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May 20, 2010

One of the big questions everyone has about the new health care mandate coming out of Washington, is this: how much is it all this going to cost – especially for my company? Well, here’s what businesses expect – an additional 3 percent added to their regular increase next year.

According to a new study of nearly 800 employers released today by Mercer, a global consulting firm, one in four employers expect new requirements stemming from government-mandated health care reform to add 3 percent or more to their 2011 health care cost increase. And, “the cost increase will range from moderate to severe, depending on the employer’s circumstances,” the report said.

Mercer surveyed 791 employers this month about their level of concern over six major provisions of the Patient Protection and Affordable Health Care Act (the PPACA, more popularly referred to as “Obamacare”), and whether they think that the new federal rules will cause their costs to rise next year. One in four respondents (25%) said that compliance with the first round of the PPACA will add another 3 percent to their projected plan costs in 2011, with about 10 percent expecting an additional 5 percent or more. Some 41 percent of those surveyed expect an increase of only 2 percent, while a whopping 30 percent could not estimate a cost impact for next year. A small number of employers — 3 percent – said that their plans were already in compliance with the new federal health mandates and that they would see no cost increase.

“Average health benefit cost per employee has been rising consistently at about 6 percent for the past five years,” said Tracy Watts, a consultant in Mercer’s Washington, D.C. office. “That seems to be employers’ threshold of pain. If compliance with health insurance reform pushes the cost increase up toward double digits, employers will be exploring ways to bring it back within their comfort zone.”

Some of the other top line findings from the Mercer survey:

  • Employers’ No. 1 concern with the PPACA is the excise tax on high-cost health plans. This tax, which takes effect in 2018, emerged as the top concern of employers even though it the last major provision of Obamacare to be implemented. “While other provisions hit from 2011 through 2014,” the Mercer survey noted, “the excise tax poses a significant or very significant concern for 29 percent of the survey respondents.” Additional 29 percent say it is “a concern,” while 42 percent say it is either not an issue or only a very slight concern.
  • Retailers seem particularly concerned about the cost of covering more part-time workers with health care. The PPACA rule that employers must offer “affordable” health care coverage to all employees working an average of 30 hour or more per week in a month, or else be subject to penalties, “is a significant concern for 24 percent of respondents in the retail industry, which relies heavily on part-time labor. This compares to just 11 percent of survey respondents overall.”
  • Few employers will jump in to offer coverage for adult children of their employees before they are required to do so. “Only about one-fourth of the survey respondents that don’t already cover children up to the age of 26 say they are likely to begin before the next renewal, which for most plans is January 2011, the Mercer study said. “Large, self-insured employers are even less likely to act before they have to: Among respondents with 5,000 or more employees, just 16 percent say they are likely to implement the rule early.”

Here’s something to keep in mind about the Mercer survey: It’s easy to look at some of these percentages of respondents and pooh-pooh them as being too small to really indicate very much, but keep in mind that they reflect the huge uncertainty and lack of information about how the regulations for Obamacare will actually be written, and what the real impact will be.

What these numbers should tell you is this: businesses and employers everywhere are scrambling to figure out what the new federal health care mandates mean to their organizations – and that many are making preliminary decisions about cost implications now rather than sitting back and passively waiting for the federal government to eventually let them know.