One of the most controversial aspects of PPACA was its effect, intended or not, on employer-based health care coverage, which still is the source for most Americans’ insurance. Proponents claimed that the law would actually enhance such coverage, through exchanges, subsidies and other changes. A new McKinsey report suggests otherwise. (McKinsey Report) McKinsey surveyed 1300 employers in early 2011, discussing various aspects of reform’s effect on employer-sponsored coverage. The law requires employers with 50 or more employers to offer health insurance coverage which meets certain criteria or pay a relatively modest penalty. At the same time, it provides significant subsidies for individuals under certain household income limits to buy health care coverage on newly created state insurance exchanges.
While McKinsey recognizes that there are non-economic reasons for employers to offer health care coverage, it believes the economic rationale for dropping or radically changing health benefits for both employers and employees will in many cases overwhelm the non-economic ones and that employers can still keep key employees happy. The survey found that 30% of employers said they would definitely or probably stop offering employer-based coverage after 2014, including 28% of large employers. McKinsey suggests, however, that many employers could maximize their economics without completely dropping coverage. Employers’ likelihood of dropping coverage increased with their awareness of the details of the reform law.
McKinsey also found that about 30% of employers would benefit economically from dropping coverage even if they made employees completely whole. The firm suggests that many employers could switch to defined contribution type plans where they just give employees a set amount of money to pay for coverage. The survey also found that while employees would expect to receive extra compensation of other types if their employer dropped health coverage, most would not leave the company just because it had no health plan. McKinsey’s findings are at odds with other research, which it attributes in part to the fact that it ensured that the employers understood their options. It does appear that there are many companies which might reduce or eliminate coverage if they thought other companies would also do so. If enough start dropping out, it might start a stampede. This may or may not be an unintended consequence of the law, as many of its proponents are no fans of the employer-based system or private health plans.