REPORT: 30% of companies to drop health coverage because of Obamacare

Firms to cut health plans as reform starts: survey

30% of companies say they’ll stop offering coverage

By Russ Britt, MarketWatch

LOS ANGELES (MarketWatch) — Once provisions of the Affordable Care Act start to kick in during 2014, at least three of every 10 employers will probably stop offering health coverage, a survey released Monday shows.

While only 7% of employees will be forced to switch to subsidized-exchange programs, at least 30% of companies say they will “definitely or probably” stop offering employer-sponsored coverage, according to the study published in McKinsey Quarterly.

The survey of 1,300 employers says those who are keenly aware of the health-reform measure probably are more likely to consider an alternative to employer-sponsored plans, with 50% to 60% in this group expected to make a change. It also found that for some, it makes more sense to switch. 

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“At least 30% of employers would gain economically from dropping coverage, even if they completely compensated employees for the change through other benefit offerings or higher salaries,” the study says.

It goes on to add: “Contrary to what employers assume, more than 85% of employees would remain at their jobs even if their employers stopped offering [employer-sponsored insurance], although about 60% would expect increased compensation.” Read about the costly flaws in the U.S. digital health-data plan.

White House responds

Late Monday, an Obama administration official took issue with the study, saying that it is at odds with findings from the Congressional Budget Office, think-tank Rand Corp. and the Urban Institute. In an email response, the official wrote that when Massachusetts initiated its own reform, the number of individuals with employer-sponsored insurance increased.

Indeed, the Rand study released in April noted: “The percentage of employees offered insurance will not change substantially, but a small number of employees in small firms (defined as those with under 100 employees in 2016) will obtain employer-sponsored insurance through the state insurance exchanges.”

In a Jan. 25 study, the Urban Institute said that reports of the demise of employer-sponsored insurance were “premature” and that few would stop offering.

“Our results show the opposite — the [Affordable Care Act] has little effect on overall [employer-sponsored] coverage, and overall employer spending on health care would be slightly lower under the ACA,” according to its own study.

A number of competitors will emerge in the insurance market once reform provisions start to take effect, according to the McKinsey Quarterly study. These firms will be needed to provide a transition for those moving from employer-sponsored insurance to other coverage options.

Insurers will have to adapt to new realities and look for ways to keep the policy holders they have, the study says, but that shouldn’t be difficult. “Our research shows that more than 70% of employees would stay with their insurer if it offers a seamless transition and appropriate products. Each payer also must understand how changing employer-benefit strategies will shift the risk profile of its membership and set prices appropriately.”