Workers’ enhanced ability under reform to get insurance apart from their employer reduces the importance of health insurance as a means to recruit, compensate and retain workers, a June 2011 study concludes. Researchers at McKinsey Quarterly also predicted that as many as 30 percent of employers could stop providing benefits to workers after health reform takes full effect in 2014. Their findings were based on a survey of more than 1,300 employers.
Employers will be more likely to send their workers to buy coverage on the open market under reform because state-run exchanges will reduce the advantage employer-sponsored group coverage has over individual coverage, say authors Shubham Singhal, Jeris Stueland and Drew Ungerman. Reform’s elimination of pre-existing condition denials likewise will reduce employers’ moral obligation to keep sicker people in groups.
Take the Penalty?
Large (50+ FTEs) employers that do not offer minimum coverage will be subject to penalties, but those will be far more affordable than insurance premiums, according to the report. If employees opt out and receive an exchange subsidy, employers that provide coverage will pay $3,000 for each employee who opts out. Employers that don’t provide coverage can be assessed $2,000 times the total number of full time employees (minus the first 30). But employers with fewer than 50 FTEs are not subject to penalties for providing inadequate coverage, or not offering coverage.
But the question is not one exclusively of dropping health benefits versus keeping them. The authors suggest alternatives under which employers would keep benefits for some employees while pointing others to exchanges.
- Companies might consider increasing the proportion of part-time workers, for whom they do not have to provide coverage.
- Some companies may divide coverage into two separate groups: one comprising management and corporate employees who would receive plan coverage, the other lower-wage employees who would receive subsidies to buy insurance on an exchange.
- Employers can set the employee premium above 9.5 percent of the household income of lower-wage workers, so these employees can opt out of plan coverage and receive the same exchange subsidies they would if their employer did not offer coverage.
In many of these scenarios, both workers and employers would be better off economically: Workers’ liability will be capped at 9.5 percent of salary. “Because of the subsidies, many low-income employees will be able to obtain better health coverage, for less out of pocket, on an exchange than from their employer,” they say. Employers will get a way out of ever-increasing health costs.
“Even if premium sharing isn’t increased intentionally to shift lower-income employees to an exchange, so long as employers’ medical costs continue to increase faster than wages, more employees will become eligible for subsidies every year,” McKinsey Quarterly authors say.
Assuming that employee ESI premiums continue to increase at 9 percent for employers’ medical costs, about 15 percent of employees’ families will be eligible for subsidies in 2014, growing to 20 percent in 2016 and to 28 percent in 2018, they say.