The only thing people in the benefits biz seem to be talkingabout is the implications of health reform. What will happen (if,of course, it still does happen)? Will employers drop coverage fortheir employees? What about grandfathered status? And, mostimportantly, just how much is this whole reform thing gonna costus?

As to the last question, most reports point to a lot.

According to new research from global insurance broker WillisGroup Holdings, a handful of employers say their costs have risenin excess of 5 percent since 2010 in accordance with—andanticipation of—reform.

“In PPACA's overarching goal of providing access to healthinsurance coverage, some of the first changes were made universallyto existing health care plans. The goal of these plan changes wasto expand benefits for those currently covered, help keep themcovered longer, and set the groundwork for those who'll soon becovered,” explains Annette Bechtold of Digital Insurance. “And thisexpansion of coverage does carry an additional expense.”

Despite what's been said about minimal effects on businesses,“the PPACA continues to present extraordinary challenges both toemployers and their advisers,” says Donna Joseph, CEO ofRhodes-Joseph & Tobiason Advisors.

“The Willis study reinforces what we've been hearing—that healthcare costs continue to rise, that PPACA is thought to be one of thesignificant reasons for the cost increases, that employers areasking their employees to pay more for the coverage, and that themajority of employers have not yet developed a health care strategyto comply with the law,” Joseph says.

Though most of the 2,300 surveyed employers haven't yetcalculated the cost of compliance with the PPACA, of those who did,more than half said their total health care costs had risen atleast 2 percent as a direct result of the reforms. And 15 percentsaid the increases were north of 5 percent. Most implied increasescertainly were coming.

“Now that the health care reform act has entered theimplementation phase, the costs and benefits associated with theact are coming into greater focus for employers,” says JayKirschbaum, practice leader for Willis Human Capital Practice. Mostemployers realize increased costs were coming, he says, andemployees will have to get ready as well.

The reasons

Employers Willis surveyed report their most significant costdrivers are the provision of adult child coverage up to age 26 andthe removal of the annual/lifetime limits for “essential healthbenefits.”

More than 25 percent of respondents saw cost increases fromremoving pre-existing condition exclusions for children under age19, and 32 percent report cost increases from removing cost-sharingon preventative services.

Increases associated with those changes, Bechtold says, havealready averaged somewhere south of 5 percent, though increases“vary based upon plan and marketplace.”

“These costs are typically added to the annual increase in thecost of medical goods and services,” she says. “As has been thecase for more than a decade, employers annually go through thebalancing act of the increasing costs versus the amount of coveragethey receive and decide how to share that cost between the businessand their employees.”

But there's still the big unknown—which in this case is 2014,when major health plan changes will be implemented. And that's ascary question mark for employers.

Sorry, employees

So with the increases, who will bear that extra cost? Thenot-so-shocking answer is the employees. Nearly two-thirds ofemployers say employee contributions will jump because ofreform.

In other efforts to curb costs, a third of respondents thinkother employers will reduce coverage to the lowest-cost packagethat will avoid the “pay-or-play” penalty and rely more on wellnessprograms.

“While other surveys and publications have found that employersseem reluctant to be the first to drop coverage, reshape workhours, reduce coverage or reduce company financial support forcertain benefits, this survey indicates respondents believe otheremployers will take some of these actions,” the survey notes.

The number of Americans getting health insurance from theiremployer continues to drop, other reports confirm. Gallup numbersreported a record low 44.6 percent received employer-sponsoredcoverage in 2011. And remember that controversial McKinsey surveyfrom last year? It said one-third of employers would drop healthcoverage after 2014, though many were quick to dismiss theprediction. But other surveys since have shared the same sentiment.A HighRoads study, for example, found employers will drop coveragein 2014 if their competition does.

Calculating the costs

Still, it's interesting to note that though employers said costswill increase, many of those surveyed admit they haven't evencalculated the costs yet.

Neither of those two facts is surprising, brokers say.

Besides the cost from premium increases, explains DanielleKunkle, the costs from increased administrative tasks related tocomplying with the law are—and will be—taking an obvious toll onbusinesses' finances. That's partly because businesses don't yetknow how to comply with it.

“This is hard for employers to calculate because they have towait for the rules to be released and some of the provisions havebeen modified or struck down entirely,” says Kunkle, a Medicareadviser at Boomer Benefits in Fort Worth, Texas.

The government, critics of reform will tell you, hasn't yetworked out the logistics, and that's hurting businesses trying toget a grasp on their bottom line.

Kunkle points to examples: The W-2 and the 105(h) reportingrules were delayed. The 1099 reporting for small employers waseliminated. So was the CLASS Act, which would have requiredemployers to make a decision about whether to offer thegovernment's LTC insurance program—and if so, deduct the premiumsfrom their employees' paychecks.

“The rules about the uniform explanation of coverage, whichemployers will be required to give to employees, are being workedon right now,” she says. “It's hard to calculate costs because ofall this uncertainty.”

