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Truven report finds employers choosing to drop health insurance won’t reap cost advantages

Posted on July 23, 2012 | No Comments

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Implementation Briefs

A new report published by Truven Health Analytics says that employers choosing to drop their group health insurance plans and pay the penalties under the Affordable Care Act (ACA) would experience no cost advantages. Furthermore, the report suggested that employers who do choose to suspend health benefits would incur sizable operational and productivity repercussions. These negative outcomes, the report concluded, would thus discourage most large employers from shifting employee health benefit strategies after ACA implementation.

Truven reported three key findings. First, employers would experience no immediate or long-term cost advantage by eliminating group health benefits. Second, employers would experience higher costs in scenarios where employees are shifted into exchanges for health benefits. Employees would suffer a significant cut in total compensation in situations where employers eliminate group health benefits and thus force employees to assume benefit costs.

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According to a new Employee Benefit Research Institute (EBRI) report, the uninsured rate shrank for working-age Americans last year. The percentage of non-elderly Americans with coverage increased to 82 percent in 2011, up from 81.5 percent in 2010. Employment-based health insurance coverage rates dropped, however. Although employer-sponsored coverage remains the dominant source of health coverage in the United States, providing coverage for 155.5 million people under age 65 in 2011, the percentage of non-elderly individuals with employer-sponsored coverage has declined every year since 2000.
Annual premiums for employer-sponsored family health coverage reached $15,745 this year, up 4 percent from last year, with workers on average paying $4,316 toward the cost of their coverage, according to the Kaiser Family Foundation/Health Research & Educational Trust (HRET) 2012 Employer Health Benefits Survey. This year’s premium increase outpaced the growth in workers’ wages (1.7 percent) and general inflation (2.3 percent). The 14th annual survey of more than 2,000 employers highlights trends in employer-sponsored health insurance costs and coverage. The survey reveals significant differences in the benefits and worker contributions toward family premiums between firms with many lower-wage workers (at least 35 percent of workers earn $24,000 or less a year) and firms with many higher-wage workers (at least 35 percent of their workers earn $55,000 or more a year). According to the survey, an estimated 2.9 million young adults are currently covered by employer plans this year as a result of an Affordable Care Act (ACA) provision that allows young adults up to age 26 without employer coverage of their own to be covered as dependents on their parents’ plan. That’s up from the 2.3 million in the 2011 survey. The survey also reports that 48 percent of covered workers are in “grandfathered” plans as defined under health reform, down from 56 percent last year.
The 2012 Towers Watson/National Business Group on Health Employer Survey on Purchasing Value in Health Care offers insights into the actions and plans of leading U.S. employers and views of what the future of employer-provided health care in the U.S. may look like this year and in the coming three years. According to the study, as health care costs continue to rise, employers are looking for ways to cut costs. While the total cost of health care is predicted to rise 5.3%, to $11,507 per employee in 2013, the growth is slowing. Many companies will keep premium increases in line with the health care cost increases. The study found that 13% of companies would increase premiums by 5% in 2013, for example.
According to a new article in The New England Journal of Medicine, Medicare and Medicaid spending has grown less rapidly than private health insurance costs in recent years, and this trend is projected to continue for at least the next decade. According to John Holahan and Stacey McMorrow of the Urban Institute, the authors of the article, Medicare and Medicaid spending per enrollee will grow at rates of 3.1 percent and 3.6 percent, respectively, over the next ten years. This is well below the 5.0 percent project growth rate for private insurance. The authors based these estimates on the latest projections of national health expenditures prepared by the Office of the Actuary at the Centers for Medicare & Medicaid Services (CMS).
The Government Accountability Office (GAO) released a report yesterday which reviews estimates of the impact of the Affordable Care Act (ACA) on employer-sponsored coverage. According to some researchers, the ACA's Medicaid expansion and subsidized coverage for low- and moderate-income people who buy health insurance through Exchanges beginning may discourage employers from offering coverage. However, other researchers believe that the financial penalties imposed by the ACA will actually encourage employers to offer coverage. The GAO report examines 27 studies published between January 1, 2009 and March 30, 2012 that offer estimates regarding changes in employer-sponsored health coverage as a result of the ACA.
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Employment-based health benefits are the most common form of health insurance in the United States. In 2010, 58.7 percent of non-elderly individuals were covered by employment-based health plans, with 68.6 percent of working adults covered. However, the percentage of the population with employment-based health benefits has recently been in decline due to the 2007-2009 recession. The percentage of individuals under age 65 with employment-based health benefits fell from 62.4 percent in 2008 to 58.7 percent in 2010, and the percentage of workers with coverage through their own employers fell from 54.2 percent in 2007 to 51.5 percent in 2010, its lowest level since 1994. The Employee Benefit Research Institute (EBRI) recently published an Issue Brief to examine the state of employment-based health benefits among workers with respect to offer rates, coverage rates, and take-up rates. It also examines how the state of employment-based health benefits has changed since the mid-1990s, reasons why workers do not have employment-based health benefits from their own employers, and how these reasons have changed since the 1990s. The estimates presented in this paper can also serve as a baseline against which to measure the impact of the Affordable Care Act of 2010 (ACA) on employment-based health benefits in the future.
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