Monday, June 6, 2011

30 Percent Of Employers Will Drop Employee Health Insurance Under New Health Law: 50-60 Percent Will Pursue An Alternative To Employer Health Coverage

From McKinsey Quarterly, "How US health care reform will affect employee benefits: 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." June 2011, by Shubham Singhal, Jeris Stueland, and Drew Ungerman:
  • Overall, 30 percent of employers will definitely or probably stop offering ESI [employer-sponsored insurance] in the years after 2014.

  • Among employers with a high awareness of reform, this proportion increases to more than 50 percent, and upward of 60 percent will pursue some alternative to traditional ESI.

  • 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.

  • Contrary to what many employers assume, more than 85 percent of employees would remain at their jobs even if their employer stopped offering ESI, although about 60 percent would expect increased compensation.
Health care 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. Reform preserves the corporate tax advantages associated with offering health benefits—except for high-premium “Cadillac” insurance plans.

Starting in 2014, people who are not offered affordable health insurance coverage by their employers will receive income-indexed premium and out-of-pocket cost-sharing subsidies. The highest subsidies will be offered to the lowest-income workers. That reduces the social-equity advantage of employer-sponsored insurance, by enabling these workers to obtain coverage they could not afford on today’s individual market. It also significantly increases the availability of substitutes for employer coverage. As a result, whether to offer ESI after 2014 becomes mostly a business decision.

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