Will employers drop health care coverage in 2014?

As America inches closer to the opening of federally-mandated insurance exchanges, executives at big companies are weighing their options

According to President Obama's health care overhaul, a federally-subsidized insurance market will open in 2014 and some companies want no part in it.
(Image credit: REUTERS/Kevin Lamarque)

Employer-sponsored health insurance is a long-standing pillar of the U.S. health system, but its role appears likely to evolve soon. A new survey by Towers Watson, a consulting firm, finds that many mid-sized and large companies plan to stop offering coverage once federal insurance exchanges, a central element in President Obama's health care reform law, open in 2014. The exchanges are designed to provide a marketplace where people will be able to buy government-subsidized insurance. Here's what you need to know:

How many companies plan to stop offering health benefits?

Nearly 1 in 10 plan to drop coverage once their employees have the insurance exchange option, according to the July survey. And that number could rise, as another 20 percent say they still aren't sure what they'll do. Another big benefits consultant, Mercer, got similar feedback in June, when 8 percent of the employers it asked said they were either "likely" or "very likely" to end health benefits once the exchanges are up and running. Together, the surveys covered more than 1,200 companies.

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What does this mean for employees?

That's not entirely clear yet. Most, of course, will see no changes, as the majority of companies say they'll continue offering health benefits. Some speculate that companies will boost workers' salaries to make up for the loss of benefits, which would permit employees to simply buy coverage on their own. But others fear employees will be unable to afford the coverage they once had. The Obama administration says such fears are overblown.

How much money could companies save by dropping coverage?

The average annual premium for employer-sponsored family health coverage was $13,770 per worker last year, and companies paid most of it, according to the Kaiser Family Foundation and Health Research and Educational Trust. Of course, if companies stop offering coverage, they can't just pocket that cash. Under the Affordable Care Act, businesses with more than 50 employees will face penalties of up to $3,000 per worker if they don't offer health benefits.

Is this the beginning of the end for employer-sponsored insurance?

Some experts do predict a dramatic domino effect. "If one employer does it, others likely will follow," said Paul Fronstin, director with the Employee Benefit Research Institute, as quoted by the Associated Press. But threatening to drop coverage and doing so are two different things, says former insurance executive Bob Laszewski. Companies might reconsider when they factor in the fines and tax headaches they'll incur, plus the extra pay they'll have to offer to prevent employees from walking out the door en masse. "Dropping coverage is going to be very difficult for these (companies) to do," says Laszewski.

Sources: Associated Press, Medical News Today, Journal-Sentinel

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