HEALTH CARE REFORM AFTER THE DECISION MERCER S SERIES OF SURVEYS ON HEALTH CARE REFORM

Transcription

1 HEALTH CARE REFORM AFTER THE DECISION MERCER S SERIES OF SURVEYS ON HEALTH CARE REFORM

2 While the fate of the Patient Protection and Affordable Care Act (PPACA) was still hanging in the balance, many employers were reluctant to invest time and resources on strategies to comply with its provisions. By upholding the health care reform law and the individual insurance mandate, the Supreme Court s decision means employers must continue compliance efforts and evaluate benefit strategies in light of existing provisions. Employers may need to act quickly to meet tight deadlines for tasks like crafting benefit summaries. Planning for 2014 s new ABOUT THE SURVEY mandates on employer shared responsibility, waiting periods and cost sharing will proceed as well. Of course, the decision doesn t end political and policy debates over health care reform, and while November s elections may determine what direction the law takes, nine out of 10 employers responding to this survey said they are moving ahead with compliance efforts regardless. This survey was designed to gather information on employers responses to key provisions effective in 2014 and beyond and their thinking about how to deal with the increased cost pressure in the future. It was fielded two weeks after the Supreme Court decision was announced, and 1,215 employers completed the survey online. Respondents include employers of all sizes, industries and geographic locations in the US. Data tables showing these breakouts for key questions are provided at the end of this report. The analysis includes some comparisons with results from a survey conducted a year earlier.

3 CONTENTS COST IMPACT OF HEALTH REFORM EMPLOYER RESPONSE TO PPACA S SHARED RESPONSIBILITY REQUIREMENTS PPACA CONCERNS ARE SHARPENING EMPLOYERS FOCUS ON COST MANAGEMENT TAKING A DEFINED CONTRIBUTION APPROACH TO PAYING FOR HEALTH BENEFITS BUSY TIMES AHEAD 14 APPENDIX 1

4 COST IMPACT OF HEALTH REFORM Sometimes lost in the furor surrounding health reform is the fact that PPACA will affect some employers far more than others. When asked to estimate the cost impact of the key provisions that go into effect in 2014, 20% of survey respondents said they expect little or no increase in cost, while 34% expect an increase of 3% or more. (See Figure 1.) This would be in addition to the normal annual increase in cost, which has been running at about 6% more than double the rate of general inflation over the past five years. FIGURE 1 No increase ANTICIPATED COST INCREASE DUE TO PPACA REQUIREMENTS EFFECTIVE IN 2014 Don t know 29% 10% 10% Increase of less than 1% 17% 1% to 2% 5% or more 20% 14% 3% to 4% The employers that will be hit hardest are those with large part-time populations especially employers in retail and hospitality services. Nearly half of these employers (46%) expect increases of at least 3% and another third don t yet know what the impact will be. Health care employers are also more likely to expect substantial additional cost (40%). (See Figure 2.) FIGURE 2 46% 40% COST IMPACT OF PPACA, BY INDUSTRY Expect cost increase of 3% or more due to PPACA requirements effective in % 32% 31% 29% 24% Retail and hospitality Health care services Manufacturing Financial services Transportation/ communication/ utility Other services Government 2

