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As many as 30 percent of American companies plan to drop employee insurance when the Patient Protection and Affordable Care Act becomes fully effective, according to a report in the McKinsey Quarterly.
According to the report, “Many of the law’s relevant provisions take effect in 2014. Our research suggests that when employers become more aware of the new economic and social incentives embedded in the law and of the option to restructure benefits beyond dropping or keeping them, many will make dramatic changes. The Congressional Budget Office (CBO) has estimated that only about seven percent of employees currently covered by employer-sponsored insurance (ESI) will have to switch to subsidized-exchange policies in 2014. However, our early-2011 survey of more than 1,300 employers across industries, geographies, and employer sizes, as well as other proprietary research, found that reform will provoke a much greater response.”
If this prediction is true, the number of Americans who could see changes to their health insurance would be far more than the nine to 10 million estimated by the CBO. That means that the cost of subsidizing plans for those people — approximately $19 billion a year, according to the CBO — could grow by more than 30 percent. If the report’s predictions are correct, many Americans will lose their health insurance. The study contradicts at least three others predicting that reform will have a negligible effect on employer-sponsored insurance. A Rand study determined that the number of employees who would lose insurance is “small,” and the Urban Institute believes that the percentage “would not differ significantly.” “History has shown that reform motivates more businesses to offer insurance,” said an administration healthcare expert. “Health reform in Massachusetts uses a similar structure, with an exchange, a personal responsibility requirement, and an employer responsibility requirement. And the number of individuals with employer-sponsored insurance in Massachusetts has increased.”
“At least 30 percent of employers would gain economically from dropping coverage, even if they completely compensated employees for the change through other benefit offerings or higher salaries,” the report said. “Contrary to what employers assume, more than 85 percent of employees would remain at their jobs even if their employers stopped offering (employer-sponsored insurance), although about 60 percent would expect increased compensation.”
According to the McKinsey study, found that those who are informed about the health-reform measure are more likely to consider an alternative to employer-sponsored plans, with 50 percent to 60 percent in this group expected to make a change. It also determined that for some, it makes more sense to switch.
“Employers must quickly examine the implications of health care reform on their benefit and workforce strategies, as well as the opportunities and risks that reform generates,” the McKinsey study notes. “Of course, the type and extent of the changes employers make will vary by industry, collective-bargaining agreements, and other constraints. Most employers, however, will find value-creating options between the extremes of completely dropping employee health coverage and making no changes to the current offering. Even employers that intend to provide benefits similar to those they currently offer can take no-regrets moves, like tailoring plans to maximize what their employees will value most about ESI (employer-sponsored insurance) after 2014. Employers pursuing more radical changes will have to rethink benefit packages for higher-income employees.
“And all employers must continue to keep in mind their employees’ health and wellness needs, even as insurance coverage levels evolve. To serve employers, insurers must retool their business models to provide more consultative support during the transition and develop innovative approaches to support employers’ new benefit strategies. For employers and insurers, success after 2014 will require a better understanding of employee and employer segments, and the development of the right capabilities and partnerships to manage the transition.”
According to the report, “Healthcare reform fundamentally alters the social contract inherent in employer-sponsored medical benefits and how employees value health insurance as a form of compensation. The new law guarantees the right to health insurance regardless of an individual’s medical status. In doing so, it minimizes the moral obligation employers may feel to cover the sickest employees, who would otherwise be denied coverage in today’s individual health insurance market. On the other hand, reform preserves the corporate tax advantages associated with offering health benefits — except for high-premium ‘Cadillac’ insurance plans.”