Few Employers to Drop Health Coverage Due to HCR

November 9, 2010 (PLANSPONSOR.com) – Just 6% of all employers with 500 or more employees and 3% of those with 10,000 or more say they are likely to terminate their health plans in the wake of health care reform and have employees seek coverage in the individual market after 2014.

A Mercer news release said employers were asked how likely they are to stop providing health care once state-run insurance exchanges become operational in 2014. For the great majority, the answer was “not likely.”

“Employers are reluctant to lose control over a key employee benefit,” said Tracy Watts, a Partner in Mercer’s Washington, D.C., office, in the news release. “But beyond that, once you consider the penalty, the loss of tax savings and grossing up employee income so they can purchase comparable coverage through an exchange, for many employers dropping coverage may not equate to savings.”

A fifth of small employers (10–499 employees) say they are likely to terminate their health plans, especially those with low-paid workers and high turnover, like retailers.

While 17% of employers with 50 or more employees say that the new health care reform requirements generally taking effect for 2011 will have no effect on their cost in 2011, nearly as many (16%) estimate that it will raise cost by 5% or more.

Plan membership will likely rise still higher once all individuals are required to obtain coverage in 2014 and employers are required to auto-enroll new hires, Mercer said. Currently, 19% of all eligible employees, on average, opt out of their health plan.

‘Cadillac Plan’ Excise Tax  

The excise tax on high-cost plans is the health-care reform requirement that concerns the most employers, the survey found. Starting in 2018, health benefit coverage that costs more than $10,200 for an individual employee or $27,500 for dependent coverage will be subject to a 40% excise tax.

When asked about their most likely response to the excise tax, about a fourth of employers with 50 or more employees (23%) say: “We will do whatever is necessary to bring cost below the threshold amounts.” An additional 37% of employers say they will attempt to bring the cost below the threshold amounts, but acknowledged that “it may not be possible.”

Only 3% say they will take no special steps to bring cost below the threshold amounts, and the rest (37%) predict their plans won’t ever hit the cost threshold, which will be tied to CPI and increase each year.

Responses to HCR Mandates 

Despite the unavoidable increase in health benefit cost as newly eligible dependents join their plans, employers are not planning a draconian response to this requirement. About two-fifths of employers with 50 or more employees will require dependents above a specified age to verify that they have no other employer coverage available, as permitted for grandfathered plans until 2014.

Employers were also asked about the new rule that all employees working at least 30 hours per week must be eligible for coverage.  About a third all employers with 50 or more employees (30%) currently do not meet this new standard. The most common response among large employers will be to open up the full-time employee plan to all part-time or hourly employees working 30 or more hours per week (45% say they are likely or very likely to do so). Less than a third of the employers currently not in compliance say they are likely to change their workforce strategy so that fewer part-time employees work 30 hours or more per week.

Under health reform, employers must offer at least one health plan for which the employee’s premium contribution does not exceed 9.5% of the employee’s household income, or else be subject to penalties. Nearly two-fifths of employers with at least 50 employees (but less than a third of employers with 500 or more employees) say that their current health plan coverage would likely be considered unaffordable for at least some employees

The majority of these employers (81%) say they will most likely take steps to ensure coverage is affordable to all (by lowering contributions or adding a low-cost plan, for example). Relatively few – only about one in five – say they are most likely to make no changes and pay the penalty as needed, Mercer reported.

More than 2,800 employers participated in the annual survey.