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caused disruption in the traditional health-insurance space, workers compensation insurers must
also be aware of the laws impact on business.
The Affordable Care Acts Effect on
Workers Compensation
The steady growth of the uninsured triggered
a cost-shift from personal health insurance to
workers compensation policies. People with no
health insurance or with poor coverage tended to
file claims for workers compensation. Now, as a
result of the ACA, more people will have access to
health insurance, and less reason to file claims for
workers compensation.
The ACA has also made provisions for supporting
wellness Initiatives aimed at improving the general health of companies workers, which should
help reduce overall healthcare costs. The intention is to prevent chronic diseases and avoid the
expenditures associated with costly treatments.
As part of this incentive, employers will receive
up to a 30% discount on healthcare costs and up
to a 50% discretionary discount for implementing successful wellness programs. This, along
with the fact that research shows a powerful correlation between unhealthy workers and higher
Another provision of the ACA changed the definition of a full-time employee to increase the
number of individuals who qualify for health
insurance. Additionally, the rebates and allowance provisions under the act will affect payroll
and thus the premium calculation by workers
compensation insurance providers.
AFFORDABLE
CARE ACT
Figure 1
Quick Take
Addressing the Rising Costs of Healthcare in the U.S.
Rising medical costs are a huge drain on the U.S. healthcare system, as well as the nations economy. It
is estimated that the U.S. government spends nearly 18% of its Gross Domestic Product (GDP) on healthcare (see Figure 2). Healthcare expenditure per capita in the U.S. is $8,508, which is much higher than
most other developed nations.2 Whats more, 50% of that expenditure is spent by public or government
sources.
Given the increasing cost and restrictive nature of U.S. healthcare coverage, the number of the nations
uninsured is growing. In fact, it is estimated that a total of 13.4% of the U.S. population was uninsured
in 2013.3
10%
20%
6
15
4
10
0
2000 01 02
03 04 05 06 07
Figure 2
cognizant 20-20 insights
08 09
10
11
12
13
coverage
for
Workforce hiring.
Employee benefits.
Workforce health behaviors.
With the ACA, people will rely less on their employers for health insurance. This will likely result in
more workers opting to work part-time, since
they can obtain their health insurance directly through the ACA. In fact, recent figures from
the Congressional Budget Office reveal a poten-
INDIVIDUAL
EMPLOYER
HEALTH INSURER
Individual Mandate
All individuals should
acquire health
coverage, or else have
to pay a penalty.
Employer Mandate
Companies employing
50 or more people must
offer health insurance
or pay a penalty.
Guaranteed Issue
Healthcare insurers are
prohibited from denying
coverage based on
pre-existing conditions.
Insurance Exchange
An online marketplace
for individuals to
acquire low-cost
health insurance.
Insurance Exchange
An online marketplace
where small businesses
can purchase low-cost
health insurance.
Minimum Standards
Insurance coverage must
provide essential health
benefits.
Employee Wellness
Initiatives to support
and encourage employee wellness programs.
Insurance Premiums
The same premium
applies to all applicants
of the same age and
from the same
geographical area.
Small-Business
Tax Credits
Small businesses qualify
for tax credits to offset
health insurance.
Figure 3
cognizant 20-20 insights
PROVIDERS
Medical Loss Ratio (MLR)
Insurers should spend a
minimum of 80% of
premiums on medical
care to maintain the
Medical Loss Ratio (or
MLR) requirement, which
limits the portion of
premium dollars insurers
can spend in non-health
care-related areas
(administration, marketing, etc.).
Medicare and
Medicaid Reforms
Changes to Medicare
payment schedule,
Medicaid coverage.
before the employer mandate for health insurance goes live in 2016.
Reduction in Cost-Shifting
Premium Impact
Workers compensation
premiums affected due to
certain ACA provisions.
