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A third of employers may drop health plans in 2014, study says

By Alex Wayne

Bloomberg

Published: Tuesday, June 7 2011 8:04 p.m. MDT

Almost one-third of U.S. employers are likely to stop providing health coverage for workers in 2014, when U.S. subsidies become available for people to buy individual policies, according to a study by McKinsey & Co.

At least 30 percent of employers would "gain economically" from dropping coverage, even after paying penalties mandated by the U.S. health care law and increasing cash compensation or other benefits for their workers, the consulting firm said. The law requires employer plans to meet new minimum benefit requirements and "will increase medical costs for many companies," said the report from the New York-based consulting company.

The report predicts that far more companies will drop insurance coverage than congressional Democrats and President Barack Obama expected when they passed the overhaul last year. The Congressional Budget Office estimated the law would force no more than 7 percent of workers with employer-sponsored insurance to buy new policies on their own.

Because the new law requires insurers to cover anyone regardless of their health, "it minimizes the moral obligation employers may feel to cover the sickest employees," the McKinsey consultants wrote.

Jessica Santillo, a spokeswoman for the U.S. Department of Health and Human Services, the agency that is managing the law's implementation, didn't respond to an email seeking comment.

A higher proportion of employers said they would drop coverage than in previous surveys by other organizations because the McKinsey consultants explained the law's "implications for their companies and employees" before asking for a response, according to the report.

Half the firms surveyed said they would probably or definitely "pursue alternatives" to employer-sponsored insurance after the law is fully enacted. Among the options are offering insurance only to higher-income workers who aren't eligible for government subsidies.

About 1,300 employers of different sizes and industries were surveyed according to the report published in the online journal McKinsey Quarterly.

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