Companies sweating Obamacare tax—and acting on it: Study

Companies sweating Obamacare tax—and acting on it: Study

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Companies sweating Obamacare tax—and acting on it: Study | Wednesday, 21 Aug 2013 | 11:53 AM ET

Mid- and large-sized companies overwhelmingly expect health-care costs to increase under Obamacare—and most are eyeing possible changes to their health insurance offerings because of a looming excise tax for pricier plans under the health-care reform law, a new survey of employers finds.

In fact, 40 percent of 420 companies surveyed by Towers Watson said they will be changing their insurance plans' designs in 2014 in light of the coming excise tax as well as to control employee-related health costs.

And nearly 60 percent of the companies view private health insurance exchanges as a possible way to control their health-care and administrative costs by shifting the work of insuring their workers off

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to those exchanges in the future.

But most of those companies—which collectively employ 8.7 million people—don't have firm near-term plans to do so.

The study also found those same companies are increasingly unlikely to offer their employer-sponsored plan for retirees older than age 65 as Obamacare state insurance exchanges go into effect, and as Medicare remains available to those people.

The number of employers either very or somewhat likely to discontinue such plans for those retirees grows from 25 percent in 2014 to 44 percent in 2015, according to Towers Watson, the global professional services company, which released its study Wednesday.

But the same study found a very strong majority of those companies—82 percent—see their ability to offer subsidized health benefits to existing workers as an “important” as part of their “employee value proposition” for 2014, according to the study.

And 98 percent of the employers have no definite plans to discontinue health-care coverage in 2014 and 2015 and direct their full-time workers to the state health insurance exchanges.

“Most companies very much still see health-care benefits as a core offering,” said Ron Fontanetta, a senior health-care consultant at Towers Watson.

“It's a very visible benefit, and it garners a lot of attention among executives, in part because it's very visible to employees and also because it costs a lot,” Fontanetta said.

Companies taking action

However, the Towers Watson study is being released on the same day that it was revealed that delivery giant United Parcel Service told white-collar employees two months ago that UPS was excluding 15,000 working spouses from the Atlanta-based company's health plan next year because of increased medical casts, and “costs associated with the Affordable Care Act,” according to a memo cited by the Kaiser Health News service.

UPS' decision, according to Kaiser Health, is based on the ability of the affected employees' spouses to obtain insurance coverage elsewhere.

A UPS spokesman told Kaiser Health that the company expects to save about $60 million per year with that decision.

The Towers Watson study, in a reflection of the high costs that UPS and other companies are identifying and reacting to, found that the chief financial officers of the companies surveyed are increasingly involved in decision-making for those businesses' health-care strategies.

When the survey asked companies to what extent their CFOs are more involved in such decisions than they were three to five years ago, 46 percent of the companies said it was to either a great or significant extent.

Fontanetta said those CFOs aren't necessarily sitting down with benefits managers and designing health-care offerings. But, he said, “They are increasingly asking questions about 'where are we taking our future strategy? how does the challenge of offering health care reconcile with our broader financial goals as an organization?'”

“They want to understand, increasingly, what are the different strategic pathways [the companies] might take,” Fontanetta said.

Looming excise tax

At the forefront of many of those CFOs' minds, and the minds of other executives at the surveyed companies, is the looming threat of an excise tax on benefits under a provision of the Affordable Care Act that goes into effect in 2018.

That tax on the companies will initially be on health-care coverage whose aggregate cost for workers exceed $10,200 for self-only coverage and $27,500 for other coverage.

The tax is 40 percent of the amount that the worker pays in excess of those limits. Despite the fact that the tax doesn't kick in for more than four more years, it is already affecting having an effect on decision-making.

A total of 60 percent of employers said that the excise tax will have either significant or moderate influence on their health-care benefits strategy in 2014 and 2015, the study found.

“This is a big deal,” Fontanetta said of those results. “It's one of the most important findings.”

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He noted that more than 60 percent of the companies expect to be subject to the excise tax, absent any changes in their health-care offerings that would avoid it.

“But we don't think companies are going to sit tight,” Fontanetta said.

—By CNBC's Dan Mangan. Follow him on Twitter @_DanMangan.