Figure 4
Reduction in Cost-Shifting
Quick Take
Massachusetts Healthcare Reform Law
The effect of the reduction in cost-shifting can be drawn from Massachusetts experience (see Figure 5
below). In 2008, the state enacted a healthcare reform law that is very similar to the ACA. It mandates
that all citizens of Massachusetts be insured. It also requires employers to provide health insurance to
their employees in a manner similar to the ACA. After the passage of healthcare reform, the number
of Massachusetts uninsured dropped significantly from 10.9% to 6.3%. Prior to the passage of the
Massachusetts Health Care Reform Act, more than 20 times as many emergency department (ED) visits
were billed to workers compensation, as were inpatient visits resulting in an annual average of 85,000
ED visits versus 3,500 in-patient visits. Following the passing of the reform, the number of ED visits
dropped by 7.2%.14
17.1%
10
10.9%
5
0
2006
18.2%
16.6%
16.7%
5.5%
5.7%
5.1%
2007
2008
2009
Massachusetts
18.4%
6.3%
2010
U.S.
Figure 5
Workers
The ACA seeks to control healthcare costs by controlling Medicare reimbursement rates. With the
implementation of the ACA, Medicare reimbursement rates are expected to either hold steady or
drop further. This means that the cost of workers
compensation claims may profit from the reduction in those rates.
26%
Healthcare Costs
1: 6
28%
Sick-Leave
Absenteeism
Costs: Savings
Figure 6
cognizant 20-20 insights
12
10.8
183.6
10
150
8.8
8
117.6
100
11.7
7.1
75.2
5.8
50
60.2
5.5
41
14.2
0
< 18.5
18.5-24.9
25-29.9
30-34.9
35-39.9
40+
Source: Ostbye, T., et al, Obesity and Workers Compensation, Archives of Internal Medicine, April 23, 2007.
Figure 7
The 1996 Health Insurance Portability and
Accountability Act (HIPAA) allowed employers to
claim a discount of 20% on health insurance premiums for employees practicing healthy habits.
With the ACA, the reward increases to 30%. There
is an optional increase in the reward to 50% in
cases of programs designed to prevent or reduce
tobacco use.
In the U.S., 74% of employers who offer health
benefits also offer employee wellness programs.
Roughly 92% of larger employers (those employing 200 or more) provide wellness programs
along with health benefits.17 For example, in 2014,
Cognizant piloted its own voluntary wellness
program, iCommit2Fit, for 127 of our employees.
From January to June, participants increased
their weekly step counts from an average baseline of 36,500 across all groups to 75,000 an
improvement of 105% and more than twice the
American daily step average. This moved 27% of
our participants to new BMI categories. Employee
wellness programs are set to gain even more support with the Affordable Care Act.
Employee wellness programs can help control
healthcare costs by:
50,000
40,000
30,000
20,000
10,000
< 18.5
18.5-24.9
40+
Source: Ostbye, T., et al, Obesity and Workers Compensation, Archives of Internal Medicine, April 23, 2007.
Figure 8
As illustrated in Figure 7 (previous page) and 8
above, the alternative to preventive care is not a
pretty picture:20
Quick Take
Dissecting Wellness Programs
Participatory wellness programs: Available without regard to an individuals health status.
For example:
Programs
Premium Impact
Workers compensation premiums are directly
dependent on employee payroll, industry class
rate and claim experience (mod factor). Any
changes in payroll will affect workers compensation premiums. The ACA can impact payroll by:
Changing
Then...
Source: https://www.ncci.com/nccimain/IndustryInformation/UnderwritingInformation/Pages/PatientProtectionAffordableCareAct-WC-Prem.aspx.
Figure 9
cognizant 20-20 insights
And...
Then...
Payments/contributions are
made by an employer to a group
health insurance plan or employee benefit plan on behalf of the
employee
Payments/contributions are
made by an employer to a group
health insurance plan or employee benefit plan on behalf of the
employee
Source: The Patient Protection and Affordable Care Act and Workers Compensation Premium Determination.
National Council on Compensation Insurance (NCCI). https://www.ncci.com/nccimain/IndustryInformation/
UnderwritingInformation/Pages/PatientProtection-AffordableCareAct-WC-Prem.aspx.
Figure 10
employee premium rebate received from a health
insurer, the rebate amount is considered part
of the payroll. As a result, workers compensation premiums will rise. Please refer to the NCCI
(National Council on Compensation Insurance)
explanation of MLR rebates, Figure 10 above.
10
claims, and removes the incentive for over-treating. Loss-control efforts could also include:
Footnotes
1
Karen Davis, Kristof Stremikis, David Squires and Cathy Schoen. Mirror, Mirror on the Wall How the
Performance of the US Healthcare System Compares Internationally. The Common Wealth Fund. June,
2014. http://www.commonwealthfund.org/~/media/files/publications/fund-report/2014/jun/1755_davis_
mirror_mirror_2014.pdf.
