The Financial Impact of PPACA’s “Dependent Eligibility” Provision on Mid-Sized and Large Employers

As a benefits administration software and services firm serving more than 5,000 employers across the country, my company has had the unique opportunity to talk to our clients over the past six months about the potential impact of the Patient Protection and Affordable Care Act (PPACA) and the measures employers are taking to prepare for the new world of health care.  Most of those we speak to are struggling to sift through a barrage of information and predictions that leave them in a holding pattern because, for the most part, we still don’t know how much of the legislation will play out in the next 3-5 years.

However, of the provisions that become effective this year, there is some data available that gives a good indication of the expected financial impact for 2011. The Dependent Eligibilty provision, which requires organizations to cover employees’ children up to age 26, whether or not they are full-time students, married, or employed, is a key provision that will have an immediate and direct impact on employers.  To help our clients better understand the financial impact of this provision, we conducted a study in July using actual company specific data stored in our system. The “bswift Special Report: The Impact of Health Reform on Employers” found that the Dependent Eligibility provision will likely result in much higher health care costs for employers than previously estimated by Health and Human Services (HHS) and other industry consultants.  For example, HHS had originally estimated the impact of this provision to be 0.7 percent of total health care costs for employers.  The bswift Special Report found the likely impact to be 1.6 percent, more than double the initial HHS estimate.

The bswift Special Report analyzed actual 2010 benefits premium, contribution and dependent data from more than 5,000 bswift client organizations. Of those, 242 met the selection criteria and were used in the study.  The sample includes mid-sized and large employers with 50 to 15,000 employees representing a variety of industries including retail, manufacturing and professional services.

Given that most employers are modifying their Dependent Eligibility rules effective January 1, 2011 to comply with this legislation, this analysis forecasts the impact of this provision for the calendar year 2011.  The study used actual employer-specific dependent and premium data from 2010 to develop more precise estimates than have been previously available. Specifically the data identified newly eligible dependents likely to enroll in the employer’s plan effective January 1, 2011.

bswift looked at the statistical median and found that a company with 1,000 enrolled employees and a median health premium cost of $8,325 per employee annually is likely to experience $133,200 in additional costs for 2011 as a result of this provision.

However, the bswift Special Report found that the impact varied widely among employers.  On the high end, the impact could be more than 13 percent of an employer’s total health care costs. On the low end, the impact could be less than 0.3 percent of total health care costs.  Impact varies based on size, age and family composition of the organization’s workforce, as well as the employer’s current dependent eligibility rules.

Notably, the bswift Special Report also found that many companies have already changed their dependent eligibility rules in advance of the law’s 2011 deadline in order to minimize employee confusion and administrative hassle.

In addition to the study of the Dependent Eligibility provision, the bswift Special Report: The Impact of Health Reform on Employers also analyzes the financial impact of the “Affordability” provision on mid-sized and large employers.  Beginning in 2014 under the “Affordability” provision of the PPACA legislation, organizations with more than 50 employees will face stiff penalties if they do not offer full-time employees an affordable health plan option that costs less than 9.5 percent of the employee’s total household income. bswift analysts used employee compensation data to estimate an organization’s risk of failing the Affordability test in 2014. The bswift Special Report shows that 52 percent of employers are likely to have more than 5 percent of employees in the “danger zone” – i.e., paying more than 9.5 percent of their compensation for health premiums.

About The Author

Rich Gallun is the CEO of bswift, a leading provider of software and services for employee benefits administration and a thought leader in the world of health care reform.  More than 5,000 companies tap bswift’s state-of-the-art Software-as-a-Service (SaaS) technology and Business Process Outsourcing (BPO) solutions to significantly reduce administrative costs and time-consuming paperwork.  In addition, bswift is the technology provider for the "Utah Health Exchange," an Internet portal that is the cornerstone of the State of Utah’s approach to health system reform. This consumer-centric, employer-financed model is at the center of the numerous state and federal health reform options currently under consideration.  For more information on bswift, please visit www.bswift.com.

For more information about the bswift Special Report: The Impact of Health Reform on Employers, please email Tess Kimmel at tkimmel@bswift.com.   Rich Gallun can be reached at rgallun@bswift.com.