5 The lion s share of the added cost for these employers will come from extending coverage to employees who are currently ineligible for coverage in an employer-sponsored plan. Under PPACA, employers with 50 or more full-time equivalent employees will be required to extend coverage to all employees working an average of 30 or more hours per week in a month or face possible penalties. About a fourth of all respondents (24%) do not currently cover all employees working 30 or more hours per week and thus will have to take action to avoid possible penalties. However, this ranges by industry from just 16% of financial services employers to 46% of employers in retail and hospitality. (See Figure 3.) As will be discussed later, some of these employers plan to take steps to minimize the number of employees gaining coverage in their health plans. But with the cost of coverage averaging about $10,000 per employee, any growth in enrollment adds cost very quickly. 46% FIGURE 3 30% 24% 22% 20% 16% 21% RETAIL AND HOSPITALITY EMPLOYERS: MOST AFFECTED BY REQUIREMENT TO EXTEND COVERAGE TO ALL EMPLOYEES WORKING 30+ HOURS PER WEEK Retail and hospitality Government Manufacturing Health care services Transportation/ communication/ utility Financial services Other services Percentage of employers that currently do not offer coverage in a qualified plan to all employees working an average of 30+ hours per week In 2014, all individuals will be required to have qualified health insurance if they can afford it, or face a tax penalty. Survey respondents that foresee cost increases in 2014 may be assuming enrollment will rise as a result of the individual mandate and the new rule requiring employers to auto-enroll newly hired (or newly eligible) employees into their plan. Again, organizations will be affected differently by this rule. Currently, in companies where pay is low, employees who are eligible for coverage are more likely to opt out. For example, among large wholesale/retail and health care employers, opt-out rates average 19% and 18%, respectively, compared to just 8% among transportation, communication and utility companies, where pay is higher. If these current opt-out rates drop, employers with the highest rates today could see the biggest enrollment gains. Expected impact and responses vary by industry with retail and hospitality employers facing the biggest challenges. 3

6 EMPLOYER RESPONSE TO PPACA S SHARED RESPONSIBILITY REQUIREMENTS EXPANDED ELIGIBILITY How employers will respond to the rule to extend coverage to all employees working 30 or more hours per week seems to depend largely on how many employees could become newly eligible. (See Figure 4.) In industries that typically don t employ many part-timers, such as manufacturing, most employers that are not already in compliance are most likely either to make part-time employees who meet the hours requirement eligible for the full-time employee plan or to add a new, low-cost plan for the newly eligible employees (68%). On the other hand, retail and hospitality employers not currently in compliance are more inclined to change their workforce strategy so that fewer employees work 30 or more hours per week 65%, compared to just 41% of manufacturing employers. FIGURE 4 LIKELY RESPONSE TO PPACA S REQUIREMENT THAT ALL EMPLOYEES WORKING 30+ HOURS PER WEEK BE ELIGIBLE FOR COVERAGE Based on employers that do not currently offer coverage to all employees working 30+ hours per week Change workforce strategy so that fewer employees work 30+ hours/week Offer a lower-cost plan for newly eligible hourly employees 27% Make all employees eligible for the full-time employee plan(s) 24% Offer the full-time employee plan(s) to some, but not all, newly eligible employees 17% Pay shared responsibility penalty, as necessary 8% 51% Terminate medical coverage for all employees after the insurance exchanges become available 3% Employers that were counting on some of their low-paid employees qualifying for Medicaid when it expands to include individuals with household income less than 133% of the Federal Poverty Level (FPL) may have to rethink their plans in light of the Supreme Court ruling that allows states to opt out. A fifth of survey respondents have benefiteligible employees earning less than 133% of FPL, and in industries with large part-time populations, this rises to as much as 50%. However, at the time of this writing, some state governors in Florida, South Carolina and Louisiana have already declared their intention to opt out of expanding Medicaid, even though the federal government will 4

