The post below is a guest blog from Tom Vertich, who serves as Principal, Health & Welfare Consultant for CAI’s employee benefits partner Hill, Chesson & Woody.
Here’s another surprise for some employers – courtesy of the Affordable Care Act (ACA). They will see an increase in enrollment of working spouses who are dis-enrolling from their employers’ medical plans. As if that wasn’t perturbing enough to plan sponsors, those spouses are generally on the older side (>50), and that will increase overall plan risk and employer costs. If your plan does not require a working spouse surcharge for spouses who can get coverage from their employers, your plan may be vulnerable as well.
So why is this happening?
Beginning in January of this year, small group employers (those with less than 50 full-time equivalent employees) who renewed their fully-insured plans found that their premiums changed in a dramatic way. Rates are (for the most part) different for every employee and are now based upon the employee’s age. That means older employees will be paying quite a bit more at renewal time if their small group employer contributes for medical coverage in one of two ways.
If the employer provides a defined contribution (DC), older employees’ costs could dramatically escalate. Under a DC approach, each employee receives a flat amount by the employer to help pay for their coverage under the employer’s medical plan. Much more common is for employers to pay a set percentage of premiums for their employees. This won’t result in as dramatic of an increase, but it can still be a shock to an older employee.
In trying to offset higher costs from the new ACA mandates, small group employers are starting to catch on that they may be able to get older employees to migrate to other health insurance coverage. Because of the quirky rules that determines what is “Affordable” coverage, the older married employees will likely find their spouses’ employer-sponsored plans a much better choice than the exchange since they probably won’t qualify for a tax credit.
How do you know if your plan has a problem? Take a look to see if you’re having an increase in mid plan-year spousal enrollments. If you see this or start to see this happening, check whether there is diversity in these spouses’ ages. If there isn’t, and they are in older age groups, your plan is probably being affected.
Even though it’s not the norm, employers may want to take a closer look at requiring a surcharge for working spouses who qualify for their employers’ health plans. According to their most recent survey on purchasing value in health care, the National Business Group on Health found that only about 20% of employer participants require working spouses to pay $100 per month. Making this kind of change though, will discourage the dumping of other employees into your plan.
The full effect from this employee dumping won’t be here until the last quarter of this year. Much of that will come from the onslaught employers who changed the start of their plan year to December in 2013 in order to delay the new mandates that went into effect this year. After that, the employers who got to keep their old plans this year will begin to move to the new pricing methodology.
That’s at least some good news since the ACA now requires employers to provide at least 60-days notice before making a “significant plan change”; so you have some time to weigh your options. Also, to minimize the employee relations issues, you may still want to offer a real choice. If so, your plan only needs a surcharge big enough to make your plan slightly less attractive than what other employers charge for employee-only coverage. To find the right surcharge amount for your plan, contact Hill, Chesson & Woody for a benchmark analysis.