Health Law's Impact on Employer Coverage

Much of the talk about the health care overhaul law has focused on people who are uninsured or covered through individual health plans. But if you're covered by an employer's group health plan, don't tune out the conversation. The law may have a big impact on everyone from full-time and part-time workers to small business owners and early retirees with employer coverage.

With open enrollment on new state-based insurance exchanges beginning October 1, some employers may decide to stop sponsoring group plans for active workers or early retirees and send these individuals to buy their own coverage on the exchange. Small business owners will be able to shop for small-group plans through state small-business exchanges. Early retirees who have pricey coverage through a former employer may find that they can get a better deal on an exchange. Starting next year, insurers must offer coverage to everyone who applies—they can't deny coverage or hike rates for people with preexisting conditions.

Older workers who have felt tied to their desks because they rely on an employer for coverage should pay special heed. "You may see people quitting jobs to do the things they always wanted to do," says Paul Fronstin, director of health research and education at the Employee Benefit Research Institute. "The exchanges really change the playing field" for people 55 to 64 years old, who are not yet eligible for Medicare, he says.

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The health law also brings new protections to workers and retirees who remain in existing employer plans. Starting in 2014, for example, employer plans can't impose an annual cap on coverage or exclude coverage of preexisting conditions.

Here are answers to some key questions about employer coverage in a fast-changing health marketplace.

My employer's plan seems stingy. Can I find a better deal on an exchange? As wages stagnate, health care contributions are taking a bigger bite out of workers' paychecks. Employees' health plan contributions have climbed 42% over the past five years, according to consulting firm Towers Watson.

If you're dissatisfied with your employer coverage, you're free to shop for individual coverage on your state exchange. But you won't necessarily get the premium tax credits that are available through the exchange. Typically, people with income between 100% and 400% of the federal poverty level—or $11,490 to $45,960 for an individual in 2013—will qualify for a credit. If you meet that requirement but have access to employer coverage, you won't get a credit unless that coverage is deemed "unaffordable," meaning the premium eats up more than 9.5% of your income or the plan covers less than 60% of total allowed medical costs for workers.

Another wrinkle: If the cost of your family's coverage on an employer plan is sky-high, but self-only coverage is "affordable," you still won't qualify for tax credits on the exchange. Go to HealthCare.gov to get a quick assessment of your coverage options, based on your age, state, employer coverage and other factors. After answering a few questions, you'll get a checklist to help you prepare for the launch of the exchanges.

Those most likely to find a better deal on their own may be early retirees. In employer plans, retirees younger than 65 are generally paying a much larger share of coverage costs than active workers, according to Towers Watson. And many employers are continuing to raise premiums and trimming benefits for this group. To estimate how your costs on an exchange might compare to your current employer plan, go to the Kaiser Family Foundation's calculator at www.kff.org/interactive/subsidy-calculator.

How will the Obama administration's delay of the employer mandate affect workers? Employers with 50 or more full-time employees will ultimately owe per-worker penalties if they don't offer health benefits. The Obama administration in July announced a one-year delay in implementing this provision, so employers won't face the penalties until 2015.

The delay doesn't change the fact that most individuals must have coverage in 2014 or pay a penalty. Workers whose employers delay offering health benefits can buy coverage on the exchange, where they'll qualify for subsidies if they meet the income requirements. If their employer then starts offering coverage in 2015, these workers will have to reevaluate their options—recognizing that they may no longer qualify for subsidies on the exchange. Most workers, however, won't be affected by the delay, since 94% of firms with 50 to 199 employees and 98% of those with 200 or more employees already offer health benefits, according to the Kaiser Family Foundation.

Will my employer drop coverage? Employers generally aren't racing to drop their health plans, benefits experts say. Health benefits remain a key way for employers to attract and retain quality employees. Most employers "will actively monitor what their industry competitors are doing, and in some industries we'll have a domino effect" after one company decides to drop coverage, says Sandy Ageloff, Southwest health and group benefits leader at Towers Watson. But "no one's jumping to be at the head of that line," she says.

Employers' commitment to offering health coverage over the long haul, however, has dropped in the past few years. And the exchanges may speed employers' retreat from retiree medical coverage, since they'll offer a viable alternative for those not yet eligible for Medicare. Some employers will likely convert the subsidy they currently contribute to retiree coverage into individual accounts, such as health reimbursement arrangements, that provide retirees a fixed pot of money to help cover medical expenses.

I work part time. How will I be affected? The economic downturn has already boosted employers' reliance on part-time workers, while whittling away at those employees' workplace health coverage. About 22% of workers were part time in 2011, up from 17% in 2007, according to EBRI. Health coverage of part-time workers, however, dropped about 16% over that period, versus a 2.8% decline for full-time workers.

To avoid penalties in 2015, larger employers must cover employees who work at least 30 hours per week. So a 32-hour-per-week uninsured part-timer may suddenly find that he's eligible for his employer's health plan. But employers may also seek to avoid adding new workers to their health plans, and "they could do it by cutting people's hours," Fronstin says.

Companies won't be penalized if they don't cover employees working fewer than 30 hours per week. For employers with a large part-time work force, "there's an incentive to shift part-time, low-wage workers into the exchanges," says Jeffrey Endick, a Washington, D.C., lawyer representing multiemployer benefit plans. He says many such workers will be coming from relatively generous multiemployer health plans and may have to pay more for equivalent coverage on the exchange.

What does the law mean for small business owners and employees? Businesses with 50 or fewer employees can generally buy health plans through special state-based Small Business Health Options Program (SHOP) exchanges, with coverage starting in 2014. Employers will decide what level of coverage to offer and how much to contribute toward that coverage. To learn more about the SHOP exchange in your state, go to www.healthcare.gov/marketplace/shop. Self-employed people with no employees are not considered employers. They can buy coverage on the individual exchanges.

Small employers buying coverage through SHOPs who have low- to moderate-wage workers can qualify for a tax credit that covers up to 50% of their contribution toward premiums. A requirement that the SHOP exchanges allow employers to offer a variety of options has been delayed until 2015. For 2014, small-business employees may find themselves with a single employer plan option.

Employers with fewer than 50 workers don't face the 2015 penalties that will apply to larger employers and may be quicker to drop coverage, some experts say. But small businesses also recognize that offering health coverage helps them remain competitive, says Victoria Braden, chief executive officer of Johns Creek, Ga.–based Braden Benefit Strategies, which advises businesses with fewer than 300 employees on group health benefits. For her own five-person firm, Braden says she'll look at coverage available on the SHOP exchange, because that would allow her to qualify for a tax credit. But she won't even consider dropping group coverage, despite recent hefty premium hikes, she says. "I want to make sure our employees are covered and covered well," she says, "even if I have to pay more."

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