7 initially pick up the entire cost of covering newly eligible individuals. Because state Medicaid eligibility already varies greatly, it s difficult to predict what states will do about expanding their programs to more individuals, and the impact of their decisions on employers. PPACA includes a provision that requires employers with more than 200 full-time employees to automatically enroll new full-time employees in one of the employer s group health plans and to continue the enrollment of current employees. While it is not yet clear when this rule will go into effect (regulations on implementation are still pending), many employers assume it will result in higher enrollment and are considering ways to manage the additional cost. Among survey respondents that currently offer only one medical plan, while the majority (69%) will simply use their current plan as the default plan for auto-enrolling new full-time employees, 24% said they will add a new, lower-cost plan to use as the default plan and 7% will change to a new, lower-cost plan for all employees. Among those respondents that currently offer a choice of medical plans, 67% will use their current lowest-cost plan as the default plan, 20% will use their standard plan (the plan with the highest enrollment) and 14% will add a new plan as the default for auto-enrollment. (See Figure 5.) The largest employers those with 5,000 or more employees are the most likely to add a new plan (22%). Employers in retail and hospitality are also much more likely to add a new default plan (32%) than those in any other industry group. AUTO-ENROLLMENT 69% FIGURE 5 24% 7% MOST LIKELY RESPONSE TO AUTO- ENROLLMENT REQUIREMENT Based on employers that currently offer only one medical plan Use our current plan as the default for auto-enrolling newly eligible employees Add a new, lower-cost plan as the default, but offer current plan, too Change to new, lower-cost plan for all employees 67% Based on employers that currently offer a choice of medical plans 20% 14% Use our current lowest-cost plan as default for auto-enrolling newly eligible employees Use plan with largest enrollment as default Add new plan as default for auto-enrolling new hires 5

8 Every additional health plan member has an impact on cost, so it s easy to see why employers accustomed to a certain opt-out rate the average for large employers in 2011 was 15% would be concerned about the auto-enrollment rule. However, it s difficult to predict how employees will react once they weigh the amount of money that will come out of each paycheck if they enroll against the tax penalty for not obtaining coverage. 60% PLAN VALUE RULE FIGURE 6 MOST LIKELY RESPONSE TO PPACA S REQUIREMENT THAT MEDICAL PLANS PAY FOR AT LEAST 60% OF COVERED SERVICES In our prior surveys, relatively few employers only about one in 10 said they offered even one plan that does not cover a minimum of 60% of covered services, as required under PPACA to be considered a qualified medical plan. In this survey, employers were asked whether they were likely to make any changes in strategy because of this new rule. While few employers expect to offer a 60% plan as the only option for employees (6%), more than a fifth (22%) said it is likely that they will offer a 60% value plan along with other, higher-value plan options (this rises to 32% among employers with 5,000 or more employees). Another 11% of respondents said they will wait to see whether other employers move toward offering lower-value plans before they act. (See Figure 6.) Provision will not affect planning 61% 22% 11% 6% Offer one plan at 60% (or close to) level along with a higher-value plan option(s) Reduce plan value only if other employers do Reduce the value of all plans (or only plan) AFFORDABILITY PPACA s shared responsibility requirement states that employers must offer affordable health coverage meaning that full-time employees must generally be asked to pay no more than 9.5% of their household income for coverage. At the time of this writing (August 2012), for purposes of employer shared responsibility requirements, the 9.5% affordability standard will apply to employee-only coverage. If employer coverage is unaffordable by this definition, and at least one employee receives government assistance to buy individual coverage through a health insurance exchange, the employer must pay a yearly penalty of $3,000 per full-time employee who receives government assistance to buy coverage in an exchange (up to a maximum of the number of full-time employees in excess of the first 30 multiplied by $2,000), starting in

