Health Reform Offers Little Financial Incentive for Employers
A recent Wall Street Journal article suggests that employer-sponsored insurance is here to stay and that only a few million employees will lose their employer coverage in the next decade. After spending a significant amount of time in the past few months reading, analyzing, and speaking on various aspects of the new health reform laws, I disagree. In fact, the question I hear most often from clients and audiences, after explaining the penalties for some employers under health reform, is, “Why would my company continue offering health care coverage?” They are not alone in asking this question.
Four large national companies are considering dropping their employer-sponsored health coverage because they have assessed the situation and believe it is cheaper to pay the “shared responsibility” penalty established by the health reform law than continue to pay for coverage.
For the following reasons, I think more employers will drop their health insurance coverage beginning in 2014.
- It is cheaper for employers to pay the penalty and not offer coverage.
Let’s be honest, any business with lower wage workers (think anyone paid by government programs, retailers, restaurants, etc.) is likely to have a number of employees eligible for the federal subsidies to purchase insurance starting in 2014. This is the trigger to assess businesses with 50+ FTEs a “shared responsibility” penalty under the reform law. For businesses not offering coverage, the penalty is $2,000 annually per full-time employee. Compare this to what the average private industry employer pays annually for health benefits for a full-time employee–$4,181. (EBRI, 2009.) An employer that drops their coverage could save an average of $2,181 per full-time employee. That is real money.
- The State Insurance Exchanges will offer choice, low-income assistance, and comparable benefits to employer plans.
The exchanges will provide a marketplace where an individual can compare a variety of health insurance options offered, in many cases, by the same insurers who offer their group coverage through their employer today. The law requires that the benefits for these plans will be comparable to the average benefits offered by employer group plans. In addition, individuals who do not have employer-sponsored coverage and have lower incomes (100-400 percent of federal poverty level) will be eligible for premium and cost sharing subsidies only if they purchase their insurance through the exchange. In addition, some individuals may even have more plan choices through the exchange than they currently have through their employers and therefore can purchase a plan that fits their needs.
- Insurance market reforms create similar protections for individuals as employer plans do today.
Group coverage through employers used to be one of the few ways individuals with pre-existing conditions could get reasonably-affordable health insurance and not be denied coverage. Under health reform and specifically, the required insurance market reforms, individuals will be guaranteed the ability to purchase coverage through a variety of avenues including as an individual through the insurance exchanges. Additionally, they will no longer be subject to annual or lifetime benefit limits and they will have first-dollar coverage for preventive care, and caps on out-of-pocket expenses. So, after 2014, individuals will no longer need the protection of buying insurance through a group employer plan.
- Some of the largest American companies are already considering dropping coverage to save money and avoid some of the corresponding regulatory requirements.
In an article from Fortune magazine by Shawn Tully, AT&T, Verizon, Caterpillar, and Deere are cited as having conducted analysis of the health reform laws and “were weighing the costs and benefits of dropping their coverage.” AT&T estimated it can save $1.8 billion for its 300,000 employees by dropping its health care coverage and paying the penalty.
Under health reform, many of the reasons for employers to offer health insurance are eliminated. One important reason to continue coverage remains—recruiting and retaining employees. While the economy currently has a glut of job seekers, by 2014, when the law takes effect, we may be facing a very different job market where once again employers struggle to find qualified and reliable workers. Therefore, some employers may maintain their health benefits to be more competitive in recruiting and retaining staff.
So, I’m curious are you considering dropping the coverage your business offers to its employees? If so, what things are factoring into your decision?