The June 2011 release of a report by McKinsey created a firestorm over the impact that PPACA may have on whether employers offer coverage in the future. McKinsey reported that “30 percent of employers will definitely or probably stop offering ESI [employer-sponsored insurance] in the years after 2014.”
Republicans responded by calling into question initial projections that very few people would lose employment-based coverage. Karl Rove, for example, reflects the sentiments of Republicans when he recently wrote in the Wall Street Journal (subscription required): “We are now, to our horror, finding out how harmful this measure is.” The administration referred to the report as an “outlier” and described it as “raising more questions than answers.” Congressional Democrats pressured McKinsey into releasing more information on the methodology, which it eventually did.
What Did McKinsey Really Find?
While the original headline referred to the 30 percent estimate, much more detailed results were eventually released:
As seen in the table above, McKinsey found that only 9.2 percent of employers reported that they definitely would eliminate coverage. Among employers with 500 or more workers, only 5.1 percent reported that they would definitely drop coverage.
An important question is how to interpret the 20.5 percent of employers who report that they probably would drop coverage. If focusing only on the percentage of employers reporting that they definitely would drop coverage, the McKinsey estimates are more in line with other surveys. For instance:
• April 2010, Workforce Management Magazine found
that 5.2 percent of employers somewhat disagreed and 3.5 percent
strongly disagreed with the following statement: “We Will Continue to
Offer Our Own Health Care Coverage Because It’s a Crucial Part of Our
Recruiting and Retention Efforts.”
• May 2010, IFEBP
found that 2.4 percent disagreed and 1 percent strongly disagreed with
the following statement: “My Organization Will Continue to Offer Health
Care Benefits Because They Are Critical to Employee Recruitment and
Retention.”
• May 2010, Towers Watson found that 3 percent of organizations will likely “pay” [to stop offering health benefits] and not “play.”
• June 2010, Fidelity found that 20 percent of employers were seriously considering eliminating health care.
• September 2010, HR Policy Association found
that 19 percent of companies surveyed were not likely to be providing
health coverage in 2020. Perhaps more honestly, 47 percent reported that
were not sure.
• March 2011, HR Policy Association found
that 6 percent of employers were giving serious consideration to
discontinuing providing health care benefits over the next 10 years.
• May 2011, IFEBP found
that 2.7 percent of employers are considering terminating health care
programs for active employees as a result of reform. Another 0.7 percent
plan to “pay” and not “play.”
• June 2011, Lockton found
that 18.8 percent of employers will consider terminating group health
plan and pay penalties when the “pay-or-play” mandate takes effect in
2014.
• April–May 2011, the NFIB
found that 26 percent of small employers currently offering health
benefits are very likely to explore dropping their health insurance
plans and another 31 percent are somewhat likely to do so if workers
dropped employment-based coverage for insurance in the exchange. The
survey also found that a key factor in a small employer’s decision to
drop a current health insurance plan will be the proportion of employees
who leave their health plan for an exchange. Forty-three percent report
that a majority of employees would have to leave before they would drop
their plan and 35 percent claim it would require all of them.
• June 2011, Mercer
found that 2 percent of employers were very likely to terminate
coverage and 6 percent were somewhat likely to terminate coverage after
health insurance exchanges are operational.
It’s the Dynamics, Stupid
What is more important—the percentage of employers no longer offering
health coverage in 2014, 2020, or 2025? A recent report from Avalere
assessed the validity of differing estimates of the effect of PPACA on
employment-based coverage. Its analysis concluded that the
employment-based market will be fairly stable after 2014, when key PPACA
coverage provisions go into effect. However, the most important
statement in the report may be the following:
“While near-term changes in aggregate ESI rates are unlikely, longer-term erosion—over 10 to 20 years—is possible under certain circumstances. … if a few [emphasis added] large employers drop coverage after 2014, others could follow in a “me too” effect. Both of these scenarios are difficult to model, but should be considered.”
As noted above, the fact is a number of surveys have found a small number of employers plan on dropping coverage in 2014 or thereafter.
The most important take-away may be the fact that none of the surveys found the percentage of employers that are likely, considering, not likely, agreeing, or disagreeing with the various questions to be zero. Whether it be the small number that plan on paying instead of playing, the small number giving serious consideration to dropping coverage, or the small number that disagree that they will continue to provide coverage, trends in employment-based coverage start with small numbers. The movement away from defined benefit pension plans to defined contribution (401(k)-type) retirement plans did not happen overnight. Neither did the movement to managed care or consumer-driven health benefits.
These are all examples of changes to benefits that may not be indicative of what might happen as a result of PPACA; but the movement away from providing retiree health benefits (an elimination of a benefit) also did not happen overnight. These changes took years, some would say decades, to play out and there is no reason to believe that 2014 will look much different from 2013 or 2011 in terms of whether or not employers offer health coverage. But, as Avalere concluded, it only takes a few employers to trigger a change, and the sentiment in the surveys certainly supports that:
• June 2010, Fidelity
found that 26 percent of small employers and 36 percent of large
employers would seriously consider eliminating health care if other
employers did.
• September 2010, HR Policy Association found
that 80 percent reported that other companies moving away from health
coverage would influence their decision to offer coverage.
• June 2011, the Benfield Group
found that 21 percent were highly likely and 49 percent somewhat likely
to drop coverage if their industry competitors stopped offering health
benefits.
Are Surveys of Employer Opinions on Future Behavior Valid?
It is very difficult to address employer behavior through a survey.
Past surveys of employers have not accurately predicted behavior. For
example, in March 2004, a web-based survey
of 991 mostly large employers found that 19 percent were very likely
and 54 percent were somewhat likely to offer a health savings account
(HSAs) by 2006. In reality, only 11 percent of large employers offered
either an HSA or a health reimbursement arrangement (HRA) by 2006, with
37 percent of jumbo employers offering them and 6 percent of employers
with 500-999 workers offering them, according to Mercer. By 2010, only
23 percent of large employers offered either type of plan, still far
below the survey findings from 2004.
There are many issues that employers will consider when weighing the pros and cons of dropping coverage. Some are as follows:
• Is there a concern about recruitment and retention?
• Is there a concern about the impact on worker health and productivity?
• Will the health plans offered in the exchange be an acceptable substitute for employment-based plans?
• Will dropping coverage really save money?
• What are other employers doing?
There is no reason to believe that any survey conducted today can be used to determine the percentage of employers that might be dropping coverage three or more years from now as a result of a major component of health reform—insurance exchanges combined with insurance market reforms—that is still years away from being up and running.