Insight to Action

Unpacking the Survey: Hospitals are Getting Creative with Contributions

7 September 2016

In the olden days (before the PPACA), employers could charge whatever they wanted for health care coverage with certain common sense limitations. For example, you couldn’t charge more than coverage was worth, and you didn’t want to charge so much that only the sickest people took your plan (avoiding “adverse selection”).

With the arrival of the PPACA, there are now rules around what you can charge if you want to claim that your plan is “affordable”. This rule applies only to single coverage for the lowest cost plan offered, and as with all things PPACA, it only applies to your employees working over 30 hours. At the time of passage, the rule stated that a plan is “affordable” for your over 30-hour employees when it is no more than 9.5% of household income.

Sounds easy! Just kidding. What is household income? How do we calculate the 9.5% (since then increased to 9.69% for 2017). How do we define the contribution if, say, I include a wellness credit or a tobacco surcharge? What about opt-out credits, is that related to any of this? What do we do when we don’t find out the person worked an average of 30 hours or more until after the measurement period? What’s a measurement period, you ask? That’s another blog post… or a novel.

The effect of adding this complexity to contributions is that hospital employers are getting more creative with health plan contributions. More hospitals are adding surcharges for spouses, since the employee+spouse tier does not have the same contribution limitations. More groups are now turning to salary-tiered contributions to ensure affordability at the lower end of compensation. More groups are finding their ability to implement wellness incentives hampered by the affordability since the incentive must be tested as part of the contribution, assuming the employee does NOT satisfy the requirements. Since tobacco surcharges are not included in the affordability test, groups are incentivized to increase these surcharges – but at the risk of incurring more dishonesty in the employee’s representation of their smoking status. And perhaps, most importantly, more groups are implementing lower cost plan design alternatives, since the lowest cost plan is the only plan included in the affordability test. Even if no one ends up enrolling in the lower cost plan, it creates a shield to the affordability rule.

Affordability has changed the contribution landscape, and we expect these trends in contributions to continue for the next several years.