© 2010 Towers Watson. All rights reserved. Adult Dependent Coverage Under the Affordable Care Act of 2010: An Employer Perspective Alliance for Health

© 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

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Affordable Care Act of 2010:Key Issues for Employers

Young adults will be eligible for parent’s 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


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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


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Percentage of Large Employer Plans Covering Children by Age of Child and Student Status

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

18 19 20 21 22 23 24 25 26 27

Ages for which coverage is offered

Full-Time Student Not a Student

Note: Many employer plans also include provisions that coverage is lost if the adult child is married or working

full-time. Source: Towers Watson’s Employee Benefit Information Center.


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Current Coverage Categories for Americans with Employer-Sponsored Insurance

Employee, 53%

Spouse, 17%

Child Ages 0-18, 27%

Child Ages 19 and Older, 3%

Source: March 2008 Current Population Survey. Calculations by Towers Watson.


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Back of the Envelope Estimates of Cost Impact to Employer Plans

Baseline 3 Scenarios for Influx of Young Adults Expense (in Millions)

Enrollment Premium Total Premium (millions)

Enrollment Up 25%

Enrollment Up 50%

Enrollment Up 100%

Adults 6,900 $5,000 $34.5 $34.5 $34.5 $34.5

Children 3,100 $2,500 $7.8 $8.0 $8.2 $8.6

Total $42.3 $42.5 $42.7 $43.1

% Increase .5% 1% 2%


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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 parent’s plan, then why not?


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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 parent’s 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 parent’s plan?

Employers will need to consider

— level of employer premium subsidies for dependents

— additional premium tiers

— generosity of plans offered

Documents

© 2010 Towers Watson. All rights reserved. Adult Dependent Coverage Under the Affordable Care Act of 2010: An Employer Perspective Alliance for Health