CHICAGO (Sept. 9, 2010) — Forty-seven percent of U.S. employers expect one or more of their healthcare plans to lose grandfathered status in 2011 because of design and other changes they will make to help avoid double-digit cost increases, according to a survey released Sept. 8.
Without making design and other changes, employers said they expect plan costs to increase an average of 10.1 percent next year, fueled in part by benefit improvements, such as extending coverage to employees' adult children until age 26, mandated by the new healthcare reform law, according to a survey by Mercer L.L.C..
But an increase of that magnitude is not an option, concludes the Mercer survey of more than 1,000 employers. Instead, employers say they are going to make plan changes, such as raising deductibles and coinsurance, to hold cost increases to an average of 5.9 percent, which is in line with annual cost hikes during the past few years.
“Six percent seems to be employers' collective comfort level,” Beth Umland, Mercer's research director for health and benefits in New York, said in a statement.
To hold down cost increases, many plans will have to make design changes that will result in loss of grandfathered status. That would happen, for example, if an employer raised coinsurance requirements or boosted the employee's share of the premium by more than five percentage points.
Plans that lose grandfathered status forgo their exemption from meeting certain reform law requirements, such as providing full coverage of preventive services.
However, that is a price many employers are willing to pay, Mercer said, noting that 47 percent of respondents expect at least one plan to lose its grandfathered status next year because of the changes.
The biggest factor motivating employers is cost. Sixty-three percent of respondents said it would be more cost-effective to make such changes than retain a plan's grandfathered status.
As employers “start to get a clearer picture of projected costs for 2011, many are finding they need more flexibility to get cost increases down to a level they can handle,” Tracy Watts, a Mercer partner in Washington, said in a statement.
Among employers whose plans will lose grandfathered status next year, 35 percent said that will happen because they intend to boost deductibles or out-of-pocket maximums by more than the permitted amount, while 31 percent intend to increase coinsurance, and 23 percent intend to raise copayments or more than the allowed amount.
Aside from shifting costs, 44 percent of employers also plan to add health management or wellness programs, 31 percent intend to conduct audits to determine if dependents are eligible for coverage, and 27 percent plan to put their plan out to bid to hold down healthcare costs.
Copies of the survey are available at Mercer's website.
This report appeared in Business Insurance magazine, a Chicago-based sister publication of Tire Business.