The ACA’s Impact on Employer-Provided Health Benefits
President Obama will be leaving office with the Affordable Care Act (ACA), his signature policy initiative, in deep peril. An incoming Republican president and Congress, concerned with the cost of ACA exchange plans jumping by an average 25 percent next year and employee health care costs rising, have pledged to repeal the law. For his part, the President sought to shift the blame for rising out-of-pocket cost from the ACA’s flaws to employers and insurers. During a recent speech defending the law, he said the ACA has had no impact on the affordability of employer-provided health care benefits “except to make it a better value.” As the President put it, “if your premium is going up, it’s not because of Obamacare. It’s because of your employer or your insurer — even though sometimes they try to blame Obamacare for why the rates go up. It’s not because of any policy of the Affordable Care Act that the rates are going up.”
President Obama’s concern over increasing health care costs is admirable, but his effort to blame employers and insurers for rising costs is disingenuous. There is clear evidence the ACA has both directly and indirectly increased the cost of employer health care benefits. In 2014, an American Health Policy Institute study found that over the next decade, the cost of the ACA to large U.S. employers (10,000 or more employees) will be $4,800 to $5,900 per employee, and over the same time period, the total cost of the ACA to all large U.S. employers will be $151 billion to $186 billion. In 2012, an Urban Institute study estimated the ACA would increase large employer (1,000 or more employees) health care costs by 4.3 percent, and mid-sized employers (101 to 1,000 employees) costs by 9.5 percent. More recently, a survey of employers by the International Foundation of Employee Benefit Plans (IFEBP) found the ACA increased actual employer health care costs by an average of 5.8 percent.
Furthermore, the regulatory burden the ACA imposes on businesses and individuals should not be underestimated. Since the ACA was enacted, 106 regulations implementing the law have been published. These regulations will cost the private-sector more than $51 billion and require 173 million hours of paperwork in order to comply. Moreover, hundreds of guidance documents regarding the ACA have been published by various federal agencies since 2010. According to a recent American Action Forum study, the cost of each ACA regulation published so far has averaged $426 million and required 1.6 million hours of paperwork.
These overarching cost estimates come from a number of ACA provisions that have a direct impact on employers and on the cost of their health plans. These provisions include benefit mandates such as coverage for adult-children up to age 26 as dependents; offering affordable coverage to part-time and seasonal employees; and the requirement for employers to cover 100 percent of a growing list of preventive services. Although these benefit mandates may be popular, they are not free, and are part of the reason employee health care costs are rising. Other direct ACA costs include the Patient Centered Outcomes Research Institute fee, the Transitional Reinsurance fee, and general ACA implementation and administrative costs associated with IRS reporting requirements.
Indirect ACA costs that affect employers include new supply-chain taxes that are passed on to employers, such as the medical device tax, the annual fee on the manufacturers and importers of brand-name drugs, and the health insurer tax for fully-insured plans. The risk-adjustment assessment applies to small employers who are fully-insured.
According to the Centers for Medicare & Medicaid Services, employer-sponsored health benefits will cost $975.6 billion in 2016, or $5,697 per covered life. Direct and indirect ACA provisions likely increased the cost of employer-sponsored health benefits by 5.8 percent in 2016. This means the ACA likely cost employers $56.6 billion in 2016, or $330 per covered life.
The ACA was a far-reaching law with extensive impact and implications. When employers make decisions about their health care plans, they are of course taking the ACA into account. President Obama has understandable political reasons for saying that these decisions are “not determined by the Affordable Care Act,” but the facts clearly show otherwise.
Tevi Troy is CEO, and Mark Wilson Chief Economist, at the American Health Policy Institute.