The fifth and final ACA Megatrend in our series is, paradoxically, the most important and the least connected directly to the ACA itself: the economy.

The health of our economy, nationally and regionally, sector-by-sector, will profoundly affect how employers and working families respond to the healthcare reform law.

It is the great misfortune of President Obama’s signature legislative achievement to be launched into a persistently weak economy, with anemic GDP growth, high unemployment and widespread economic uncertainty.

With only a 2% real growth rate, recovery from the worst recession since the Great Depression has been unusually lackluster. Meanwhile, 11 million people remain unemployed, with another 7 million classified part-time while seeking full-time work. It’s hard to imagine a more inhospitable climate in which to implement major social policy legislation. Read more.

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ACA Megatrend #5: The Economy

Wed Oct 23, 2013

The fifth and final ACA Megatrend in our series is, paradoxically, the most important and the least connected directly to the ACA itself: the economy.

The health of our economy, nationally and regionally, sector-by-sector, will profoundly affect how employers and working families respond to the healthcare reform law.

It is the great misfortune of President Obama’s signature legislative achievement to be launched into a persistently weak economy, with anemic GDP growth, high unemployment and widespread economic uncertainty.

With only a 2% real growth rate, recovery from the worst recession since the Great Depression has been unusually lackluster. Meanwhile, 11 million people remain unemployed, with another 7 million classified part-time while seeking full-time work. It’s hard to imagine a more inhospitable climate in which to implement major social policy legislation. This grim macroeconomic environment overshadows an equally troubling microeconomic reality: employer health costs have practically doubled over the last decade. According to the Kaiser Family Foundation, average health insurance premiums rose just under 100% from 2002 to 2012.

Putting all this together, as America’s employers prepare to implement the ACA’s major compliance provisions in 2014, 2015 and beyond, and as they formulate short and long run health benefit strategies, they face a double-barreled challenge—a weak economy and skyrocketing health costs.

A second feature of today’s economy will have an equally important impact on ACA implementation: wage stagnation. Median household income stood at an inflation-adjusted $51,017 in 2012, actually lower than the 1999 peak of $56,080. In other words, the incomes of average Americans are stuck in neutral if not in reverse—and certainly not keeping pace with healthcare costs.

How might these macro and micro developments affect the Affordable Care Act? In a word, compliance.
Starting next year individuals will be required to purchase health insurance coverage or pay a tax penalty. Even with subsidies to buy insurance on the federal or state exchanges, younger and healthier people, feeling the pressures of eroding purchasing power, may balk at paying the required premiums. In this sense the viability of the ACA exchanges depends on growth in the economy, jobs and wages.

For employers, starting in 2015, the “Play or Pay” mandate will require that affordable and comprehensive coverage be offered to full-time employees to avoid fines of $3,000 per subsidized employee. And in 2018 the so-called “Cadillac Tax” kicks in on high-value health plans.

As effective dates for these and other ACA compliance mandates approach, employers will be keeping one eye on the regulations and one eye on the economy, nationally and in their own business. A great secret of the Affordable Care Act is that its success depends on employers continuing to offer health coverage to some 160 million people—keeping your own coverage, to paraphrase the president.

Whether employers are able to continue offering health coverage, and what changes the future may hold for employee health benefits, depends totally on what happens to the macro and micro economy.

At the end of the day, ACA Megatrend #5 means that the success of the Affordable Care Act, for employers and working families, will ultimately depend on the success of the U.S. economy.