CHAMPAIGN, Ill. – It’s still an open question if companies will drop employee health care benefits in 2014 in favor of the government-sponsored insurance exchanges created by President Obama’s health care overhaul, says a University of Illinois elder law expert.
Despite recent headline-grabbing surveys that say a significant number of employers will at least consider dropping employee health benefits, no one really knows what’s going to happen because of the uncertainties surrounding the Affordable Care Act, the economy and electoral politics, says law professor Richard L. Kaplan, an expert on retirement issues.
“The surveys themselves make a lot of assumptions – that the Supreme Court won’t throw out the individual mandate, or even the entire statute, and that there won’t be a new president in 2013 who tries to repeal the law itself,” said Kaplan, the Peer and Sarah Pedersen Professor of Law. “It’s hard to state with any real confidence that a given percentage of employers will drop coverage. It’s going to depend on a host of factors, including industry practice, location and the unemployment rate. We also don’t know what these insurance exchanges will look like. In other words, this is a massive new experiment, and no one knows how this is going to play out.”
Kaplan says it could only take a few major employers to drop employee health coverage to create a tipping point for dropping employee health insurance.
“A lot of employers will take a close look at it, not wanting to go first,” he said. “But they may ultimately conclude that it’s a good way of getting older workers off the company’s insurance without having to feel guilty, because these older workers will be able to join a government-sponsored insurance exchange.”
According to Kaplan, the idea of insurance exchanges has “changed the calculus for employers” because anyone will be able to get health insurance, regardless of pre-existing conditions, beginning in 2014.
“Businesses will be able to exit the health insurance business, which is something most employers did not want to be in in the first place,” he said.
Consequently, Kaplan says, businesses ought to be able to raise salaries, since one of the primary reasons wages have stagnated is the year-over-year rise in health insurance costs borne by employers.
“Rising health care costs have been eating into the wage pool for many years now, so an employer paying more for an employee health plan is a raise that employees don’t see,” Kaplan said.
Kaplan notes that such radical changes might not come to fruition, because many employees seem to prefer employer-sponsored health benefits to government-sponsored benefits. But that might allow employers to revise who and what is covered under their health policy, and do it in such a way that creates an incentive to shunt higher-risk employees off on the exchanges.
“Some analysts believe that an employer might reconfigure its insurance plan to make it more appealing to healthier employees, thereby encouraging less healthy workers to migrate to the state-run insurance exchanges,” he said. “The possibility of selective employee dumping is a huge unintended consequence.”
But with the insurance exchanges full of high-risk people, there’s not much risk-spreading and you get “adverse selection,” Kaplan says. Consequently, lawmakers may eventually have to amend the law.
“The new law also puts a big premium on staying under 50 employees, because that is the threshold for the employer coverage mandate,” he said. “And if firms analyze the cost of buying health insurance versus the penalty, the penalty is much cheaper. With penalties of only $2,000 per employee per year, the math might work in favor of dropping insurance.”
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