Industry Market Trends

Affordable Care Act Is Shaping Manufacturers' Workforce Strategies

Aug 06, 2013

Many parts of the Affordable Care Act (ACA) have already gone into effect, while others continue to roll out. Congress continues to struggle in vain to repeal some or all of the ACA. As the federal health care reform moves ahead with implementation, businesses are showing increasing concerns about the costs and administrative burdens of the new requirements.

The most recent National Association of Manufacturers (NAM)/IndustryWeek Survey of Manufacturers (for Q2 2013) found that 82.2 percent of respondents identify growing health care and insurance costs as their greatest challenge, an increase from 74 percent in the previous survey only three months before. Uncertainties around high-cost health insurance plans (popularly known as "Cadillac" plans) are also affecting decision-making among some manufacturers. Starting in 2018, the ACA imposes an excise tax on health insurance plans with premiums above a certain threshold. The NAM survey found that 23.3 percent of manufacturers plan to reduce their coverage to avoid the tax, with 39.3 percent remaining uncertain of what to do.

Research by the Manufacturers Alliance for Productivity and Innovation (MAPI) underscores the findings of the NAM study. MAPI's June survey of 54 senior financial executives concludes that "concerns about the impact of health care reform have many companies rethinking their employee health care programs." Thirty-five percent of respondents are considering eliminating high-cost health plans that would fall under the excise tax. Thirty-nine percent of companies have added or are considering adding affordable "minimum essential coverage" plans meeting the requirements of the so-called individual mandate.

Employers that don't offer health care benefits to their workers can direct them to state-level competitive exchanges, or Health Insurance Marketplaces. These exchanges are scheduled to open for enrollment this Oct. 1, with coverage starting as soon as January 2014, and are supposed to give consumers access to affordable plans that meet federal standards. According to the MAPI survey, 9 percent of manufacturers are considering "eliminating health care plans and directing employees to the exchanges."

Donald Norman, senior economist at MAPI, told IMT that health care reform is creating considerable uncertainty among manufacturers. "For years now they have been watching health care costs rising steadily," he said in an interview. "Companies are looking for ways to try to gain control of that trajectory."

Norman added, "What came out of our survey is that manufacturers are standing on the sidelines taking a look. They really don't know how it's going to play out. They're afraid to make a move."

The uncertainty is especially vexing for smaller manufacturers whose workforces are near the crucial cutoff of 50 employees, where the ACA kicks in.

The ACA includes a provision for an Employer Shared Responsibility Payment that will have to be paid by an employer with 50 or more full-time equivalent (FTE) employees, if the employer doesn't provide health care insurance that meets certain standards. Employers with fewer than 50 FTEs are not subject to the Employer Shared Responsibility Payment. The Obama administration recently decided to delay implementing this requirement until 2015, saying that this delay will allow the government time to "simplify the reporting process" and will give businesses "more time to comply with the new rules."

Employers below the 50-FTE cutoff have to think about the implications of growing their workforces. Some are reportedly holding back on expansion plans or are reducing their numbers of full-time workers to avoid extra costs and compliance headaches.

Norman told IMT that the aforementioned exchanges are another source of uncertainty for manufacturing employers. "They don't know what the exchanges are going to be like," he said. "If they abandon their plan and send employees to the exchanges, what kind of health care are they going to get? A number expressed concern about their ability to attract the type of talent they need to compete in a global marketplace."

The President's Council of Economic Advisers recently announced that the growth in consumer health care costs has begun to slow in recent years. Alan Krueger, chairman of the group, wrote that prices for personal health care goods and services rose only 1.1 percent from May 2012 to May 2013, "the slowest rate of increase in nearly 50 years."

Krueger asserted that this slowdown "is consistent with a broad array of other evidence suggesting that the growth rate of health care costs is slowing." The growth rate for employee health insurance slowed from 2.2 percent per year for the period 2006 to 2009 down to 1.8 percent for 2009 to 2012. The news was even better for smaller establishments, he wrote: "For establishments with fewer than 50 employees, employers' real costs for workers' health insurance grew just 1 percent." Krueger attributes this slowdown to "structural changes" in health care and says the ACA will make things even better.

Norman admitted that "health care costs have in fact risen less rapidly in the most recent year." But he insisted that this is a data point, not a trend. The longer-term trend shows increasing costs. "Employers have got to be convinced they can get a grip on this. It's a big part of the compensation package," he said.