First Obamacare Open Enrollment Promises Incentives, Costs

As American workers prepare for the first open enrollment season of the Obamacare era, hints are surfacing about what awaits them - higher deductibles, more incentives for staying well and premium hikes that continue to out-strip wages, albeit by more moderate amounts than in the past.

For coverage in 2014, the first year in which key parts of the Affordable Care Act's healthcare reforms take effect, premium increases will be about 5 percent, according to two studies. While a significant feature of the healthcare law is to mandate individual coverage through public insurance exchanges, it also contains requirements on pricing and plan features for employers.

Costs for families with employer coverage will rise 4 percent, to an average $16,351, of which workers will pay $4,565 in premiums, according to the 15th annual Employer Health Benefits Survey by the Kaiser Family Foundation and the Health Research & Educational Trust released Tuesday. The increase for single workers was 5 percent, to $5,884, with the worker typically paying $999.

Consulting firm Towers Watson predicted in its 2013 Health Care Changes Ahead survey, released on Wednesday, that overall healthcare costs will rise 5.2 percent, less than the 5.9 percent increase last year.

This is a shift in momentum from double-digit increases that have been typical over many of the last 15 years - a move that Kaiser's president and chief operating officer, Drew Altman, said was good news.

But workers do not have much to cheer as the increases are still double the rate of wage increases and four times the rate of inflation, said Paul Fronstin, a senior research associate with the Employee Benefit Research Institute, a nonpartisan research organization.

To the extent that premiums are being held in check, it is because of changing practices by employers, according to the studies. Employers are trimming perks like low patient co-pays for services to avoid triggering the so-called Cadillac tax of the healthcare law, which will start penalizing high-cost plans in 2018.

In its survey of 420 large companies in July, Towers Watson found that 60 percent of employers think their plan will qualify as high-cost if they do not change their offerings. Some of the changes they are considering are offering incentives for positive behaviors like losing weight and increasing the share of what employees pay with higher co-pays.

Employers in the Kaiser survey were very enthusiastic about wellness programs that promote employee health with elements like biometric screenings and smoking-cessation programs. But as far as these programs leading to lower costs, "it's not clear where the evidence is," said Gary Claxton, a vice president at Kaiser and director of the study.

Fronstin gives the example of a plan that would offer free diabetes medication, while at the same time raising deductibles. "Something will be taken away while you'll see something else being enhanced," he said.

OUT-OF-POCKET COSTS

Another element keeping the rise of premiums in check is the continued growth of high-deductible health plans, which now account for 20 percent of employer plans.

A family premium for a high-deductible plan is nearly 20 percent less than the contribution for a Preferred Provider Organization (PPO) plan, according to Kaiser's study, a phone survey of 2,067 employers which was conducted from January to June.

But that does not mean that overall healthcare costs are not going up, as out-of-pocket elements including deductibles continue to grow. The average this year for a single worker was $1,135 compared with $1,097 in 2012. At smaller firms, 31 percent of workers face deductibles over $2,000, up 12 percent from 2008.

Furthermore, there is evidence that the less employees earn, the more they have to pay. Firms with lower-wage workers, defined by the study as firms with 35 percent of their workforce earning $23,000 or less, charge their workers higher premiums. The average was $1,363 more per family than firms with higher-paid workers. This coverage also tends to have fewer features, resulting in the lower-paid workers paying more for less, and taking up a higher portion of their income (39 percent of income for low-wage workers versus 29 percent for higher-wage).

EXCHANGE PLANS

For the first time, the Kaiser study asked employers if they were planning on switching their health insurance system to a private health insurance exchange. In this plan design, employers give a set amount to workers toward the purchase of a plan they can choose on an open exchange listing several providers. For 2014, 29 percent of employers with 5,000 or more workers are considering this.

The respondents to Towers Watson were equally enthusiastic, with 37 percent saying private exchanges will be a viable alternative to traditional employer coverage in 2014, and 57 percent think it will be a good option by 2015.

EBRI's Fronstin says that in this year's open enrollment season, very few employees will be sent to private exchanges. Only two big companies have made the leap so far: Sears Holdings Corp and Darden Restaurants Inc. "But at some point, they might," he said.