Your Health Plan May Be About to Change: 3 Options Employers Are Using to Cut Obamacare Costs

If the passage of the Patient Protection and Affordable Care Act, which is commonly referred to as Obamacare, has taught us anything, it's that the entire health care system is going to remain fluid and dynamic moving forward.

Source: White House on Flickr.

The ACA has completely transformed the way that Americans sign up for health care, allowing them easier access to transparent side-by-side health plan comparisons that had previously been almost impossible to obtain without copious amounts of time and research. It's also created a bottleneck for infrastructure technology companies which have had to meet a rapid wave of health-based demands ranging from the digitization of health records to the development of health exchange marketplaces where consumers can compare health plans.

The biggest ACA change is yet to come
Perhaps the biggest coming change, since more than 150 million Americans receive their health insurance through their employer, is how employers are responding to the implementation of Obamacare. Although the effective date of the employer mandate -- which requires employers with 50 or more full-time employees to offer adequate health insurance options and to potentially subsidize those employees if their premium costs exceed 8.5% of their modified adjusted gross income – has been pushed out until Jan. 1, 2016, businesses are nonetheless looking for ways to reduce their cost exposure to the ACA.

In select cases, such as with orthopedic implants company Stryker, layoffs were deemed necessary. Stryker laid off 5% of its workforce in 2011 as a way to save costs in light of the passage of Obamacare and the 2.3% medical device excess tax attached to the ACA which helped to fund Medicaid's expansion in 26 states.

Other businesses have simply chosen to cut workers' hours below the 30-hour full-time threshold as defined by the ACA. Regal Entertainment, the nation's largest operator of movie theaters, cut thousands of workers' hours last April in order to avoid potential penalties ranging from $2,000-$3,000 per employee for failing to provide adequate health plan options, or failing to subsidize those employees. If workers average 29 hours per week or less Regal is under no obligation to provide health insurance to its employees. 

However, for the majority of employers layoffs and workweek hour cuts simply aren't practical if they're hoping to expand their business. Yet, cost-cutting tied to the ACA is still a primary concern for many businesses.

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According to a new report from PwC Health's Touchstone survey, 26% of employers have a high-deductible health plan as their highest-enrolled plan in 2014. Per PwC this is the highest percentage ever recorded, and it speaks to the concern of both employees and employers of rising medical costs.

In response, PwC notes that businesses are turning toward three specific options in the hope of reducing their out-of-pocket exposure to employee-based health care costs. These three options have the potential to drastically impact your personal health plan going forward. 

Three ways employers are cutting their Obamacare costs
First, PwC suggests that employers are beginning to tailor pharmacy-benefits plans to work in their favor.

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The rising cost of branded drug prices is great for pharmaceutical margins, but it's bad news for insurers, consumers, and employers who have to pay more out of their pockets. Employers are instead casting a discerning eye on pharmacy-benefit managers that don't fight hard against pharmaceutical companies to keep their prices down.

As the New York Times reported last week, Express Scripts (ESRX), the nation's largest PBM, has been playing hardball with big pharma and has stopped paying for respiratory medicine Advair and diabetes drug Victoza causing them to lose market share. Actions like this, and Express Scripts' size which gives the company incredible clout, could help it draw significant business as we near the enactment of the employer mandate.

Secondly, employers are attempting to ramp up transparency for their employees so they can make better informed decisions which should help reduce out-of-pocket costs for both employers and employees.

At no time in history have employees been so actively involved in picking out their own health plans. For those on the individual market the sheer number of plans can almost be overwhelming. For employers an easy way to eliminate this is to reduce the number of available networks and to provide employees with the tools necessary to make smarter decisions about purchasing a health plan. This is where a recent IPO like Castlight Health (CSLT) could benefit.

Source: NEC Corporation of America, Flickr.

Because consumers sometimes focus more on price and less on quality of care in their health plan selection process, there's often a disconnect between the price paid and quality of service received. Castlight's cloud-based software is focused on eliminating this disconnect by making the up-front cost of care for local physicians and hospitals readily viewable for employers and their employees. The idea is that if employees have a better understanding of where they can go to get high-quality, lower-cost care they'll optimally choose those plans, saving themselves and their employer money.

Of course, you may also want to keep in mind that Castlight's software is still largely in its infancy and being adopted by big business, so its current lofty valuation and volatility aren't for investors with a weak stomach.

Finally, some businesses are choosing to abandon the idea of managing the care of their full-time employees and are instead moving part or all of their employee base to private exchanges.

The way this works is an employer and a private exchange operator will partner up to create a set of health plans available to employees. These employees are then given an annual subsidy by their employer to go purchase a plan of their choosing within the private exchange. This method removes most of the corporate involvement in managing an employees' health plan, while giving employees more control over what plan they ultimately select.

Walgreen (WBA 1.14%), for instance, announced it was moving around 160,000 employees to Aon's (AON 0.45%) private exchange in September. Expected to slow the cost of employer health-care costs, Aon's exchange offers Walgreen employees five separate health plans choices when its previous plans across two insurers only totaled four plans. Better transparency and more freedom of control for its employees should make employees happier and save Walgreen money over the long run. Aon, as of September, had added 18 large companies to its private network totaling more than 600,000 workers. As private exchanges gain steam, Aon could become a prime beneficiary.  

There are still a lot of questions left to be answered with regard to how companies will cut their ACA-related costs, but one thing is clear: most companies don't appear content with their current cost structure and will continue to look for ways to reduce expenses going forward.