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© 2010 Towers Watson. All rights reserved. Adult Dependent Coverage Under the Affordable Care Act of 2010: An Employer Perspective Alliance for Health Care Reform Briefing Roland McDevitt May 24, 2010
towerswatson.com © 2010 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. 2 Affordable Care Act of 2010: Key Issues for Employers Young adults will be eligible for parents plans until age 26 Regardless of whether they are working and have an offer of coverage Regardless of whether they are students Regardless of whether they are married Applies to first plan year beginning after September 23, 2010 For most employers this will be the 2011 plan year Transition rules allow a three year period (2011, 2012 and 2013) during which employer plan may withhold eligibility if young adult is offered coverage from own employer
towerswatson.com © 2010 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. 3 Considerations for Employers What is the cost impact of simply extending eligibility? Administrative issues Dental and vision are not mandated – should employer extend eligibility along with medical coverage or create separate eligibility rules, processes and communications? Many retiree medical plans are administered together with the plans for active employees. Do these retiree medical plans need to be separated in order to avoid this regulation for the retiree plan? COBRA will apply to all of these adult dependents (could remain in plan after age 25) Require young adults to take coverage elsewhere when offered? Administrative systems are not in place
towerswatson.com © 2010 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. 4 Percentage of Large Employer Plans Covering Children by Age of Child and Student Status Note: Many employer plans also include provisions that coverage is lost if the adult child is married or working full-time. Source: Towers Watsons Employee Benefit Information Center.
towerswatson.com © 2010 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. 5 Current Coverage Categories for Americans with Employer-Sponsored Insurance
towerswatson.com © 2010 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. 6 Back of the Envelope Estimates of Cost Impact to Employer Plans Baseline3 Scenarios for Influx of Young Adults Expense (in Millions) EnrollmentPremiumTotal Premium (millions) Enrollment Up 25% Enrollment Up 50% Enrollment Up 100% Adults6,900$5,000$34.5 Children3,100$2,500$7.8$8.0$8.2$8.6 Total$42.3$42.5$42.7$43.1 % Increase.5%1%2%
towerswatson.com © 2010 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. 7 Factors That Will Influence Take-up Rates Other alternatives available to young adults Coverage from own employer Medicaid in 2014 Purchase through individual market or exchange Decline coverage and purchase through the exchange when need arises How the employer prices coverage Most employers have only three or four coverage tiers today Employee only Employee + Spouse Employee + Child(ren) Family Many are considering one or more additional tiers If young adults can obtain free coverage through parents plan, then why not?
towerswatson.com © 2010 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. 8 Bottom Line For most employers, this is not viewed as a critical issue Financial impact viewed as 1% or less Those who employ young adults may realize some savings if pricing of parents plan is attractive Could have significant effects for some employers Administration and compliance are significant concerns for many employers Will young adults come back to free coverage in parents plan? Employers will need to consider level of employer premium subsidies for dependents additional premium tiers generosity of plans offered
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