9 Assuming that the standard applies to just employee-only coverage, less than a fourth (22%) of all respondents believe it is likely that their current health plan would be considered unaffordable for at least some employees. However, this rises to 43% of employers in retail and hospitality. (See Figure 7.) 43% FIGURE 7 28% 21% 19% 18% 18% EMPLOYERS IN RETAIL AND HOSPITALITY: MOST LIKELY TO REPORT THAT THEIR CURRENT HEALTH PLAN COVERAGE MAY BE CONSIDERED UNAFFORDABLE FOR AT LEAST SOME EMPLOYEES 14% Retail and hospitality Health care services Manufacturing Financial Transportation/ Government Other services Communication/ services Utility Well over half of the employers at risk for offering unaffordable coverage said they are likely to add a less expensive plan with lower contributions than the current plan (60%). Rather than add a plan, 23% are considering moving to salary-based contributions, while 24% said it is likely they will simply lower contributions in their current plan. To help balance the additional cost, more than a fourth of these employers (28%) said they are likely to raise employee cost-sharing provisions (deductibles, copays, etc.), and a similar percentage (29%) is likely to raise contributions for dependent coverage to compensate for lower employee-only contributions assuming that the rule applies only to employee-only coverage. (See Figure 8.) Add a less expensive plan with lower employee contributions than current plan(s) Raise dependent contributions to compensate for lower employee-only contributions 29% Raise employee cost-sharing (deductibles, etc.) to compensate for lower contributions 28% Lower the employee contributions in a current medical plan 24% Use salary-based contributions (in a current or new plan) 23% Make no (or minimal) changes and pay the penalty, as necessary 13% 60% FIGURE 8 LIKELY EMPLOYER ACTIONS WITH REGARD TO COVERAGE CONSIDERED UNAFFORDABLE TO SOME EMPLOYEES Based on employers that say their medical plan will likely be considered unaffordable for at least some employees 7

10 PPACA CONCERNS ARE SHARPENING EMPLOYERS FOCUS ON COST MANAGEMENT Strategies for complying with PPACA and controlling cost are in the planning stages and some are already in play these include CDHPs, defined contribution strategies, health management and workforce segmentation. In addition to the 2014 provisions, employers are looking ahead with some trepidation to 2018, when the 40% excise tax on high-cost plans is slated to go into effect. In past Mercer surveys, about half of respondents said they were concerned about the excise tax. For many employers, avoiding the tax is not simply a matter of scaling back an overly generous plan the so-called Cadillac plan. Many factors beyond an employer s control can drive up plan cost, such as having an older population or being located in a high-cost metropolitan area. Still, the excise tax will be of particular concern to employers that rely on benefits to help attract and retain top employees and to the most heavily unionized employers (transportation, communication and utility), which also typically offer generous health benefits. The use of consumer-directed health plans (CDHPs) has been growing steadily, and survey results suggest even sharper growth over the next few years as employers look for ways to avoid the excise tax. Many employers use the account feature of these low-cost, high-deductible health plans to support their health management programs. Where 29% of respondents said they already use a CDHP to incentivize healthy behavior by making contributions to employees health savings accounts (HSAs) or health reimbursement accounts (HRAs), 48% said they are likely to adopt this strategy in the near future. And while only 7% of employers offer a high-deductible plan as the only medical plan (a full replacement ), more than triple that number said they are likely to do so. (See Figure 9 on page 9.) One way employers can make a high-deductible plan more attractive to employees is to offer it along with optional employee-paid critical care and/or cancer income-replacement policies so employees can minimize coverage gaps 12% use this strategy already, and another 38% are likely to adopt it. Spurred by health reform, employers are pursuing a variety of other strategies to manage health plan cost over the long term. Wellness and employee health management tops the list. Nearly all survey respondents said they are likely to add or strengthen programs or policies to encourage more health-conscious behavior (57%) or already have this strategy in place (36%). (See Figure 10 on page 9.) 8

11 38% 48% 29% 30% Likely to adopt Strategy already in place FIGURE 9 BIGGER ROLE FOR CDHPS IS LIKELY UNDER HEALTH REFORM 29% 12% 7% Offer a high-deductible plan along with voluntary critical care/cancer incomereplacement policies Offer a high-deductible plan and make contributions to employees HSA or HRA accounts to incentivize healthy behavior Offer a high-deductible plan as the only medical plan (full replacement) 8% Likely to adopt Strategy already in place 20% 14% 46% 29% 18% 57% 36% 26% 10% 71% 19% FIGURE 10 HEALTH REFORM IS SPURRING EMPLOYERS TO STEP UP LONG- TERM HEALTH BENEFITS COST MANAGEMENT Outsource benefits administration Eliminate coverage for early retirees Add voluntary benefits or transition some employer-paid benefits to voluntary Add or improve wellness programs or policies Join a purchasing collective Add or improve programs to promote health care consumerism Another way to reduce plan cost is to carve out various other benefits, such as dental and vision, and offer them to employees as voluntary benefits. More than a fourth of respondents (29%) said they are likely to take this approach, and 18% said it is already in place. Over a third have already joined or said they are likely to join a purchasing coalition (10% and 26%, respectively). Reform is adding to employers administrative burden as well, with additional reporting and employee notification requirements and, potentially, the need to coordinate with state exchanges. This has generated new interest in outsourcing. While just 20% of survey respondents currently outsource administration, an additional 8% are likely to do so in the near future. Many employers have already made the hard decision to balance rising cost for active employees by terminating or scaling back plans for retirees. Nearly half of the survey respondents have already eliminated coverage for early retirees, and an additional 14% said they are likely to take this step in the near future. 9

