Heath reform will increase costs, survey finds

Nearly all employers — 94 percent — tapped by the Towers Watson Health Care Reform Pulse Survey believe the new healthcare law will raise health costs for their organization. 

Additionally, 61 percent believe reform will have a minimal effect on encouraging healthier lifestyles, and 73 percent said it will either have a negative impact or no impact on the quality of care.

"Employers are currently weighing the short-term challenges and long-term opportunities of the new law," said Mark Maselli, North American Health and Group Benefits Leaders for Towers Watson, in prepared remarks. "While many employers have not yet assessed the full impact that reform will have on their businesses, they do realize that the responsibilty to hold costs down will fall primarily on their shoulders."

To cope with the ancipated cost increase, 88 percent of respondents plan to pass it on to employees, 74 percent plan to reduce benefits, 33 percent plan absorb the increase, and 20 percent plan to pass the cost on to their customers.

Still, nearly three-quarters of all large employers — 74 percent — expect to continue to provide subsidized healthcare coverage to active employees. 

However, 43 percent of respondents currently offering benefits to retirees plan to reduce or eliminate that coverage. This trend is even more pronounced for employers whose high-end plans incur an excise tax. Of that group, 55 percent are likely to eliminate or reduce retiree medical programs, the survey found.  

"Beginning in 2014, when health insurance exchanges become operative, pre-65 retiress will have access to competitive plan choices without pre-existing conditions underwriting," said Dave Osterndorf, a senior consulting actuary with Towers Watson, in prepared remarks. "This important development will likely accelerate employers exiting sponsorship of retiree health programs." 

The primary cost driver that will affect many employers is the excise tax on high-cost plans. Based on average annual cost projections, Towers Watson estimates the tax will affect more than 60 percent of empoyers by its first year of implementation. Under the law, the tax will not be levied if premiums rise too sharply.

The Towers Watson survey was conducted in May and tapped the opinions of 661 large U.S. organizations.