Maximize ACA Success: Understand Cost Thresholds and Employee Needs
This insight is from: "Planning For Health Care Reform: How Income Impacts Employee Health Benefits Participation"
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As the 2014 effective date of Shared Responsibility approaches, employers that offer group health care coverage are beginning to seriously scrutinize options around plan affordability, as defined by the Affordable Care Act (ACA). This white paper – the second in a series from the ADP Research InstituteSM on Health Benefits – focuses on the relationship between employee income and plan participation rates, and discusses how your knowledge of premium thresholds can help mitigate tax penalties, while helping your employees obtain the qualifying coverage they need.
Income Levels Impact Employee Benefits Decisions
The proposed regulations interpreting Shared Responsibility establish 9.5% of an individual’s wages as one of the “affordability thresholds” for employer-sponsored health care coverage. The ADP Research Institute study, for instance, shows that 8.6% of all single full-time employees now pay more than 9.5% of their base pay on health care premiums. Most cases include dependent coverage rather than self-only coverage, and thus might not trigger a penalty tax to employers. An extrapolation of data shows a similar expense ratio for married households.
The core question is: What portion of the 8.6% will leave their employer’s health plan in 2014 to obtain coverage through a public health care exchange? It is difficult to answer this question at this stage of ACA implementation because the cost and quality of exchanges may vary widely from state to state. In the first of a series of white papers on the ACA, the ADP Research Institute uncovered huge differences in premiums paid by employees – not only from state-to-state, but also among various industries.
Predicting Employee Participation in Employer-Sponsored Health Care Plans
Study data show definitively that $45,000 per year (about 400% of the Federal Poverty Level or FPL) is a critical threshold for employee base pay when it comes to predicting employee plan participation in employer-sponsored group health care plans. In fact, about eight out of 10 unmarried full-time employees earning $45,000 or more elect group health coverage. Moreover, the rate of participation remains constant regardless of additional increases in income.
Conversely, individuals earning less than four times the FPL appear to be more price-sensitive to the cost of health care coverage than those earning more. The white paper provides evocative details by income segment concerning significant price sensitivity toward benefits costs below the $45,000 benchmark. For example, single full-time employees earning below $22,340 per year might find the public exchange option to be less expensive than group health benefits. However, as salaries grow above the $22,340 benchmark, employees are more likely to obtain less expensive coverage through their large employer-sponsored group plan.
The importance of the $45,000 threshold and $22,340 benchmark identified in the study are significant benchmarks for employers who are planning ACA compliance strategies. Employers can use these data points to help identify which employees may require additional financial support to encourage their participation in an employer-sponsored group health plan – including at what point it becomes cost-effective to do so.
Compare the Actuarial Coverage Value of Your Group Plan vs. a Public Exchange
Are your employees better off maintaining health care coverage through your group plan or migrating to a public exchange? While the ACA specifies that employees with incomes less than 400% of the FPL are eligible for specific subsidies to help pay for coverage through an exchange, individual circumstances do not always make subsidies the best option for all employees.
To help you gain a measurable group plan versus public exchange comparison, examine the Actuarial Coverage Value (ACV) of your plan against that of various exchange plans. ACV is an estimate of the overall financial protection plan participants receive from a given health care plan. For example, an ACV of 90% would cover 90% of the total allowed cost of benefits. According to data, a typical employer-sponsored group health plan has an ACV of about 82%. Government subsidies for state-sponsored exchanges target an ACV of just 70%.
The full ADP Research Institute report provides extensive information that covers a broad range of plan types (by ACV). Where does your employer-sponsored group health care plan rank on the ACV measurement meter?
*A complete list of sources and citations can be found in the full report.
About This Report: Conducted by ADP Research Institute, a specialized group within ADP, this study is based on 2012 actual, aggregated and anonymous employee-level data from approximately 300 ADP health and benefits clients. All states and major industries are covered, as well as employee gender, age, and marital status. Each of the companies in the study has 1,000 or more employees, including both full-time and part-time workers. Due to the small data set population of union employees, only nonunion employees are considered in this analysis.