Employer Survey Admits Firms Likely to Drop Coverage
Amidst the pre-election campaigning, the HR Policy Association released a survey last month that has broad implications for American workers – and the federal budget. The report, based on a membership survey and other more informal meetings and conversations with HR officers, includes several damaging findings about the health law’s effects. Fully 96% of HR officers believe the health care law will raise their firm’s costs, with 0% – that is to say, NONE – of the officers saying the bill will not raise costs. (The other 4% weren’t yet sure about the law’s impact on employer costs.) More than two in five (44%) said costs would rise by at least 6% as a result of the law, with nearly one in five (18%) projecting a double-digit increase in company costs.
The other main conclusion in the report is HR officers’ general belief that employers will drop coverage shortly after the health care law fully takes effect in 2014. Almost one in five (19%) members said their firms were not likely to offer coverage in 2020, with another 47% unsure about their company’s continued involvement in health insurance.
I’ve clipped verbatim excerpts from pages 3, 6, and 8-9 of the report below, which clearly make the case that most employers will drop their existing coverage offerings and instead rely on their employees to obtain federally-funded insurance subsidies through Exchanges – creating an explosive new commitment on the federal fisc at a time of trillion-dollar deficits.
On the whole, large employers believe PPACA broadens access while failing to make any meaningful changes in the way health care is delivered by the health care supply chain, and then places the primary burden for paying for this broadened access on employers and employees. At the same time, many employers worry that passage of PPACA represents the first major step down a path that, within ten years, will result in health care no longer being provided through the employment relationship as it is today. They see the incentives in the law pushing employers to drop coverage, coupled with PPACA’s financing mechanisms, resulting in the system created by the law eventually collapsing, an event which will force Congress to draft the next version of health care reform.Our members believe PPACA will, with each passing year encourage more employers to drop employer provided care and prompt their employees to seek coverage through exchanges. Employers may continue providing employment-based coverage in the near term, but once a few large employers begin dropping coverage, other employers are likely to follow their example as health care costs accelerate because of cost-shifting. While there are a variety of opinions within the large employer community as to whether it would be good or bad for employers to drop coverage and for employees to receive insurance through health insurance exchanges, there is general agreement that the trend will be away from employer-sponsored coverage over the next ten years….One of the talking points heard continually during the debate over the legislation was that for those Americans who currently had health care through the employment based system, nothing would really change. Employees would be able to keep their same plan and keep their same doctor, and the cost of utilizing both would decrease. The reality of the new law is that it will force employers to change their health plans, it will increase the cost of employer-based care beyond the costs they had already anticipated, and it will result in some employees receiving coverage through other means and thereby having to select new doctors and health care providers. And ultimately, millions of employees are likely to move from employment-based to exchange-based health care in the coming five years….From discussions with the membership, a major consideration is whether, and how long, their companies should continue providing employment-based coverage. It is our impression that some companies are in the early stages of evaluating whether it is in the best interest of their competitive position and their employees to discontinue offering employer-based coverage and allow their employees to obtain coverage through the exchanges in the future. This is not to say that they have made a final decision to make the shift; rather, that they are currently exploring the pros and cons of their future options in light of PPACA. These evaluations must take into account a variety of factors, including the impact on a company’s ability to recruit and retain employees, the effectiveness of exchanges and ability of their employees to obtain access to care through them, the ability of employees to obtain subsidies through exchanges, and tax consequences for employees who would lose their income tax exclusion for employer-provided health insurance.Employers with richer plans are looking at 2018 when the excise tax takes effect, and our impression is that 2018 may become a seminal date for employer-provided care. Our discussions indicate that by that date, far more private sector employees will be enrolled in exchanges than those receiving their health care through their employer compared to today. It is not only the tax issues that will move employers towards exchanges. As health care becomes more of a commodity in the employer-employee relationship and less of a tool that employers can use to attract and maintain quality employees, employers will be more inclined to shift to exchange-based coverage. However, their future actions will depend on whether the exchanges available to their employees are operating effectively and providing timely access to appropriate care and quality providers.Companies struggling for survival are likely to be among the first to drop coverage and have their workers obtain coverage through exchanges. So too are those that use large numbers of younger workers, such as retailers and restaurants, because younger workers see relatively little value in health care coverage compared to older employees. As the exchanges become fully operational, it is likely that some employees may prefer obtaining coverage through the exchange which will be fully portable and able to be maintained as they change jobs throughout their careers. Given the tax premium credits and cost-sharing subsidies for lower wage workers under PPACA, the fact is that some employees may be able to get more affordable care through the exchanges, and these employees will be motivated to seek coverage through exchanges. This is why some employers with large numbers of lower paid, less skilled workers are giving serious consideration to how the establishment of exchanges will figure into their future health benefits strategy.As more and more employees shift to exchanges, a tipping point is likely to be reached that will result in an avalanche of employers seeking to have their employees covered in the exchanges. Employers realize that a large scale shift to exchanges will create significant problems for policymakers, because PPACA and its financing scheme do not contemplate a massive shift away from the employment based system of care.