Employers brace for increased costs after UVA changes insurance policy

Galloway Beck, director of human resources for the City of Charlottesville, says UVA’s decision to end coverage for the working spouses of employees could cost the city $180,000 next year. Photo: Elli Williams Galloway Beck, director of human resources for the City of Charlottesville, says UVA’s decision to end coverage for the working spouses of employees could cost the city $180,000 next year. Photo: Elli Williams

Last month, UVA announced big changes to its health insurance plans, citing increasing costs pushed higher by pending mandates from the Affordable Care Act (ACA). Premiums are going up by $40 a month, and the spouses of employees who can get coverage through their own employers are no longer eligible. The ripple effect of the overhaul by the area’s largest employer is already being felt by a business community grappling with how to adjust to the ACA’s implementation, and one of the first concrete impacts is the City of Charlottesville’s bottom line.

The University’s medical insurance costs have been rising steadily in recent years, said UVA spokesman McGregor McCance. Claims totaled $99 million in 2008 and $127 million in 2012, a jump of 28 percent. Costs are expected to increase another 9.8 percent in 2013, he said, and the $7.3 million increase expected as a result of changes required by the Affordable Care Act—coverage for some part-time employees and a new across-the-board tax that will help fund the federal health exchange, for example—would be responsible for almost a third of that rise.

UVA has insisted the changes announced last month aren’t solely a reaction to new anticipated costs from the health care law.

“It would be inaccurate to characterize ACA implementation as the straw breaking the camel’s back,” McCance said. It’s just one factor in an increasingly costly insurance landscape, he said.

But when UVA acts, the rest of Charlottesville and Albemarle has to react, and the changes to the University’s health care plans will mean more pressure on other local employers.

Gary Taylor is the managing director of Northwest Mutual, the broker for a large chunk of the area’s employer health insurance plans. He said there’s no question UVA’s decision to scrap working spouse coverage will impact local businesses. The University says it currently covers 29,000 people, only 13,639 of whom are employees. Many of those enrolled are children, who will get to stay on their parents’ plans, but plenty of previously covered spouses will be looking for coverage. In the Charlottesville area, 90 percent of all workers are at companies with 15 people or fewer, said Taylor. “UVA’s new rule is going to send more people to be insured by small business plans,” he said, “and some of these small business plans haven’t been contributing for these employees.”

The City of Charlottesville, in particular, has set itself up for a cost jump. For years, the city has been offering a $500 payout to employees who get coverage elsewhere. Some who take advantage of the bonus turn to military benefits for health insurance, said Galloway Beck, Charlottesville’s director of human resources. But many have gone on their spouses’ plans—that is, plans offered by other local employers. About 30 of those have been insured by UVA.

The math is pretty simple. Charlottesville contributed $6,077 toward each of its 926 enrollees’ plans last year, said Beck, so every employee who gets coverage through another provider represents a significant savings for the city, plus the added benefit of fewer administrative costs. “It wasn’t an effort to cost-shift to other employers,” said Beck. “It was simply recognizing that there’s a way we can offer some level of benefit to our employees who aren’t utilizing the medical, and save us money at the same time.”

Taylor puts it differently. “UVA and other large employers have been subsidizing other folks in the Charlottesville community,” he said.

The University’s decision to pull the plug on that particular subsidy will mean approximately $90,000 in unanticipated costs for the city this fiscal year, said Beck, and up to $180,000 in future years, as employees struck from UVA’s plan turn to the city’s offerings. It’s not going to be catastrophic, he said. Reserve funds should be able to cover this year’s overage, and the city will have to take the uptick in enrollees into account as it budgets for next year. But “it’s not insignificant at all,” he said. “You certainly prefer not to have these unanticipated costs.”

And those costs could keep climbing as other big local employers follow the lead of the bellwether that is UVA. “Everybody’s considering doing the exact same thing,” Taylor said.

Some are better insulated from the adjustments at UVA than others, including those in the public sector. Albemarle County doesn’t expect a big influx of enrollees, said County Director of Human Resources Lorna Gerome, as it currently has 90 percent participation in its health care plan among employees.

But there are question marks everywhere, said Taylor. About 40 percent of local employers are facing a January 1 annual enrollment deadline, which means they have to pull the trigger on 12 months of coverage for employees without knowing the full financial impact of ACA-mandated changes—or the ripple effects from other company’s policy changes.

It’s not going to be armageddon, Taylor said. “Everything will have to settle. The world won’t come to an end with this, it’s just going to get really weird and really complicated for a while.”

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