12 TAKING A DEFINED CONTRIBUTION APPROACH TO PAYING FOR HEALTH BENEFITS Some employers are considering moving to some type of defined contribution (DC) approach to paying for health coverage. A fifth have already chosen to contribute the same amount for all plans offered, so that employees pay more for more expensive plans, and another 40% said they are likely to adopt this approach. About a fourth are likely to raise the employer contribution by a set amount each year, regardless of the actual increase in cost, with employees absorbing the rest of the increase (although only 3% do so already). Just 15% are likely to simply provide employees with a fixed-dollar subsidy to purchase coverage on their own. (See Figure 11.) FIGURE 11 WITH NEW COST PRESSURES FROM HEALTH CARE REFORM, EMPLOYERS ARE CONSIDERING VARIOUS DC APPROACHES TO PAYING FOR HEALTH COVERAGE 40% 20% 24% Likely to adopt Strategy already in place 15% 3% 1% Keep the employer contribution the same for all plans offered, so that employees pay more for expensive coverage Raise the employer contribution by a set amount each year regardless of the actual increase in plan cost; increases above that amount are paid by employees Provide employees with a fixed-dollar subsidy to purchase coverage on their own 10

13 In response to the introduction of state-based public insurance exchanges, a few organizations have developed programs (typically referred to as private exchanges ) that allow employers to become less involved in administering employee health insurance while still complying with the PPACA employer mandate. In these programs, the employer provides funding and the employee shops online to choose a medical plan from a range of preset options. Other insurance coverage and health-related products (life, accident, disability and voluntary benefits) may also be available. The online experience typically includes decision-support tools and a call center trained to help employees with their choices. PRIVATE EXCHANGES Survey respondents were asked about their interest in such a model under various cost scenarios. Just over half said they might be willing to switch. Interestingly, while 21% said they need either immediate savings or greater control over cost increases, 27% would consider switching if the change was at least cost neutral, and 8% said they might even be willing to pay more to be relieved of administration and offer a more attractive benefit. Just 44% said they would not consider switching under any circumstance. 11

14 BUSY TIMES AHEAD Employers have a lot to do to prepare for reform especially those that were waiting to develop a strategy until the Supreme Court decision (56% of survey respondents). While 11% said they will continue to wait until after the November elections, most will now move ahead. In the short term, employers need to produce and distribute summaries of benefits and coverage (SBCs). More than a third of respondents (36%) said they hadn t yet begun or are behind schedule. Those that received reimbursements from insured plans that had profits exceeding the Minimum Loss Ratio set under PPACA need to allocate it to employees, and many have yet to begin. Employers are doing better with other near-term tasks, including preparing for 2012 W-2 form reporting in early 2013, implementing the new $2,500 cap on health care flexible spending account contributions, and implementing coverage with no cost-sharing for women s preventive services about three-fourths said these tasks are on schedule or complete. (See Figure 12.) FIGURE 12 MOST SURVEY RESPONDENTS HAVE TAKEN STEPS TO MEET IMMEDIATE REFORM REQUIREMENTS, BUT SBCS REMAIN A CHALLENGE FOR A THIRD Allocate Minimum Loss Ratio reimbursements from insured plans Produce and distribute Uniform SBC Prepare for 2012 W-2 form reporting in early 2013 Implement coverage with no cost sharing for women s preventive services for 2013 Implement and communicate new $2,500 health flexible spending account cap for 2013 On schedule or completed In progress, but behind schedule Haven t begun Not applicable 18% 5% 30% 47% 62% 15% 21% 2% 72% 13% 10% 5% 77% 5% 13% 5% 72% 7% 12% 9% 12

