In the health reform debate, there’s a lot of crystal-ball gazing about what employers will do when, in 2014, tens of millions of Americans become eligible for publicly-subsidized health insurance. Will they continue paying for workers’ health plans, as they’ve done for decades? Or, will they save a lot of cash, and let the government fill that role?
Financially, there’s a lot at stake. If workers use public subsidies at a higher rate than expected, the cost of Obamacare could skyrocket. So the looming question is: What will these large companies do?
To understand that — and game out whether large companies will, in fact, dump their employees in droves — it’s worth understanding why employers offer insurance now, and how that might change under the Affordable Care Act.
Companies currently offer health benefits to stay competitive. A robust health plan can woo potential employees — especially the 122 million Americans with preexisting conditions who insurers can deny on the individual market. There’s also a huge financial incentive: Employers get to pay for health insurance with pre-tax dollars, making a dollar of health-care benefits work more than a dollar of wages. There’s also a wellness component: If workers are healthier, the thinking goes, they’ll be more productive with fewer sick days.
There is one big reason, however, not to offer insurance: The cost. The average employer-based insurance plan costs more than $15,000 a year, and has increased more than 112 percent over the past decade.
Rising health-care costs generally underlie predictions of employer dumping: Why bother paying $15,000 for an insurance policy when the penalty for not doing so is a paltry $2,000? Moreover, the insurance market in 2014 will look a lot different than what we have right now: The government will subsidize insurance for anyone earning less than 400 percent of the Federal Poverty Line. Insurers will have to accept all customers. The individual market, in short, will become a much more hospitable place.
But the best experience we have suggests that employers won’t drop coverage. That comes from Massachusetts’ experience under Romneycare, which, like the federal law, provided subsidized insurance for low-income Americans. There, employers have continued to offer coverage at the same level they did prior to the reform law.
What gives? To start, all those benefits of offering insurance — the competitive, financial and wellness aspects — don’t disappear in 2014. Companies can still get more bang for their buck offering compensation as health insurance rather than wages.
The insurance packages that employers offer now are more comprehensive than what’s expected on the exchange. The government subsidies, meanwhile, are less generous: An employee who gets dumped into the exchange can expect to pay 79 to 125 percent more in premiums, according to an analysis by consulting firm Lockton That means employers will still have a competitive advantage from offering insurance rather than sending workers to publicly subsidized coverage.
Right now, employers do not face any penalty for not offering coverage: There’s no $2,000 fine from the government, as there will be in 2014. But the vast majority of them still do, even as costs keep rising, mostly because of other benefits they reap.
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