Will companies stop offering health benefits?
Health care reform legislation that passed in 2010 was intended to overhaul and improve private health insurance coverage in the United States. At the very least, it meant more affordable premiums and an end to draconian policies such as denial of coverage for preexisting conditions.
It's too early to tell, but health care reform may also have unintended consequences in the workplace. Employer-sponsored health care, which has been sacrosanct for generations of full-time workers, is now on the chopping block. Some companies are beginning to phase out their health benefits, in part because it will be easier and cheaper for employees and retirees to get insurance on their own as the remaining provisions of the bill phase in by the year 2014.
Short-term impact
As of late 2010, only 6 percent of companies were planning to discontinue health insurance benefits as a direct result of the reform legislation. Companies with 50 or more employees have some incentives under the law, such as tax breaks, to maintain coverage. There are also disincentives for dropping it, including a $2,000 fine per full-time employee.
A survey conducted by Mercer found that the largest employers are least likely to get rid of their coverage.
"Employers are reluctant to lose control over a key employee benefit," says Mercer partner Tracy Watts. "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."
Long-term repercussions
By 2019, 3 million people may be without employer-provided coverage, according to the Congressional Budget Office (CBO) and Joint Committee on Taxation.
"This would be the net result of a series of big changes," states a Health Policy Brief put out by the Robert Wood Johnson Foundation. Among other things, the report says that companies most likely to drop insurance benefits are "smaller companies employing lower-wage workers who would be eligible for exchange subsidies."
Other pundits believe that the $2,000-per-worker fine is a small price to pay for dropping coverage, and because of that, health insurance benefits will go the way of the dinosaur. In an opinion piece for the Wall Street Journal, Tennessee Governor Philip Bredesen writes: "The small business tax credits included in health reform are limited and short-term, and the eventual penalty for not providing coverage, of $2,000 per employee, is still far less than the cost of insurance it replaces."
A 'huge' roll of the dice
For now, most employers appear to be taking a wait-and-see attitude. A drastically different political landscape in 2012 could mean a repeal of the legislation. Even if that doesn't happen, many of the law's provisions don't go into effect until 2014. At that time, for example, employees will be able to purchase coverage on the exchanges and opt out of employer-sponsored insurance.
The Deloitte Center for Health Solutions is hearing from its clients that, although they don't want to be the first to drop insurance coverage, they wouldn't hesitate to follow the trend if others started doing it.
"My conclusion on all of this is that it is a huge roll of the dice," said James Klein, president of the American Benefits Council, which represents big company benefits administrators. "[The new legislation] could work out well and build on the employer-based system, or it could begin to dismantle the employer-based system."