15 Still, despite new administrative challenges and concerns about rising costs, few survey respondents 6% believe it is likely that they will drop their medical plans after the public insurance exchanges come online. Even among retail and hospitality employers, where the biggest cost increase from reform is expected, only 9% say they are likely to terminate their plan. Mercer has asked employers this question in three surveys since health reform was passed, and interest in dropping coverage has never been lower. While employers have different reasons for staying in the game, a common theme is that effective strategies now exist to help bring health care cost increases under control. Having begun to see their efforts pay off, many employers are not ready to give up their role in providing this highly valued benefit just yet. (See Figure 13.) Not at all likely to terminate 47% 1% 5% Very likely to terminate health coverage Likely to terminate FIGURE 13 FEW EMPLOYERS LIKELY TO TERMINATE MEDICAL PLANS AFTER 2014 AND HAVE EMPLOYEES SEEK COVERAGE IN A STATE HEALTH INSURANCE EXCHANGE 46% Not very likely to terminate Interest in an exit strategy less than seen in Mercer surveys conducted in 2010 and 2011 Employers intend to stay in the game at least for the short term. 13

16 APPENDIX Percentage of respondents that believe compliance with new PPACA provisions will cause cost to rise by: No increase or less than 1% 1% to 2% 3% to 4% 5% or more Don't know All respondents 20% 17% 14% 20% 29% BY NUMBER OF EMPLOYEES Fewer than % 9% 13% 24% 32% 500 to 4,999 19% 21% 14% 15% 31% 5,000 or more 19% 18% 15% 25% 23% BY INDUSTRY Manufacturing 19% 19% 16% 17% 29% Retail/wholesale and hospitality/recreation 10% 8% 7% 40% 35% Health care 15% 16% 20% 20% 30% Financial services 26% 18% 18% 15% 24% Other services 24% 19% 10% 19% 28% Transportation, communication and utilities 30% 21% 15% 15% 18% N=1,213 COST INCREASE EXPECTED IN 2014 DUE TO PPACA PROVISIONS* * Including the mandate that all individuals must have health insurance if they can afford it Percentage of respondents that currently do not offer coverage to all employees working 30+ hours/week Of those, percentage of employers that are likely to: Make all employees eligible for the full-time employee plan(s) Offer the full-time employee plan(s) to some, but not all, newly eligible employees Offer a lower-cost plan for newly eligible employees Have fewer employees work 30+ hours/week Make no changes and pay penalty as needed All respondents 24% 24% 17% 27% 51% 8% BY NUMBER OF EMPLOYEES Fewer than % 29% 15% 18% 41% 5% 500 to 4,999 27% 25% 13% 22% 54% 7% 5,000 or more 21% 15% 31% 51% 58% 15% BY INDUSTRY Manufacturing 24% 42% 14% 15% 41% 5% Retail/wholesale and hospitality/recreation 46% 10% 20% 35% 65% 12% Health care 22% 22% 19% 33% 56% 4% Financial services 16% 22% 17% 28% 50% 11% Other services 21% 27% 19% 27% 43% 14% Transportation, communication and utilities 20% 21% 14% 29% 64% 14% N=1,212 N=272 PROVIDING COVERAGE TO ALL EMPLOYEES WORKING 30+ HOURS PER WEEK Note: PPACA provision effective 2014 Percentages do not total 100 due to multiple responses 14

