Experts say the Affordable Care Act has changed group health insurance, both for better and for worse.
The ACA, also known as Obamacare, reformed the individual insurance market, but has also made a lot of changes -- including higher costs -- in many group plans offered by employers, experts say.
Obamacare's role in rising group insurance costs
The costs of small and large group health insurance plans are always increasing, largely due to rising health care costs.
However, employers and insurers now face added expenses to comply with the ACA, experts say.
Employer-sponsored group health insurance covers about 149 million Americans under the age of 65, according to the Kaiser Family Foundation (KFF), a nonprofit that focuses on national health issues.
Between 2004 and 2014, premiums for firms with fewer than 200 workers increased by 63 percent, while those for larger firms increased by 72 percent, according to the KFF's 2014 Employer Health Benefits Survey.
But the costs of health insurance rose less quickly in the past five years -- during which the ACA passed and has been implemented in stages -- than they did in the five years before that, according to the KFF report.
The average group insurance premium for a single person, now $6,025 a year, rose just 2 percent from 2013 to 2014.
And the average group insurance premium for a family, now $16,834 a year, rose only 3 percent in that time frame, according to the KFF report.
A survey released in August 2014 by the nonpartisan National Business Group on Health (NBGH), an association of 400 large employers, found an increase of about 5 percent in large group plans in the previous year.
But every company is different, and some individuals might see increases that are far higher than the average, says Karen Marlo, a vice president for the NBGH.
The ACA has contributed to rising group insurance costs, especially for small group plans, says Doug Foshee, business development manager for Health Partners America, a company that helps insurance brokers learn about and adapt to the ACA.
That's because employers with fewer than 100 employees face more ACA requirements, Foshee says, who has seen his clients face plan cost increases of 20 to 120 percent.
For example, small group plans offered by these companies must include the 10 minimum essential health benefits, services in basic categories that include hospitalization, prescription drug benefits, maternity and newborn care, and mental health and substance-use services.
While group plans offered by employers with 100 or more employees don't have to meet that requirement -- though most already did so -- large employers have faced increased administrative costs to ensure they're complying with ACA requirements, Marlo says.
More group health insurance changes coming
Bigger changes in group insurance could be coming in the next few years as the employer mandate and other changes take effect, experts predict.
The employer mandate is an Obamacare provision that in 2015 will require all employers with 100 or more full-time-equivalent employees to provide health insurance or pay a fine.
In 2016, the provision will kick in for employers with 50 or more full-time equivalent employees.
"The full effect of the ACA doesn't kick in until 2016," Foshee says. But companies with 49 or fewer employees will be relatively unaffected since the mandate doesn't apply to them.
And, in 2018, the so-called Cadillac tax will kick in, Marlo says. That means any company offering individual plans worth more than $10,200 a year and any family plan worth more than $27,500 will face a 40 percent excise tax on benefits that exceed those amounts.
That's a major concern for all large employers, Marlo says.
How the Obamacare employer mandate might affect you
Here are three things that could result from the coming changes, experts say.
1. Some employers, especially smaller ones, might drop group coverage.
The individual health insurance marketplaces might become an "attractive alternative" to group insurance for smaller employers not subject to a fine, according to the KFF report.
Even some large employers might decide to drop group coverage since paying the fine will be cheaper than providing good health insurance, Foshee says.
The fine is $2,000 a year for each full-time employee after the first 30 employees.
2. More employers might move to defined benefit contribution.
The ACA has made defined benefit contribution a better option, Foshee says, adding that about 50 percent of his clients go that route.
Defined benefit contribution is when an employer gives an employee a set amount of money, often in the form of a salary increase, to buy individual insurance, Foshee says.
Employers can do an "individual group carve out," giving extra money to shop the individual market to employees who need plans with more benefits and are paying too much for group insurance.
This isn’t part of the ACA, but rather a solution that has come about due to the ACA, Foshee says.
3. Employers will redouble efforts to rein in group plan costs.
Employers have been trying for years to cut costs, but the ACA has "sped up" the process, Marlo says. And employers will be making more changes in the next few years to delay getting hit by the "Cadillac tax," she says. Changes employers are making or exploring include:
- High-deductible health plans -- The NBGH survey shows 32 percent of large employers plan to offer only high-deductible plans in 2015 -- up from 22 percent in 2014. And almost half of employers offer high-deductible plans as a choice.
- Offering shopping tools to employees -- The survey showed 73 percent of employers plan to add or expand tools to help employees price and shop for health care.
- Wellness initiatives -- The survey showed 53 percent of large employers plan to add or expand wellness incentives, such as weight-management programs for employees.
- Narrow provider networks -- About 26 percent of employers currently use narrow provider networks to reduce costs, the survey showed. For example, that could include offering employees cost-sharing breaks for using a plan with a narrower network of doctors, labs and other providers.
However, the survey showed that even those changes likely won't be enough, and 42 percent of employers plan to increase cost sharing due to the coming excise tax.
"As employers look to the future, they're facing a huge challenge," Marlo says.