling to understand and finance the direct costs of college (e.g., tuition, room, board, books), the reality of addressing their own health insurance is a complicated yet critical factor for degree completion.  Helping students to navigate the maze of available health insurance options is a priority for administrators seeking to minimize affordability and illness barriers that often sidetrack student success.

A requirement for full-time students to carry health insurance varies by institution. Prior to the passage of the Affordable Care Act (ACA) in 2010, matriculated students without mandatory institutional coverage requirements may have opted for no coverage.  Individuals under the ACA now must have a plan that qualifies as minimum essential coverage or be liable for the individual shared responsibility payment that in 2016 is the greater of 2.5% of household income or $695 per adult to a maximum of $2,085.  Although the ACA provides many exemptions, student status does not excuse individuals from this responsibility.

Health insurance eligibility and affordability vary based on age, family status, income, and geography of the student.  Available options for a student may include student health insurance, employer provided group coverage, the public marketplace with and without a premium tax credit, and Medicaid.

  • Student Health Insurance Plans: Colleges will often default students into a student health insurance plan with the ability to waive coverage if proof of other coverage is demonstrated. Under the ACA insured student health plans must comply with most of the individual market rules including prohibition on pre-existing condition exclusions and coverage of essential health benefits.  Self-funded student health plans in contrast are regulated by the states. As a result, these plans may lack comparable consumer protections and coverage required by the ACA.  Since the cost of student health insurance is experience-rated in a separate pool distinct from other individual market coverage, the premium rates reflect the health care costs of a student population.
  • Employer Sponsored Group Plan as a Dependent Child: The ACA required group health plans and plans offered in the individual market to expand coverage for an adult child up to the age of 26 regardless of student status, where the child lives, or marital status.  This expansion increased the total cost of employer provided health insurance plans.  From the perspective of an employee (i.e., parent), the cost or contribution to maintain a child/student on their employer group health plan is generally the difference between the Employee Only or Employee + Spouse coverage tier and the Employee + Child(ren) or Family tiers.  To the extent that the employee covers another dependent child under the plan, there is generally no additional contribution cost unless in the rare circumstance where the contribution structure is unitized by dependents.

Once a dependent child under a group health plan reaches the limiting age of 26, the dependent child may be eligible to purchase COBRA for up to 36-months under the group plan.  This option is likely to be very expensive as COBRA rates are set at 102% of the full premium for the employer group plan.  Since these plans are not age-rated, the underlying experience of the premium reflects the demographics of the group (e.g., older population profile than the typical student, poorer health risk) resulting in more expensive coverage than other options available to students.

  • Employer Sponsored Group Plan as an Employee or a Spouse: With the growing diversity of the college population, more and more students are eligible for health insurance through employment or a spouse.  According to The Kaiser Family Foundation and Health Research & Educational Trust Employer Health Benefits 2015 Annual Survey, employees with single coverage contribute on average $89 per month ($1,068 annually) or 18% of the premium for health benefits.[1]  Like other insurance plans, the cost of insurance is dependent on location, plan value, and characteristics of the plan sponsor.
  • Public Marketplace: The ACA created marketplaces (federally or state facilitated) provide individuals with access to a core set of essential health benefits with coverage for pre-existing medical conditions.  Individuals with income up to 400% of the federal poverty limit or FPL ($47,520 for an individual in 2016) are eligible for premium tax credits to reduce the premium cost.  Additional cost-sharing reductions are further available for individuals with incomes up to 250% of the FPL.

Students under the age of 30 are also eligible to purchase a Catastrophic health insurance plan through the marketplace that provides a lower premium for higher potential cost-sharing.  These plans expose students to greater financial risk if they fall ill or suffer an injury.

  • Medicaid: 32 states including the District of Columbia expanded Medicaid eligibility under the ACA.  Beginning in 2014, all adults under the age of 65 with income up to 133 percent of the FPL ($15,800 for an individual in 2016) became eligible for Medicaid.[2] If a student meets the eligibility requirements, then cost-sharing requirements (e.g., copays, coinsurance) are generally nominal varying by income depending on specific rules of the state.[3]

When health insurance premiums can add up to 10% on top of college tuition costs and many students and families rely on loans to make postsecondary education a possibility, the consequences of students making financial decisions with limited information are substantial.  Financial barriers and inadequate access to health care including mental health, lead to higher dropout rates.  Unfortunately, higher education administrators are already familiar with the high cost of providing health care benefits for their faculty and staff.  Expanding the scope of this focus to students is necessary to create a campus culture and environment that promotes both student success and health.  To help administrators understand the interrelationship among college affordability, completion, and health insurance further research is needed to inform institutional and public policy.


[1] Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 1999–2015.
[2] Centers for Medicare and Medicaid Services, Assuring Access to Affordable Coverage:   Medicaid and the Children’s Health Insurance Program Final Rule
[3] Medicaid,https://www.medicaid.gov/medicaid-chip-program-information/by-topics/cost-sharing/cost-sharing-out-of-pocket-costs.html

 

For more information contact Bill Kerrigan at info@kerriganreid.com

This document is intended for general information purposes only and should not be construed as advice or opinions on any specific facts or circumstances. The comments in this summary are based upon Kerrigan Reid’s preliminary analysis of publicly available information. The content of this document is made available on an “as is” basis, without warranty of any kind. Kerrigan Reid disclaims any legal liability to any person or organization for loss or damage caused by or resulting from any reliance placed on that content. Kerrigan Reid reserves all rights to the content of this document.