17 Percentage of respondents whose current medical plan coverage would likely be considered unaffordable for some employees Of those, percentage of employers that are likely to: Lower the contributions in a current medical plan Add less expensive plan with lower contributions than current plan(s) Use salarybased contributions (in current or new plan) Raise dependent contributions to compensate Raise cost sharing (deductibles, etc.) to compensate Make no changes and pay penalty as needed All respondents 22% 24% 60% 23% 29% 28% 13% BY NUMBER OF EMPLOYEES Fewer than % 26% 55% 22% 26% 29% 10% 500 to 4,999 21% 22% 58% 20% 27% 29% 14% 5,000 or more 28% 24% 68% 29% 33% 27% 15% BY INDUSTRY Manufacturing 21% 27% 55% 21% 35% 37% 10% Retail/wholesale and hospitality/recreation 43% 22% 77% 25% 40% 30% 15% Health care 28% 20% 53% 41% 22% 27% 14% Financial services 19% 26% 55% 19% 32% 29% 10% Other services 14% 28% 63% 28% 13% 22% 9% Transportation, communication and utilities 18% 40% 40% 20% 27% 20% 27% N=1,210 N=321 PROVIDING AFFORDABLE COVERAGE* * Beginning in 2014, employee contributions not to exceed 9.5% of household income Percentages do not total 100 due to multiple responses Percentage of respondents whose most likely response to the new minimum will be to: Reduce the value of all plans over time to get closer to 60% minimum Offer one plan at the 60% level along with a highervalue option Monitor actions of other employers before reducing plan value Continue to offer level of coverage needed to support business and HR goals All respondents 6% 22% 11% 61% BY NUMBER OF EMPLOYEES Fewer than 500 5% 19% 8% 68% 500 to 4,999 8% 18% 13% 62% 5,000 or more 4% 32% 12% 52% BY INDUSTRY Manufacturing 6% 25% 13% 57% Retail/wholesale and hospitality/recreation 4% 38% 9% 49% Health care 9% 22% 13% 57% Financial services 4% 17% 12% 67% Other services 5% 16% 11% 68% Transportation, communication and utilities 7% 27% 14% 52% N=1,188 IMPACT ON HEALTH CARE STRATEGY OF PPACA S NEW 60% MINIMUM PLAN VALUE RULE* * Beginning in 2014, medical plans must pay for at least 60% of a member s covered health care expenses to be considered a qualified plan 15

18 Percentage of respondents currently offering one medical plan that are likely to: Use current plan as the default for auto-enrollment Add lower-cost plan to use as the default Replace current plan with a lower-cost plan for all enrollees Percentage of respondents currently offering a choice of plans that are likely to: Use current lowest-cost plan as the default Use plan with highest enrollment as the default Add lower-cost plan to use as the default All respondents 69% 24% 7% 67% 20% 14% BY NUMBER OF EMPLOYEES Fewer than % 17% 5% 66% 24% 10% 500 to 4,999 64% 28% 8% 70% 20% 11% 5,000 or more 56% 34% 10% 62% 16% 22% BY INDUSTRY Manufacturing 70% 25% 5% 72% 17% 12% Retail/wholesale and hospitality/recreation 46% 40% 13% 57% 11% 32% Health care 67% 26% 8% 61% 25% 14% Financial services 78% 18% 5% 70% 19% 11% Other services 71% 19% 10% 66% 22% 11% Transportation, communication and utilities 58% 37% 5% 76% 21% 3% N=443 N=960 AUTOMATIC ENROLLMENT OF NEWLY HIRED OR NEWLY ELIGIBLE EMPLOYEES Note: PPACA provision effective 2014 or later Percentage of respondents that are likely to adopt strategy or say it s already in place: Outsource benefits administration Eliminate coverage for early retirees Add voluntary benefits/ transition non-medical employerpaid benefits to voluntary Add or improve wellness programs Add or improve programs to promote health care consumerism All respondents 28% 59% 47% 93% 90% BY NUMBER OF EMPLOYEES Fewer than % 56% 48% 86% 84% 500 to 4,999 24% 58% 42% 95% 93% 5,000 or more 39% 66% 55% 96% 93% BY INDUSTRY Manufacturing 33% 67% 46% 93% 90% Retail/wholesale and hospitality/recreation 29% 69% 53% 94% 90% Health care 25% 70% 54% 94% 88% Financial services 26% 57% 50% 95% 93% Other services 19% 49% 44% 91% 91% Transportation, communication and utilities 29% 49% 41% 97% 96% N=1,195 N=1,112 N=1,176 N=1,206 N=1,198 LONG-TERM STRATEGIES CONSIDERED IN RESPONSE TO CHANGES INITIATED BY HEALTH REFORM 16

