Will Employers Drop Coverage as 2014 Approaches?
Truven Health Analytics is the former health care unit of Thomson Reuters. The group has created a research paper looking at the potential outcomes from the reform act’s pay or play provisions. (Truven Study) Basically employers of 50 or more employees must provide health insurance or pay a penalty. They can also pay a penalty if they provide insurance but employees choose to go to the exchange. The penalty is far lower than the typical cost to an employer for health insurance coverage, raising concerns that some employers could decide it makes more economic sense to pay the penalty. To further complicate employers’ decision-making, in 2018 they may pay a tax if they provide health care coverage with too high a value. The researchers used a database on employment-based health care coverage to create a model of the overall financial consequences for employers as they approach the issue of providing health insurance for employees.
Four scenarios were examined: drop coverage but pay employees the full cost to get exchange coverage; drop coverage and subsidize exchange coverage up to the current amount the employer pays for health care coverage; drop coverage and reduce subsidies so that the employer is paying 20% less than now for coverage; and eliminate coverage and provide no subsidy. The researchers say that they found no immediate or long-term financial benefit to an employer from dropping coverage and it would cost employers more to make employees whole for exchange coverage than to continue with the current plan. The researchers, however, assume exchange coverage will cost more than current group coverage and they assume there is a drop in productivity from not having group coverage. Both these are dubious assumptions, particularly the latter, since the source of health care insurance doesn’t logically have an impact on productivity, although a complete absence of it might. Exchange coverage chosen by employees is likely to have less rich benefits than typical group coverage and probably will actually cost less. Finally, it is possible that many employers can structure a defined contribution type plan that avoids the penalty, potentially utilizes exchanges and results in lower costs.