30 Percent of Employers Plan to Cut Health Insurance after 2014

As we've talked about before, the employer-provided health insurance landscape could become very different once key provisions of the Patient Protection and Affordable Care Act take hold in 2014.

A new survey conducted by management consultants McKinsey & Company adds more insight into that future. The survey found that when employers must decide whether to continue to offer health benefits to their employees in 2014, a significant portion plan to opt out. The firm surveyed more than 1,300 employers of all sizes, industries and locations.

Overall, the survey found 30 percent of employers surveyed would “definitely” or “probably” stop offering employee health insurance after 2014. However, half of the employers with the strongest understanding of health care reform's changes said they will drop coverage and 60 percent said they will look for alternatives to traditional employer-provided health insurance.

McKinsey saw the question of offering employees health insurance shifting from a given to a business decision. Moreover, employees may not be averse to these changes if a company makes the business decision to drop coverage. The survey found more than 85 percent of employees would stay with an employer that stopped offering health insurance. To make up for the lost value of health insurance, 60 percent would expect a pay increase.

There are compelling reasons for employers to at least consider dropping employee health insurance coverage. The survey found at least 30 percent of employers would benefit economically from dropping coverage, even if they made employees completely whole by improving other benefit offerings, such as vacation time, retirement plan contributions or increasing salaries. If employers do not have to make employees whole in order to ensure a smooth transition, McKinsey noted the percentage of companies that would benefit economically would increase significantly.

McKinsey ended with four ways employers can prepare for 2014 and the changes it will bring. Here is a summary:

1. Analyze the situation carefully. That means understanding the subsidies for various employee groups under different scenarios and what costs the employer would incur to make up for the loss of health insurance.
2. Look for value-creating solutions. The insurance question does not need to be either/or. There are a number of scenarios and coverage options that could fit a company's HR and financial goals.
3. Focus on higher-income employees. With lower-paid employees able to rely on subsidized coverage through an exchange if their employers do not offer affordable health insurance, McKinsey predicted employers will focus health insurance offerings on richer plans that meet the needs of higher paid employees.
4. Don't forget wellness. Whether or not companies offer health insurance, they remain tied to the health and productivity of their workforces. Wellness programs will remain important no matter what.