Survey Says 30 Percent of Employers May Drop Health Care Coverage After 2014

Thirty percent of employers say they may stop offering health care plans after 2014, when key provisions of the health care reform law go into effect, according to a survey released June 7.

Consultant McKinsey & Co., which surveyed more than 1,300 employers of varying sizes, found that 30 percent of employers “definitely” or “probably” will stop offering coverage after 2014.

That is when changes such as federal health insurance premium subsidies for lower-income uninsured employees begin for individuals to purchase coverage from health insurance exchanges that are to be set up then.

“The shift away from employer-provided health insurance will be vastly greater than expected and will make sense for many companies and lower-income workers alike,” said the study, published in the June issue of McKinsey Quarterly.

Employers that drop coverage would pay an annual penalty of $2,000 for each full-time employee, a fraction of the typical cost of group plans. Group plan costs averaged more than $9,500 per employee last year, according to a Mercer survey.

The McKinsey findings vary from other surveys on the issue.

For example, Mercer last year found that 6 percent of employers with at least 500 employees and 20 percent of employers with 10 to 499 employees said it was likely they would drop coverage in 2014.

“Employers are reluctant to lose control over a key benefit. But beyond that, once you consider the penalty, the loss of tax savings, and grossing up employee income so they can purchase comparable coverage through an exchange, for many employers dropping coverage may not equate to savings,” Tracy Watts, a partner in Mercer’s Washington office said at the time.

However, about half of the 200 employers with workforces ranging from 50 to 150 employees said at a Lockton Benefit Group conference earlier this year that they intend to exit the group market in 2014.

At the moment, the “majority of our clients will wait and see,” Lockton Benefit Group president J. Michael Brewer told a congressional committee in March. What employers ultimately decide to do will depend on insurance costs in 2014 and the perceived need to offer a health care plan to gain a competitive advantage, he told lawmakers.  

Filed by Jerry Geisel of Business Insurance, a sister publication of Workforce Management. To comment, email editors@workforce.com.

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