Dependent Eligibility and Affordability Provisions of PPACA May Prove More Costly than Original Estimates
Impact Varies Dramatically Among Employers
CHICAGO--(BUSINESS WIRE)-- A new study published by bswift, a leader in software and services for employee benefits administration, shows that two key provisions of the new Patient Protection and Affordable Care Act (PPACA) − “Dependent Eligibility” and “Affordability” − will likely result in much higher health care costs for employers than previously estimated by Health and Human Services (HHS) and other industry consultants.
The bswift Special Report on the Impact of Health Reform on Employers analyzed actual 2010 benefits premium, contribution and dependent data from more than 5,000 bswift client organizations. Of those, 242 met the selection criteria and were used in the study. The sample includes mid-sized and large employers with 50 to 15,000 employees representing a variety of industries including retail, manufacturing and professional services.
“Employers need actual company-specific data rather than survey-based estimates to truly understand the impact of the new PPACA legislation,” said bswift CEO Rich Gallun.
“The bswift Special Report highlights the dramatic differences in impact of PPACA among employers. For some, the impact is negligible. For many others, PPACA may increase costs substantially for 2011 and may also require a complete overhaul of the organization’s health strategies in the next three years,” he added.
Impact of “Dependent Eligibility” Provision
bswift analyzed the likely impact of the “Dependent Eligibility” provision, which requires organizations to cover employees’ children up to age 26, whether or not they are full-time students, married, or employed. HHS had originally estimated the impact of this provision to be 0.7 percent of total health care costs for employers. The bswift Special Report found the likely impact to be 1.6 percent, more than double the initial HHS estimate.
bswift looked at the statistical median and found that a company with 1,000 enrolled employees and a median health premium cost of $8,325 per employee annually is likely to experience $133,200 in additional costs for 2011 as a result of this provision.
However, the bswift Special Report found that the impact varied widely among employers. On the high end the impact could be more than 13 percent of an employer’s total health care costs. On the low end, the impact could be less than 0.3 percent of total health care costs. Impact varies based on size, age and family composition of the organization’s workforce, as well as the employer’s current dependent eligibility rules.
Notably, the bswift Special Report also found that many companies have already changed their dependent eligibility rules in advance of the law’s 2011 deadline in order to minimize employee confusion and administrative hassle.
Impact of “Affordability” Provision
Beginning in 2014 under the “Affordability” provision of the PPACA legislation, organizations with more than 50 employees will face stiff penalties if they do not offer full-time employees an affordable health plan option that costs less than 9.5 percent of the employee’s total household income.
The new law will penalize employers $3,000 per year for each full-time employee who receives a federal tax credit or subsidy to buy coverage within a state-based insurance exchange because his/her health plan is deemed unaffordable. To qualify for the credit, employees must disclose household income information to the government.
bswift analysts used employee salary data to estimate an organization’s risk of failing the “Affordability“ test in 2014. The bswift Special Report shows that 52 percent of employers are likely to have more than 5 percent of employees in the “danger zone” – i.e., paying more than 9.5 percent of their compensation for health premiums. Again, bswift looked at the statistical median and found that a company with 1,000 employees is likely to have 5.8 percent (58 employees) in this “danger zone,” which translates into $174,000 annually in penalties or two percent of the employer’s total health care costs.
Some employers, however, face a more expensive problem. For employers with more lower-salaried employees and less generous health contributions, the Affordability provision has even more costly consequences. Here bswift found that a company with 1,000 employees and 20 percent in the “danger zone” could experience penalties of $600,000 annually or 7.5 percent of the employer’s total health care costs.
Overall, the bswift Special Report notes that approximately one of three employers has more than 20 percent of their employees in the “danger zone.”
“As we help our clients understand the future impact of these PPACA provisions, we are seeing dramatic variability among employers. The Dependent Eligibility provision will have an immediate, clear cut cost impact on most organizations starting in 2011. The Affordability provision, however, is less straightforward given the challenge of estimating household income and the fact that the health care world – from both a legislative and private sector perspective – is certain to continue to change rapidly in the next three years. In any case, the dollar impact is large, and each employer will have to confront these challenges and adapt its strategies given its unique situation,” concluded bswift’s Gallun.
Anne Jacobsen, vice president, human resources at Hooker Furniture in Martinsville, Va., a company with more than 700 benefit-eligible employees, said “bswift projections are eye-opening and useful in providing us with specific, actionable information to plan for 2011 and beyond. It’s been a real challenge to understand the impact of PPACA for our company. We are sharing this with our actuaries immediately to fine-tune our projections and plans for 2011 and beyond.”
Dave Olsen, senior benefits manager at Lennox International in Richardson, Texas, with more than 9,000 benefits-eligible employees noted, “In preparation for the 2011 benefit plan year, we estimated a 3 percent increase in health care costs due to provisions in PPACA. The bswift Special Report helped us validate that our projections are accurate.”
Based in Chicago, bswift offers software and services that streamline HR and benefits administration. More than 5,000 companies tap bswift’s state-of-the-art Software-as-a-Service (SaaS) technology and Business Process Outsourcing (BPO) solutions to significantly reduce administrative costs and time-consuming paperwork, making life easier for HR staff and employees alike. For more information, go to www.bswift.com.
Media Contact for bswift
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