Health Care Reform: 10% of Companies Say They’ll Drop Coverage in 2014

Although the real impact of health care reform may still be a few years away, companies are starting to jockey for position on exactly what they plan to do.

According to a new survey of employers by management and HR consultant Towers Watson (and analyzed by The Associated Press in this Denver Post story), “Nearly one of every 10 mid-size or big employers expect to stop offering health coverage to workers after insurance exchanges begin operating in 2014 as part of President Barack Obama’s health care overhaul.”

Even more troubling is this: “Towers Watson also found in its July survey that another one in five companies are unsure about what they will do after 2014. Another big benefits consultant, Mercer, found in a June survey of large and smaller employers that 8 percent are either “likely” or “very likely” to end health benefits after the exchanges start.”

Here’s a little more from the Denver Post/AP story:

The surveys, which involved more than 1,200 companies, suggest that some businesses feel they will be better off dropping health-insurance coverage once the exchanges start, even though they could face fines and tax headaches. The percentage of companies that are already saying they expect to do this surprised some experts, and if they follow through, it could start a trend that chips away at employer- sponsored health coverage, a long-standing pillar of the nation’s health system.

“If one employer does it, others likely will follow,” said Paul Fronstin of the Employee Benefit Research Institute.”

Health care costs will rise less in 2012

Although the Mercer study has been around since June, the Towers Watson survey was just released this week. Here are some of the key findings:

  • Employer health care costs will rise at a noticeably lower rate during 2012 compared with 2011 — only by 5.9 percent next year versus 7.6 percent this year;
  • The vast majority of employers (88 percent) say they are planning to take steps to control their costs and avoid the impact of health care reform’s excise tax;
  • A majority of employers (53 percent) are confident that health care reform will be implemented within the anticipated timeline, but a large majority of them (70 percent) are skeptical that government-run health insurance exchanges will provide a viable alternative to employer-sponsored coverage for active employees in 2014 or 2015;
  • Some 56 percent of employers believe they will trigger the excise tax by 2018; and,
  • Despite the costs, more than three-quarters believe that health care benefits will continue to be a key component of their overall employee value proposition beyond 2014; and,
  • By 2013 or 2014, many employers are considering significantly reducing their subsidization of coverage for spouses and dependents (23 percent), and using spousal waivers and surcharges when other coverage is available (19 percent).

Average cost per employee: $11,204

The Towers Watson survey also gave a great “snapshot” of 2012 health care costs:

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  • The annual average cost of medical and pharmacy coverage is $11,204 per employee for active coverage;
  • Some two-thirds of employers (66 percent) will increase employees’ share-of-premium contributions for single-only coverage for 2012, and 73 percent will increase them for employees with dependent coverage:
  • While only 5 percent of employers currently have, or plan to encourage, performance-based payments to providers based on the health status of plan participants by 2012, but an additional 26 percent are considering the implementation of this strategy for 2013 or 2014.

“It is clear from our research that employers remain committed to providing employer-sponsored benefits for the foreseeable future,” said Randall Abbott, senior health care consulting leader at Towers Watson, in a press release about the new study. “2012 will ultimately be a defining year— the year some employers head down a path of bold and decisive actions, while others will wait and see. Whether choosing to pay or play, employers will need a strategic view for the future.”

I’m sure that TLNT contributors Jennifer Benz or Fran Melmed (when she returns from vacation) will have some additional analysis of these surveys in the near future, but the Denver Post report on these studies added this perspective that is worth keeping in mind as you ponder where health care coverage is going in the next few years:

Towers Watson’s Randall Abbott said the survey results should be seen as a snapshot of how companies are thinking now, not as a final decision, because there still are many unresolved variables. Companies may change their thinking once they learn more about how the exchanges will work or whether employees will accept them.”

Yes, I think it’s safe to say that a lot of things will change as organizations weigh their options and test the waters on what they might do with their benefits offerings as health care reform gets closer. The threat to drop health care coverage that is starting to emerge from these surveys may just be a lot of noisy sabering rattling — scary, but not a real concern — but then again, it may become a more viable option if a number of organizations start to get behind it.

Who knows? Health care reform is still a ways off. And all that really says to me is, stay tuned for more to come, because the jockeying on it has only just begun.

John Hollon is Editor-at-Large at ERE Media and was the founding Editor of TLNT.com. A longtime newspaper, magazine, and business journal editor, John has deep roots in the talent management space. He's the former Editor of Workforce Management magazine and workforce.com, served as Editor of RecruitingDaily, and was Vice President for Content at HR technology firm Checkster. An award-winning journalist, John has written extensively about HR, talent management, leadership, and smart business practices, including for the popular Fistful of Talent blog. Contact him at johnhollon@ere.net, connect with him on LinkedIn, or follow him on Twitter @johnhollon.

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1 Comment on “Health Care Reform: 10% of Companies Say They’ll Drop Coverage in 2014

  1. I think that it will be interesting to see what happens after the court cases go through the Supreme Court and if employers will feel the same way. Similarly, the development of the health insurance exchanges are slow and the requirements are overly complex so I think that many of us in the benefits space doubt that they will truly be viable everywhere in 2014. 

    The statistic that I am most surprised at is that only 56% of employers think that they will trigger the excise tax in 2018. I would anticipate that number to be higher but maybe not everyone has taken the time to do all of the cost modeling.

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