19 Percentage of respondents that are likely to offer (or already offer) a CDHP: Along with optional income replacement policies for cancer/critical illness To incentivize healthy behavior by making contributions to HSA or HRA accounts As the only medical plan option (full replacement) All respondents 50% 77% 37% BY NUMBER OF EMPLOYEES Fewer than % 66% 39% 500 to 4,999 50% 81% 36% 5,000 or more 48% 82% 37% BY INDUSTRY Manufacturing 48% 76% 43% Retail/wholesale and hospitality/recreation 53% 73% 35% Health care 56% 81% 39% Financial services 54% 80% 42% Other services 49% 78% 33% Transportation, communication and utilities 58% 87% 33% N=1,140 N=1,172 N=1,155 STRATEGIES FOR USING CDHPS TO AVOID THE EXCISE TAX ON HIGH-COST PLANS Percentage of respondents that are likely to adopt strategy or say it s already in place: Employer contribution is the same for all plans employees pay more for more costly plans Employer contribution rises by a set amount each year, regardless of change in plan cost Employees receive a fixeddollar subsidy to buy coverage on their own Some other DC approach All respondents 60% 26% 16% 32% BY NUMBER OF EMPLOYEES Fewer than % 28% 21% 36% 500 to 4,999 58% 25% 13% 33% 5,000 or more 65% 27% 15% 26% BY INDUSTRY Manufacturing 65% 29% 21% 33% Retail/wholesale and hospitality/recreation 59% 32% 19% 31% Health care 58% 28% 13% 33% Financial services 60% 26% 16% 34% Other services 66% 27% 12% 29% Transportation, communication and utilities 53% 15% 14% 31% N=1,155 N=1,113 N=1,105 N=1,069 ADOPTING A DC APPROACH TO PAYING FOR HEALTH COVERAGE Percentage of respondents that believe terminating health coverage is: Very likely Likely Not very likely Not at all likely All respondents 1% 5% 46% 47% BY NUMBER OF EMPLOYEES Fewer than 500 2% 8% 45% 45% 500 to 4,999 1% 4% 45% 50% 5,000 or more 1% 3% 50% 47% BY INDUSTRY Manufacturing 2% 6% 52% 40% Retail/wholesale and hospitality/recreation 3% 7% 45% 46% Health care 0% 4% 52% 44% Financial services 1% 4% 41% 54% Other services 2% 5% 41% 53% Transportation, communication and utilities 0% 1% 50% 49% N=1,207 LIKELIHOOD OF TERMINATING EMPLOYEE HEALTH COVERAGE AFTER REFORM PROVISIONS GO INTO EFFECT 17

20 For further information, please contact your local Mercer office or visit our website at: Argentina Australia Austria Belgium Brazil Canada Chile China Colombia Czech Republic Denmark Finland France Germany Hong Kong India Indonesia Ireland Italy Japan Malaysia Mexico Netherlands New Zealand Norway Peru Philippines Poland Portugal Saudi Arabia Singapore South Korea Spain Sweden Switzerland Taiwan Thailand Turkey United Arab Emirates United Kingdom United States Venezuela Copyright 2012 Mercer LLC. All rights reserved HB