Almost half of large and midsized U.S. employers have made or are considering changes to their workforce strategies specifically in response to provisions of the Affordable Care Act (ACA) that have yet to take effect next, new research by Towers Watson finds.
Most of the changes would be to so-called “total rewards” strategies. Total rewards are the tangible elements of an employer’s strategies for attracting and retaining employees, such as base pay, incentive pay, health-care and retirement benefits, training and development programs, and paid time off. (Total rewards are a subset of what Towers Watson calls “employee value proposition,” which also includes other aspects of an employer’s appeal, like its brand identity, reputation, mission and values.)
Among 113 U.S. employers that participated in the research, all with at least 500 employees, 45 percent said they have made or are looking at making changes to workforce strategies because of upcoming ACA provisions. In particular, notes Laurie Bienstock, Towers Watson’s North America practice leader for rewards, they are driven by the scheduled 2014 launch of public health-insurance exchanges, and the excise tax to be assessed starting in 2018 on employers that offer health-benefits plans whose annual value exceeds statutory limits ($10,200 for individuals and $27,500 for families).
Among those 45 percent, 68 percent said they are looking at changes to their total-rewards design or mix. Organizations with a significant number of employees who might use the public exchanges may decide to offer stipends to such workers or do something else with the money saved on benefits, such as boost incentive pay for some employees, says Bienstock.
Companies that employ many low-wage workers, who may qualify for a government subsidy to help pay for insurance purchased through an exchange, are the most likely to see such an exodus. That is typical in such industries as retail, hospitality, food service and health care. The same kinds of companies are thought to be the most likely to drop health benefits altogether once the public exchanges are active, and instead pay the less-costly, per-employee penalties that are stipulated in the ACA.
The pace of change in total-rewards programs almost surely will pick up steam as 2018 approaches, Bienstock says. That’s when the so-called “Cadillac tax” takes effect, with companies required to pay an excise tax equal to 40 percent of the value of health-benefit plans that exceeds the above-mentioned statutory limits. The tax is part of the ACA’s overall aim to weed out excessive health-care spending.
In addition to offering less-lucrative benefits for full-time employees, companies in danger of triggering the Cadillac tax could, for example, alter their mix of employees by hiring more part-time workers and contract workers who would get less or no health benefits than full-time workers would. Or existing employees working 30 hours or more a week, who are eligible for health benefits under the ACA, could have their hours cut back below that threshold.
Such decisions appear to be far away, though. Ninety-five percent of the survey respondents said they are not now considering making greater use of contract workers as a response to ACA provisions, although certainly increased usage of such workers has been an increasingly pervasive theme discussed across Corporate America since the financial crisis hit.
Indeed, 2018 is five years away. Is there any reason for companies to be thinking now about how to avoid the Cadillac tax then? “To make substantive plan-design changes for 2018, you need to be thinking about that by 2016 at the latest,” says Laury Sejen, global head of rewards for Towers Watson. “That said, I can’t tell you how many organizations we’ve talked with that, because they’re in an industry like utilities that historically tends to have generous health-care plans, or that just have a certain historical benefits philosophy, already have concerns about being hit with the Cadillac tax.”
In fact, Sejen says she was surprised that 55 percent of the surveyed organizations are not yet considering any changes to workforce strategies in reaction to the ACA. “A kind interpretation of that would be that yes, there is some uncertainty [about how many workers will use the public exchanges, for example], and some ACA provisions won’t come on line for awhile. An unkind interpretation would be, ‘Wow, you guys have your heads in the sand.’ Maybe some of the companies have legitimately done their homework, but others simply haven’t paid the necessary attention.”