The IRS has released the inflation-adjusted amounts for 2019 used to determine whether employer-sponsored coverage is “affordable” for purposes of the Affordable Care Act’s employer shared responsibility provisions.
For plan years beginning in 2019, the affordability percentage has increased to 9.86% (from 9.56% in 2018) of an employee’s household income or wages stated on their W-2 form. The higher rate is indicative of the anticipated small group plan inflation that continues hitting premiums.
If you are an applicable large employer under the ACA (with 50 or more full-time staff), you should examine the affordability percentages for your lower-waged employees so you don’t run afoul of the law. Fortunately, as the percentage has increased, you’ll have more flexibility when setting your employees’ contribution rates.
A recent study by PricewaterhouseCooper’s Health Research Institute found that employers and insurers are expecting a 6% increase in health care costs in 2019. While that rate is just slightly above the average 5.6% increases since the ACA took effect, many employers have increasingly been passing the inflationary costs on to their covered employees.
The report by PwC noted three trends that are having the largest effect on health care costs.
Abundance of treatment options – With covered individuals demanding more convenience in their treatment options, employers and health plans have responded by giving them more ways to obtain care, like retail clinics, urgent care clinics and electronic physician consultations. While the long-term goal is to reduce health care spending on services, currently the increased offerings have resulted in higher utilization.
Mergers by providers – Hospitals and other health care providers have been consolidating for the better part of a decade, and that trend is expected to continue in light of several recently announced mega-deals. Prices tend to rise when two health systems merge and the consolidated entity gains market share and negotiating power.
Physician consolidation and employment – Hospitals, health systems and medical groups are hiring more and more doctors out of private practice. And when that happens, costs tend to go up since these organizations tend to charge higher prices than independent practitioners.
In 2016, 42% of physicians were employed by hospitals, compared to just 25% in 2012, according to the PwC report. Hospitals and medical groups tend to charge between 14% and 30% more than physicians in private practice.
At the same time, there are some factors that are dampening overall cost increases:
- Expectations that next year’s flu will be milder than this year’s main virus.
- More employers are offering care advocates who help covered individuals navigate the insurance system to find the best quality care at the best price. According to the survey, 72% of employers offered health-advocacy services to their employees in 2018.
- More employers are using “high-performance networks,” also known as “narrow networks.” In essence, a plan will use a narrow network of doctors who care for the bulk of covered individuals. Not contracting with as many doctors means lower overall outlays for medical services.
While the doctors in these networks are not always the least expensive providers, they typically are ones who have proven over time to yield the best results.
We are here to help you get the most value for your and your employees’ health care spend. Talk to us about any of the tools mentioned above to see if we have a program that might work for your organization.
If you have any questions or would like to speak to a professional advisor, please contact ACBI Insurance at 203-259-7580.