A survey of more than 2,800 employers indicates most are unlikely to drop their employer-sponsored health plans under new insurance requirements that take affect in 2014.
Opponents of the Patient Protection and Affordable Care Act have argued that many employers would drop insurance coverage for employees and pay the mandated penalty instead of preserving the benefit. But in a survey conducted by management consulting firm Mercer, when asked how likely they were to drop coverage in 2014 when the new law takes affect and state insurance exchanges will be available, most said "not likely."
"Employers are reluctant to lose control over a key employee benefit," said Tracy Watts, a partner in Mercer's Washington office. "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."
Survey responses varied by employer size, with large employers remaining committed to their role of health plan sponsor. Only 6 percent of all employers with 500 or more employees – and just 3 percent of those with 10,000 or more – say they are likely to terminate their health plans and have employees seek coverage in the individual market after 2014.
For smaller employers, the prospect of dropping insurance coverage is more attractive, the survey found. One-fifth of employers with 10 to 499 employees indicated they are likely to stop offering health insurance benefits. This is especially true in industries where the bulk of employees earn lower wages or those that have high turnover rates, like retailers.
"You can see why the idea of dropping employee health plans would be attractive to small employers," said Beth Umland, who directed the study for Mercer. "On the other hand, when you look at the experience in Massachusetts, where insurance exchanges have been operating under state-based health reform for over three years, it hasn't happened."
Health plan cost increases, including coverage of dependents up the age of 26, will vary from company to company based on plan design and demographics, but will be a major factor in whether an employer terminates their health plan. According to Mercer's survey, 17 percent of employers say the PPACA requirements taking effect in 2011 will have no effect on costs in 2011. A nearly equal number – 16 percent – say they anticipate cost increases of 5 percent or more.
"The PPACA rules that set standards for plan design will typically have less of an impact on employers that already offer generous plans," said Umland. "However, rules that will increase the number of plan members – like expanding eligibility to adult children – could hit employers with generous plans the hardest, since they will now be extending high-cost coverage to more individuals."