Uncertainty was an overarching theme in the survey results.Again, not surprising, considering the basics of health reformsimply confuse most people.

During the week of the Supreme Court hearings in late March, aHarris poll found most Americans don't know what is and isn't partof health reform.

“This bill is so convoluted and is pieced out to occur over sucha long timeline, that there's a considerable level of ambivalenceover it,” Kunkle says. “Many people think or hope the changes won'taffect them, or that it won't matter until 2014 anyway, so theyprocrastinate getting their brain around it.”

Many argue there hasn't been enough education onreform.  Employers are finding the state exchangesdifficult, and the government only released the exchange blueprintin March.

Joseph agrees: “One of the key reasons for this 'wait-and-see'stance may be that there is a lack of information about stateexchanges, and, as the Willis study states, 'the lack of guidanceand the lack of developmental progress make it difficult foremployers to incorporate a strategy element that would rely on theexchanges,' she says.

Plus, there's the thought that it could all change “if eitherthe Supreme Court strikes down the individual mandate or we have achange in our administration in November,” Kunkle says.

The survey also notes that less than half of employers havedeveloped any kind of compliance strategy. Employers also saythey're waiting to communicate health reform changes to employees,partly because they don't know what to tell them.

But things should be clearer within the next 12 months, thesurvey notes, as 40 percent of employers will be “reviewing theirstrategies for internally communicating benefit rewards. We thinkthe next 12 months, as more information is known, will see asignificant rise of employers completing their strategic review ofhealth care in relation to their total rewards program, finallyenabling them to make what may prove to be momentous decisionsabout the future of employer sponsored health benefits for 2014 andbeyond.”

It's all about the cost

Not unexpectedly, when asked what would drive an employer toreassess its benefits strategies, by far, the predominant responseis “cost” in one form or another—health cost, financialperformance, corporate pressure to reduce costs, etc. Around 90percent of employers say they'll likely change their healthcoverage strategy if there are any changes in their financial ormarket performance.

Respondents say they're more than twice as likely to redrafttheir health coverage strategy in response to unanticipated costincreases as they are to redraft health strategy when faced with anincrease in voluntary employee turnover. With employer focus oncost and the organization's financial performance, the surveynotes, responses appear reactive rather than proactive.

That reactionary stance, Willis says, suggests a majority ofrespondents will try to manage health care reform within a strategyof maintaining the status quo—that is, until cost increase orcorporate performance declines.

Other findings

The Willis survey also finds another inconvenient truth: Thoughmost employers didn't want to, they're losing their grandfatheredplan status.

Survey respondents indicate that into the second year of healthcare reform implementation, less than 30 percent of employers wereable to maintain grandfathered status of their health care plans—a“rapid loss” that far outpaces what the Department of Health andHuman Services had predicted.

The department in 2010 projected that 78 percent of employerswould retain their grandfathered status by the end of 2011, that 62percent would by the end of 2012 and that 49 percent would by theend of 2013.

Kirschbaum says that's one reform truth that really caughtemployers by surprise. “Employers didn't think they had to beoverly concerned about it,” he says, pointing out that reform wassold on the basis of keeping the plan you have and retaininggrandfathered status.

“But as it turns out, many plans weren't able to staygrandfathered because of increasing costs related or not related tohealth care reform. They had to make changes to their plans inrelation to those costs which exceeded the amount that they couldchange their plans and still retain grandfathered status.”

Using exchanges

Willis research also found that despite having littleunderstanding regarding the state exchanges, many employers expectto use the exchanges for their employees. That's despite theirdesire to maintain group medical benefits for employees.

For some, the only question is when that will happen.Respondents appear to take incremental steps in compliance ratherthan big steps to reach a particular strategic goal, an approachthat aligns most closely with employers who will be more likely torely upon state-based exchanges in the future, the surveynotes.

This interest is echoed by a J.D. Power and Associates studythat found there's interest among health plan members in privatehealth insurance exchanges, in which an employer might provideemployees with vouchers for purchasing health insuranceindependently. About 41 percent of employer-insured health planmembers indicate they would use this approach if it wereavailable.

Moving forward

Most employers, Kirschbaum says, are scrambling to keep up withwhat's happening, and that's making it more than difficult to makea strategic approach.

But that's the one thing employers need to be doing, Bechtoldsays. As reform takes on a legacy based on confusion, “one thing iscertain: Taking a reactionary stand severely limits theopportunities for future success. Proactively understanding therules and obligations, considering options, and incrementallymaking changes will help ensure that optimal solutions areselected, and employees—along with their families—will have time toassimilate to them.”

“For many employers, preparing for these costs has beendifficult. As with any new law, it takes time for all the rules tobe established,” Bechtold says. “To better prepare for theimplementation of the additional provisions of the law, it will beimperative to partner with the right adviser.”