Many Plans Fail Health Reform Affordability Test

More than one in three employers have at least some employees for whom coverage would be considered “unaffordable” under the new health care reform law, according to a new analysis.

Under a health care reform law provision that begins in 2014, employers are subject to stiff penalties if premiums paid by full-time employees exceed 9.5 percent of their household income. The annual penalty for unaffordable coverage is $3,000 for each full-time employee who receives government assistance and uses it to buy coverage in state insurance exchanges, up to a maximum of $2,000 times all of an employer’s full-time workers, excluding the first 30.

Using information obtained from its 2009 health care cost survey of nearly 3,000 employers, New York-based benefit consultant Mercer estimates that 38 percent of employers have at least some employees who pay premiums of more than 9.5 percent of household income, exposing employers to the penalties unless they reduce affected employees’ premium contributions.

The likelihood of employers offering unaffordable coverage is inversely related to employer size, with smaller employers having a higher percentage of workers paying more than 9.5 percent of household income. For example, 20 percent of employers with more than 20,000 employees have at least some employees paying more than 9.5 percent of household income, compared with 38 percent of employers with 10 to 499 employees.

The affordability provision will be one of the more challenging ones for employers to interpret, Mercer notes.

“Lawmakers did not take into account that employers don’t have access to information on employee household income,” Tracy Watts, a partner in Mercer’s Washington office, said in a statement.

“Employers question how they are going to get that information and what other administrative challenges might come along with this new requirement. For example, what happens if an employee’s total family income changes during the course of a plan year?” Watts asked.

The provision also will require government regulations to implement, as the law does not clearly define household income.

Numerous other provisions will force employers to make design changes or face penalties. For example, the law requires employers to offer affordable coverage to employees who work at least 30 hours a week.

However, Mercer, in its analysis, found that only 51 percent of employers with at least 500 employees offer coverage to part-time employees who work at least 30 hours a week. The remainder either don’t cover any part-time employees, require them to work more than 30 hours a week to be eligible or impose other eligibility requirements.

“This rule will require employers with a lot of part-time employees to make some hard choices,” Watts said. “If they don’t offer coverage to part-timers, can they afford to start, or to raise the minimum hours required for coverage?”

The Mercer analysis also found 71 percent of employers with at least 500 employees now impose a lifetime dollar limit in at least one of their preferred provider or point-of-service plans, which will be illegal beginning on January 1, 2011. The median lifetime dollar limit now is $2 million.

On the other hand, only 22 percent of large employers with HMOs have a lifetime dollar limit. 

Filed by Jerry Geisel of Business Insurance, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.

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