Most companies don't plan to drop coverage, studies find

Chief financial officers are increasingly concerned about the cost of benefits in the wake of health reform, with 84% citing "pricing pressure."

By Emily Berry — Posted Nov. 22, 2010

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Executives are fretting, particularly in the short term, about how health system reform might be affecting their insurance costs. However, two surveys find that most businesses are not likely to drop employee health coverage as a result of the Patient Protection and Affordable Care Act.

The surveys were conducted by the Chicago accounting firm Grant Thornton and the New York consulting firm Mercer. Grant Thornton talked to 516 chief financial officers and senior comptrollers for its survey, released Nov. 1. Mercer said it surveyed 2,800 employers for the information it released Nov. 9.

Grant Thornton surveys chief financial officers twice a year about employee benefits and other costs. The most recent answers pointed to increasing concern about the cost of health benefits: 84% of executives identified "pricing pressure" as a top concern when surveyed in October, compared with 68% in March, just before President Obama signed health reform into law. Health benefits in the last few years have been far and away the biggest cost concern, well above raw materials, energy and miscellaneous expenses, according to Grant Thornton.

Among the CFOs and comptrollers surveyed in September 2009, 7% said they expected their spending on health benefits to go up. For those surveyed a year later, the number jumped to 21%.

Eddie Adkins, partner in Grant Thornton's compensation and benefits consulting practice, said worry over costs may be intensifying because of the requirements on corporations that were written into health system reform.

"I think it has to, because health care reform is clearly the biggest new development in the health benefits area in decades, in forever," he said. "If you focus in on the employee benefit provisions, provisions which go into effect next year ... [they are] all provisions which common sense would tell you are going to increase the cost."

Provisions in the health reform law that took effect this year require health plans to cover the cost of preventive care without co-pays; allow dependents to be covered on their parents' policies until age 26; and ban lifetime limits on coverage.

The changes are expected to cost self-insured employers more in direct claims costs and fully insured companies more in premiums.

In October, 30% of those surveyed said their companies plan to spend less on health benefits -- indicating potential benefit cuts. That number is basically unchanged from before health system reform was enacted, and it's down from 33% in 2009.

In the most recent survey, about a fifth of those surveyed said they were planning to spend more on health benefits and half said they expect spending to stay about the same. "It makes me wonder whether companies have their arms around health care reform yet," Adkins said.

On Nov. 9, Mercer released early figures from its annual employer survey, which incorporates responses from more than 2,800 companies.

The report found that 17% of employers said complying with new rules under health system reform would lead to no changes in the cost of providing health benefits, but nearly as many -- 16% -- said the cost of benefits would go up by 5% or more in 2011. More than a fifth said they didn't know how much more benefits would cost in 2011.

However, it does not appear that a rise in costs is going to prompt companies to drop coverage on a massive scale when further reform provisions start in 2014, opening up the individual market to make insurance available to those are currently shut out.

Among the largest employers, those with 10,000 or more employees, 3% said they are likely to terminate coverage and send workers to the individual market for health insurance. Among companies with 500 or more employees, 6% said they would probably stop offering benefits.

A fifth of smaller employers, with between 10 and 499 employees, said they would probably drop coverage.

The Mercer study, however, noted that in Massachusetts, which is seen as a model for national reform, few employers have stopped offering benefits since the state-sponsored health insurance exchange launched in 2006.

"You can see why the idea of dropping employee health plans would be attractive to small employers," Beth Umland, research director for health and benefits for Mercer, said in a news release. "On the other hand, when you look at the experience in Massachusetts, where insurance exchanges have been operating under state-based health reform for over three years, it hasn't happened."

Mercer also reported that 39% of surveyed companies with 50 or more employees are likely to have health plans that will be hit with a 40% excise tax in 2018, a provision commonly called a tax on "Cadillac health plans." A plan that costs more than $10,200 for an individual employee or $27,500 for dependent coverage will be subject to the tax.

Mercer said 37% of employers believe they won't hit that threshold, with 3% saying they will make no changes if they do.

Meanwhile, 23% said they would cut back on coverage to get under the threshold, and 37% said they would try to but that they're not confident they can.

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Health care costs worrying CFOs

Consulting firm Grant Thornton surveys hundreds of chief financial officers and comptrollers twice a year to gauge the direction executives plan to take in terms of employee benefits and other business concerns.

Companies saying employee benefits was issue of most concern

  • March 2009 -76%
  • September 2009 - 77%
  • March 2010 - 68%
  • October 2010 - 84%

Companies planning to make changes to average employee cost of health insurance benefits *

Increase Same Decrease
March 2010 6% 66% 29%
October 2010 21% 49% 30%

*Note: Grant Thornton did not do similar comparisions in its 2009 surveys. However, in September 2009 it noted that 33% of CFOs said their organizations were reducing health benefits.

Source: Grant Thornton, LLC (link)

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What will employers do in 2014 -- and beyond?

A recent survey asked 2,800 employers what they plan to do as health system reform kicks in -- not only if they plan to keep sponsoring health insurance coverage, but also what they will do when a 40% excise tax on high-cost plans goes into effect.

Employers that plan to drop coverage once insurance exchanges begin

  • 20% of firms with 10-499 employees
  • 6% of firms with 500-plus employees
  • 3% of firms 10,000-plus employees

Reaction of employers (50 or more employees) to excise tax

  • 37% believe their plans won't trigger the excise tax.
  • 37% say they will attempt to bring their plans below the threshold amounts, but that might not be possible.
  • 23% say they will do whatever is necessary to bring their plans' costs below the threshold.
  • 3% say they will make no special effort to bring costs below the threshold.

Employers (50 or more employees) that may go over the high-cost plan threshold, by region

  • 39% of companies nationally
  • 53% of companies in the Northeast
  • 37% of companies in the Midwest
  • 35% of companies in the South
  • 34% of companies in the West

Source: Mercer's National Survey of Employer-Sponsored Health Plans (link)

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External links

Grant Thornton survey of senior financial executives, Nov. 1 (link)

Grant Thornton survey of senior financial executives, Oct. 21 (link)

"Few employers planning to drop health plans after reform is in place, survey says," Mercer, Nov. 9 (link)

"Sustaining Health Care in a Recession: an Update on Massachusetts as of Fall 2009," Health Affairs, June (link)

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