Jessica C. Smith and Carla Medalia, Health Insurance in the United States: 2013. U.S. Census Bureau,
September, 2014. http://www.census.gov/content/dam/Census/library/publications/2014/demo/p60-250.
pdf.
Updated Estimates of the Effects of the Insurance Coverage Provisions of the Affordable Care Act.
Congressional Budget Office (CBO), April, 2014. https://www.cbo.gov/sites/default/files/45231-ACA_
Estimates.pdf.
United States Chamber of Commerce Q2 Small Business Outlook Study, Harris Interactive. July 16, 2013.
http://www.uschambersmallbusinessnation.com/uploads/Chamber%20Small%20Business%20Survey
%20Q2%207%2016%2012.pdf.
The Budget and Economic Outlook 2014 2024. Congressional Budget Office, February 2014. https://www.
cbo.gov/publication/45010.
Wal-Mart Returning To Full-Time Workers-Obamacare Not Such A Job Killer After All? Forbes.com.
September 25, 2013. http://www.forbes.com/sites/rickungar/2013/09/25/wal-mart-returning-to-full-timeworkers-obamacare-not-such-a-job-killer-after-all/.
10
11
Employee Health Benefits: 2013 Annual Survey, Kaiser Family Foundation & Health Research and
Educational Trust. http://kff.org/report-section/2013-summary-of-findings/.
12
Katherine Grace Carman, Christine Eibner. Changes in Health Reform Since 2013. RAND Corporation, 2014.
http://www.rand.org/pubs/research_reports/RR656.html.
13
Vasanth Sathiyakumar, BA; Daniel J Stinner, MD; William T Obremskey, MD, MPH; A. Alex Jahangir, MD; and
Manish K Sethi, MD. The Future of Workers Compensation Under PPACA. November, 2012. http://www.
aaos.org/news/aaosnow/nov12/advocacy2.asp.
14
Paul Heaton. The Impact of Health Care Reform on Workers Compensation Medical Care (Evidence from
Massachusetts). RAND Corporation, 2012. http://www.rand.org/pubs/technical_reports/TR1216.html.
11
15
Preventing Chronic Disease. Center for Disease Control & Prevention. April, 2009. http://www.cdc.gov/
pcd/issues/2009/apr/08_0236.htm.
16
Katherine Baicker, David Cutler, Zirui Song. Workplace Wellness Programs Can Generate Savings. February,
2010. http://www.kpcom.com/newsletters/documents/Workplace%20Wellness%20Programs%20can%
20generate%20savings.pdf.
17
Employer Health Benefits: 2010 Annual Survey. Kaiser Family Foundation & Health Research and
Educational Trust, 2010. https://kaiserfamilyfoundation.files.wordpress.com/2013/04/8085.pdf.
18
Making the Case for Workplace Wellness Programs. Wellness Council of America, 2011. http://ww1.
prweb.com/prfiles/2011/07/22/8664822/TheWellnessCouncilOfAmericaMakingTheCaseFor
WorkplaceWellnessPrograms2011.pdf.
19
Paul Hemp, Presenteeism: At Work But Out of It, Harvard Business Review, October 2004. https://hbr.
org/2004/10/presenteeism-at-work-but-out-of-it.
20
21
22
The Time is Now: Rethinking Health Care Coverage. Aon Hewitt, 2012. http://www.aon.com/attachments/human-capital-consulting/Corporate_Exchange_Survey_Report_Final_2.pdf.
23
Beth Pinsker, Petco, Applebees Employees Join Growing List on Private Exchanges. October 15, 2013.
http://www.reuters.com/article/2013/10/15/usa-healthcare-mercer-idUSL1N0I516R20131015.
24
2013 MLR Refunds by State. Center for Medicare and Medicaid Services. http://www.cms.gov/CCIIO/
Resources/Data-Resources/Downloads/2013_MLR_Refunds_by_State.pdf.
About Cognizant
Cognizant (NASDAQ: CTSH) is a leading provider of information technology, consulting, and business process outsourcing services, dedicated to helping the worlds leading companies build stronger businesses. Headquartered in
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and business process expertise, and a global, collaborative workforce that embodies the future of work. With over 100
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