The Affordable Care Act has been a controversial law since day one, but that hasn’t stopped it from dramatically reducing the rate of uninsured people in the United States. According to data from the Centers for Disease Control and Prevention, in the first quarter, inclusive of Medicare enrollment, the rate of uninsured adults had dropped to 9.2%.
This marked the first time ever that the uninsured rate had fallen to a single-digit percentage, and it’s possible that it could fall even further. In total, Obamacare exchanges are responsible for enrolling more than 11 million people in the Nov. 15, 2014 to Feb. 15, 2015 enrollment period for the current year.
Big changes are coming to Obamacare in 2016
As we’ve witnessed, Obamacare is a transformative law that’s constantly evolving. While it was initially expected to be phased in with the flick of a switch on Jan. 1, 2014, technical and software glitches largely confounded efforts to get the individual market and businesses on the same page. Thus, while the individual mandate — the actionable component of Obamacare that requires individuals to purchase health insurance or face a penalty — has been in effect since Jan. 1, 2014, the employer mandate is being eased in, with its full implementation happening this upcoming Jan. 1.
The employer mandate, just like the individual mandate, is an actionable component of Obamacare that lays out what businesses need to do for their full-time employees to stay compliant. Under the law, businesses are required to provide their full-time employees, and their employees’ children up to age 26, access to health-coverage options. These plans must cover at least 60% of allowable medical costs and meet minimum benefit requirements, and the cost of the plan can be no higher than 9.5% of a full-time employees’ modified adjusted gross income.
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If the cost of health coverage exceeds 9.5% of MAGI, then the business is expected to provide a subsidy to the employee to cover the difference. In 2016, businesses of 50 or more full-time employees are expected to adhere to these rules. If they don’t, they could face a fine of between $2,000 and $3,000 per noncompliant employee.
However, just as Obamacare isn’t static as a law, neither are premium prices for health-benefits providers. According to data released in June by the Obama administration, more insurers than in years past will be seeking a double-digit price hike in the individual market. The presumption here is that these price hikes could very easily translate into higher premiums for businesses and their employees, too.
Three ways businesses will keep Obamacare costs down
It’s no secret that some businesses are going to be looking to cut costs, or keep their healthcare expenses as steady as possible as they make this transition in 2015 — for big businesses with 100 or more full-time employees — and 2016. How will they do it? Most likely by taking one of three pathways.
1. Moving their employees to a private network
One move you could see businesses make — especially very large businesses — to keep costs down is moving some, or all, of their staff to a private health exchange.
Under normal circumstances, most businesses provide health insurance for their employees, and take on the financial risk of providing that coverage. However, under the private exchanges, businesses provide an annual subsidy to full-time employees, allowing them to shop for their own health insurance on a presumably transparent exchange that’s similar to Obamacare. With a private network, employees still get the choice of selecting their plans — and perhaps kicking in money out of their own pockets for plans with top-tier coverage — while the business transfers its financial risk to the insurer.
One of the leading beneficiaries of this switch to private exchanges is U.K.-based Aon(NYSE: AON ) via its private exchange, Aon Active Health Exchange. According to Aon’s most recent data from 2015, health-premium costs for its commercial clients rose by just 2.6% as compared to 6.5% to 8% throughout the non-private network industry. Aon’s management credited its exchange’s transparency as the primary factor that has helped keep premium cost inflation down.
In a survey from Aon in early 2014, it noted that a third (33%) of businesses polled planned to explore the idea of using a private exchange within the next couple of years, up from 5% that were using a private network when the survey was conducted. To date, Aon’s private exchange has already snagged 160,000 employees of Walgreens Boots Alliance and 20,000 employees from do-it-yourself specialist Home Depot.
2. Narrowing the preferred networks down to just a few
A second possible solution is that businesses could choose to substantially pare your choice of health plans or providers in the upcoming year.
On the surface, this doesn’t sound like a good thing. Consumers generally like to have more options than less, especially when it comes to their healthcare. But there could actually be surprising advantages for consumers if businesses narrow the field of proposed plans.
The thing to remember with Obamacare is that primary care physicians are adjusting to the relatively new law right along with insurers and consumers. In the early going, there are quite a few physicians who simply aren’t accepting Obamacare, mainly for fear that the payment they receive from insurers and the patient won’t cover the costs of services rendered. Yet this narrow network of providers whoare accepting Obamacare health insurance could give businesses an edge when it comes to negotiating a great deal for their employees, leading to cost savings for the business and consumers.
In fact, a study released in 2014 from the National Bureau of Economic Research indicates that a good portion of employees who were incentivized to go on an employer’s narrow-network plan actually saved money. Based on the findings, narrow-network members were more likely to see their primary care physician, and less likely to wind up in the emergency room seeking care.
3. Cutting jobs or hours
Lastly, businesses could choose to cut expenses the old-fashioned way: by cutting jobs or hours.
Cutting jobs is a pretty cut-and-dried way of reducing costs, although jettisoning employees in order to save money could put businesses at a disadvantage when the U.S. economy is firing on all cylinders. Cutting jobs in lieu of Obamacare could also bring a consumer-facing company a wave of bad PR.
That didn’t seem to matter to medical device maker Stryker, which cut 1,170 jobs in 2012 in order to save $100 million annually. To be clear, Stryker’s cuts were the result of the 2.3% medical device excise tax, but it demonstrates that big companies aren’t going to be shy about cutting costs if expenses tied to Obamacare rise.
A more subtle way of getting around Obamacare for businesses is to simply cut hours. According to the ACA, businesses of 50 or more full-time employees are required to follow the employer mandate. But businesses aren’t required to provide anything for part-time employees, defined as those who average less than 30 hours a week of work. In response to expected higher costs from Obamacare, Regal Entertainment, the nation’s largest movie theater operator, slashed thousands of employees’ hours from full-time down to part-time to ensure it would have no chance at being penalized under Obamacare.
Could there be other tools that businesses employ to reduce their exposure and costs to Obamacare? It’s possible, but I’d key in on these three as being the ones to watch going forward.
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Date: September 5, 2015