When I initially saw the headlines, I had a hard time believing that the PPACA would increase costs as drastically as suggested by some of these employers (Delta has estimated an additional $38 million in costs in 2014 directly attributable to health reform). As more individuals are insured, the thinking is that insurers’ risk pool is expanded and health insurance costs will slowly come down. And on the provider side, fewer uninsured patients means hospitals don’t have to absorb the costs of caring for patients who can’t pay, and the hospitals will no longer need to pass those costs.
However, as I dug in, I realized, like these employers did, the potential cost savings (or at least lower growth rates) of ObamaCare will take some time to experience, and for 2014, the fees created by ObamaCare to cover the costs of its reforms will likely drive up costs for most large employers.
As the CNN report details, there are a handful of fees that go into effect in 2014 that will increase benefit costs for employers. The two directly levied on employers are:
- Transitional insurance fee. A three-year fee levied on employers to help fund state-based health exchanges. The rate for 2014 is set at $63 per worker.
- Patient Centered Outcomes Research Institute fee. A seven-year fee levied on employers to fund the Patient Centered Outcomes Research Institute. The rate for 2014 is $1 per worker.
2014 also marks the beginning of the fee levied on insurers to implement the PPACA. Insurers will must pay a fee equal to 2.5 percent of total premiums next year, and it’s expected that this cost will be passed on to employers. Additionally, the individual mandate means that the few workers (and/or family members) that opted out of employer coverage and went uninsured, will now opt in to those plans, further increasing employer costs.
So, how will employers react? As mentioned earlier, many are expected to shift costs to employees through HDHPs. Seventeen percent of employers currently offer HDHPs as their only coverage option, and if that grows to 22 percent next year, the impact on providers could be devestating, for two core reasons.
First, as explained by our publisher Scott Becker in a recent article, individuals enrolled in these plans may put off health services. While the PPACA requires many preventive services be covered before the deductible in HDHPs, many other services will mean high out-of-pocket costs for patients.
“HDHPs will likely lead to more caution in consumer spending immediately. That is, providers often see a slowdown in the first couple months of the year as patients are paying for their own services out of pocket. This period of spending caution may extend for several more months,” wrote Mr. Becker.
Secondly, providers will have to significantly alter their business practices to obtain payment from individuals. Obtaining payment directly from individuals often means claims will take longer to pay, or financial practices must be alterted to demand payment upfront in non-emergency situations.
Taken together, these two issues mean major headaches for healthcare providers.
But, is ObamaCare to blame?
While health reform does impose some additional fees on employers, the use of HDHPs and employers’ desire to decrease health benefit costs has been a long time coming. The increased fees that are set to take effect in 2014 are likely to force employers who were considering HDHP-only benefts toward that decision. However, without ObamaCare, the year-over-year growth in premiums would likely continue to skyrocket, and I’d expect we’d see just as many employers offering HDHP-only health benefits, if not more, over the next 5-10 years.
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