New research suggests the Affordable Care Act may cause a sweeping change in employers' role in the health care system. Will the ACA have unintended consequences? 

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ACA Wild Card: What Will Employers Do?

Tue Jun 3, 2014

As President Obama and his team continue to implement the Affordable Care Act headlines have focused on public sector issues, e.g., 8 million enrolled in government exchanges and 3 million lower-income people signed up for Medicaid.

Important as these numbers are, a much bigger issue has until now gone largely unnoticed: how will the ACA ultimately affect employer coverage and the 155 million or so people in such plans?

To be sure, employers are working hard to manage new ACA compliance requirements, especially the 2015 “Play or Pay” mandate. And HR, payroll and benefits leaders have been evaluating benefits designs that include consumer-based HSA and wellness strategies.

But more fundamentally, how will the ACA, including its 2018 “Cadillac Tax,” shape employer decisions about whether to continue sponsoring employee health plans? Put another way, is the tectonic shift from defined benefit pensions to defined contribution 401(k)-type plans about to repeat itself in health benefits?

The question is prompted by new research published last month by the S&P Capital IQ Global Markets Intelligence (GMI) group, a part of McGraw Hill Financial, Inc.

GMI argues that a combination of soaring health benefits costs and ACA insurance subsidies and exchanges will encourage employers “to radically redefine the role they play in the health care system.”

Based on its proprietary model of longer term ACA ramifications, GMI estimates that by the year 2020 up to 90% of employees will have “transitioned” to federal or state health insurance exchanges. In other words, only 1 of 10 employees presently enrolled in employer-sponsored plans will still have such coverage six years from now.

GMI concludes that “Over the long run, the ACA may eventually come to be historically recognized as the starting point of the reconstruction of the U.S. health care benefit industry and a catalyst for how companies provide health insurance for their employees.”

Of course, forecasts based on mathematical models are not infallible. Far from it. Economic forecasting may be about as accurate as weather forecasting.

Nevertheless, GMI has put a central question about the Affordable Care Act on the table: will the unintended consequences of the 2010 healthcare reform law include an erosion of employer-sponsored defined benefit health coverage? Might employers, small, mid-size and large, over time respond to rising health costs and the availability of government exchanges and subsidies by shifting some or all of their employees to exchange coverage?

As the GMI report suggests, in the late 1970s the 401(k) plan was intended as a supplement for defined benefit pensions, not a substitute. Likewise, the ACA is intended to supplement employer-based health coverage, not supplant it.

Whether 90%, 60% or 30% of employees ultimately transition to exchanges, change is in the air.