One-third of employers may drop health plans

Almost one-third of U.S. employers are likely to stop providing health coverage for workers in 2014, when U.S. subsidies become available for people to buy individual policies, according to a study by McKinsey & Co.
At least 30% of employers would “gain economically” from dropping coverage, even after paying penalties mandated by the U.S. health-care law and increasing cash compensation or other benefits for their workers, the consulting firm said. The law requires employer plans to meet new minimum benefit requirements and “will increase medical costs for many companies,” said the report from the New York- based consulting company.
The report predicts that far more companies will drop insurance coverage than congressional Democrats and President Barack Obama expected when they passed the overhaul last year. The Congressional Budget Office estimated the law would force no more than 7% of workers with employer-sponsored insurance to buy new policies on their own.
Because the new law requires insurers to cover anyone regardless of their health, “it minimizes the moral obligation employers may feel to cover the sickest employees,” the McKinsey consultants wrote.
Jessica Santillo, a spokeswoman for the U.S. Department of Health and Human Services, the agency that is managing the law’s implementation, didn’t respond to an e-mail seeking comment.

Rising Costs

The law won’t arrest the growth of health costs and imposes “new coverage mandates and taxes” on employers, said Robert Zirkelbach, a spokesman for America’s Health Insurance Plans, the insurers’ Washington-based trade association.
The requirements will “make it difficult for them to continue offering health-care coverage to their employees,” he said.
A higher proportion of employers said they would drop coverage than in previous surveys by other organizations because the McKinsey consultants explained the law’s “implications for their companies and employees” before asking for a response, according to the report.
Half the firms surveyed said they would probably or definitely “pursue alternatives” to employer-sponsored insurance after the law is fully enacted. Among the options are offering insurance only to higher-income workers who aren’t eligible for government subsidies.
About 1,300 employers of different sizes and industries were surveyed according to the report published in the online journal McKinsey Quarterly.
–Bloomberg News–