Employer Health Care Coverage Changes: 2016

On Saturday afternoon, I sat on the couch with my daughter, Taylor, half watching SpongeBob Squarepants while penning this week’s Update on my iPad.  In this episode, SpongeBob’s pet snail, Gary, shatters his shell, but sadly, SpongeBob doesn’t have the necessary savings to purchase a new one.

I guess SpongeBob must have gotten clobbered in last week’s market.

If you are familiar with SpongeBob, you know he doesn’t give up easily. So, he decides to ask his boss, Mr. Krabs, for help.  SpongeBob offers to work the remainder of the year for free in exchange for an advance to cover a new shell’s cost. Krabs thinks about the proposition and then tells SpongeBob that he will pay for Gary’s new shell on one condition.

At this point, you must be sitting on the edge of your chair (I certainly was).

Mr. Krabs agrees to cover the cost as long as he doesn’t have to pay for SpongeBob’s medical insurance.

All amusement aside, I was stunned. Here was a popular kids’ cartoon series making a joke about cutting an employee’s health care coverage. Frankly, I was going to write about the continued impact of China on the U.S. economy and the fact that we may be heading towards a 10% correction, which we haven’t seen since 2007, but after realizing that rising health care even invades the world of children’s television, I scrapped the investment topic and decided to focus on 2016 health care trends.

During my professional career, I have been on both sides and experienced the ups and downs of employer health care plans, but I am pretty sure that rising costs and legislative changes may make 2016 somewhat unpleasant when it comes to health care coverage.

Let’s start by examining what employees can expect.  There has been some discussion about tightening employee drug coverage due to the already high (and steadily rising) cost of prescriptions. If implemented, those who need specialty drugs – some of which currently cost $10,000 or more – will likely bear the brunt of elevated prices.

There may be adjustments to spousal benefits as well.

Historically, spousal coverage has been the norm, but more and more companies are looking to cut it. According to a 2013 study conducted by Towers Watson, over 600 large companies had made plans to cut spousal coverage that year, with another 8% looking to do the same in 2015. This number will likely increase, especially considering the amount that can be saved by eliminating spouses who have access to their own employer coverage.

UPS, one of the largest companies to make such a change, cited that it would save $60 million per year by cutting spousal benefits.

Meanwhile, employers could be facing a 5-8% increase even after they already subsidize (on average) 75% of a worker’s total health care premiums. While minimum wage is a hot topic, the impact of rising health care costs on annual increases in employee compensation is often ignored.

Additionally, the Employer Mandate, which was expected to roll out in 2014, will also be implemented in 2016.  This policy stipulates that businesses with over 50 full-time employees must provide insurance to at least 95% of employees, plus dependents up to age 26. If the business does not meet these requirements, they will be subjected to a penalty.

Luckily for Mr. Krabs, his restaurant only employs SpongeBob and Squidward.

Some companies are trying to combat rising health care costs by introducing high-deductible plans, which, as the name implies, have lower premiums and larger deductibles than traditional health plans. Given the high cost of deductibles, participants will often weigh the costs of procedures and shop around for more favorable prices than individuals with more traditional coverage.

This strategy sounds good on paper for both businesses and consumers, and can be a real savings vehicle for healthy employees who make infrequent doctor visits and can pay lower premiums, but there is a potential downside.  For example, workers who may be more susceptible to chronic illnesses, such as diabetes, could require more care, so this option may not be as financially sound as a traditional plan.  (HealthView is currently conducting research on the potential benefits and implications of high deductible insurance policies.)

The impending Cadillac Tax under the Affordable Care Act will be another contributing factor to health care volatility. This tax will charge employers 40% on health insurance over $10,200 for individuals ($27,500 for couples). While it is not scheduled to be fully implemented until 2018, some employers are accelerating adjustments to current plans in preparation.

Whether all of the aforementioned changes occur remains to be seen, but even if some are adopted, millions of Americans – employers and employees alike – will feel their impact.

As far as Mr. Krabs is concerned, since the Krusty Krab has fewer than 50 employees, he can eliminate SpongeBob’s health coverage but he must adhere to Bikini Bottom’s minimum wage requirements.

At least the housing market is pretty stable, so hopefully Gary’s new shell will retain its value.