Obamacare Mitigates Costs for Big Employers, Refuting Lobbyists’ Predictions

By and | October 16, 2014

Business groups said soon after Obamacare became law in 2010 that the sweeping healthcare overhaul would impose huge new costs on U.S. employers, leading to job losses.

Three years later, with the Patient Protection and Affordable Care Act in effect, none of the most dire predictions has come to pass. Insurance premiums for companies that offer health benefits increased less than 3 percent this year, the lowest rate in 16 years. While Wal-Mart Stores Inc. became the latest large employer to scale back its health benefits this month, the change affects only part-time workers — saving the retailer an estimated $51 million a year.

“To the extent they thought that the employer market would explode because of it, or there would be severe disruption or anything like that, we certainly didn’t see that,” Gary Claxton, a vice president at the Menlo Park, California-based Kaiser Family Foundation, a health research group, said in a telephone interview.

One critical prediction came from Tom Donohue, the U.S. Chamber of Commerce president, who said in January 2011 that many companies were thinking about ending their employer-based plans to cope with the law’s new mandates.

That hasn’t happened. None of the more than 600,000 employers who are clients of Automatic Data Processing Inc., the largest U.S. payroll firm, is planning to eliminate health benefits for full-time workers in response to the law known as Obamacare. While there are costs imposed on employers by the law, the amounts are nominal for most companies, according to benefits consultants.

‘In Line’

“Companies view the Affordable Care Act as a compliance mechanism, as opposed to it changing, completely overhauling the landscape of America,” said Tim Nimmer, chief actuary for Aon Hewitt, a benefits consulting firm. Costs under the law “are pretty much right in line with what they expected,” he said.

Donohue wasn’t available for an interview, Blair Latoff Holmes, a spokeswoman for the Chamber, said in an e-mail.

Slower increases in insurance premiums and national healthcare spending have mitigated the impact of the law on U.S. companies. Many employers are also shifting costs to workers with higher co-payments and deductibles.

Among corporations that saw little impact from the healthcare law is Ruth’s Hospitality Group Inc. The Winter Park, Florida-based operator of a chain of steakhouses offers benefits that exceed minimum requirements under the law for employees working as few as 23 hours.

About half of the workers took the health plan and more are expected to join to avoid the penalty for not carrying insurance, Chief Financial Officer Arne Haak said in an April conference call with analysts.

Lower than Projected

“Our claims experience is actually lower than what we were projecting in the first quarter,” he said. “So nothing precipitously bad.”

The Affordable Care Act’s impact on U.S. companies has been an increase of about 3.6 percent in the cost of health benefits, said Brian Marcotte, president of the National Business Group on Health, a trade group that represents 395 large employers.

National spending on health care has also slowed, a phenomenon that was first observed shortly before the Affordable Care Act became law. At least part of it may be attributed to the law, according to Katherine Baicker, a Harvard University health economist.

“It’s possible a more general effect arises from health- care providers, insurers, groups aiming to slow health-care spending on their own in advance of any provisions binding from the law,” Baicker said.

‘Under-Appreciated’ Trend

The White House estimates that the Affordable Care Act has shaved at least a half of a percentage point annually from the growth of health-care costs, said Jason Furman, chairman of President Barack Obama’s Council of Economic Advisers. Health insurance premiums for employers are $1,800 less today than they would have been had health-care costs continued to grow at pre-2010 rates, he said.

“The change in health cost growth is one of the most under-appreciated economic trends relative to its importance,” he said in a phone interview.

Employers have “absolutely” done better than expected under the law, he said, noting comments from the end of the last decade by business leaders, including the former chairman of General Motors Co., Rick Wagoner, that health-care costs would render U.S. companies uncompetitive.

‘Good Thing’

Employers and their workers have benefited in the form of lower premium increases for their insurance plans. Other than a spike in 2011, after the law required plans to cover children until age 26 and eliminated cost limits on care, premium increases have averaged less than 5 percent a year since 2010, according to Kaiser.

“To the extent that health care can be provided more efficiently, that’s a good thing for everyone, employers and employees,” said Baicker, the Harvard economist.

In a trend that began before the Affordable Care Act, many companies have held insurance premiums in check partly by shifting health-care costs to their workers. Their methods include increased co-payments and deductibles, plans that encourage the use of lower-cost drugs or other services, and wellness programs that penalize workers who don’t participate.

Cost Management

One increasingly popular move is to offer workers a healthcare savings account coupled with an insurance plan that carries a high deductible. A June survey by the National Business Group on Health found that about 57 percent of the 136 companies that responded are implementing or expanding this type of plan, including some planning to offer it as the only option. Companies on average contribute about $600 a year to the accounts, said Marcotte, the trade group’s president.

“There is a cost-savings and a cost-management element to them,” he said.

In the survey, the companies said that they expected such benefit changes would shave 1.5 percentage points from increases in health-care costs.

Companies employing a high proportion of low-paid and part- time workers are likely to see the greater impact from the Affordable Care Act, or ACA, because they previously didn’t offer insurance to those workers — or the employees often refused it.

“Their costs could easily go up 50 percent or more as a result of complying with the ACA,” said John Haslinger, vice president for strategic advisory services at ADP, the payroll firm.

‘Very Burdensome’

Wal-Mart, based in Bentonville, Arkansas, has said its healthcare costs will grow $500 million this year, attributing an unspecified share of the increase to the Affordable Care Act.

Retailers, restaurants and hospitality companies have created a lobbying coalition in Washington, called “Employers for Flexibility in Health Care.” The group sent a letter to U.S. regulators on Oct. 9 asking them to simplify employer record-keeping slated to begin in January.

“The reporting requirements are going to be very burdensome to employers,” said Christine Pollack, vice president of government affairs at the Retail Industry Leaders Association, a trade group in Arlington, Virginia.

Employers may accelerate their cost-cutting with two new Affordable Care Act requirements beginning next year. In January, companies with 100 workers or more must begin to offer insurance to most of them or risk fines of $2,000 per employee. And in 2018, the government will begin to levy a new 40 percent excise tax on so-called “Cadillac” health plans that cost more than $27,500 for a family.

The hope is that policies in the Affordable Care Act that promise to brake cost growth, including incentives for doctors and hospitals to work more efficiently, will bear fruit.

“The Affordable Care Act may well have had a dampening effect, and there are aspects of the Affordable Care Act in years ahead that have the potential to not only reduce costs but improve care delivery,” Randall Abbott, senior health strategist at Towers Watson, said in a phone interview.

–With assistance from Zain Shauk in Houston and Craig Giammona in New York

Topics USA Legislation Trends Commercial Lines Business Insurance

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