Will Employers Continue to Offer Health Care Benefits After 2014?

Friday, August, 24 2012

Beginning in 2014, employers will either “Pay or Play” in the area of employer sponsored health care benefits for employees. Under the 2010 Patient Protection and Affordable Care Act (PPACA), employers with 50 or more employees must provide health care benefits or pay a penalty. The penalty for not providing health care, i.e., the “free rider” penalty is $2,000 per full time employee after the first 30 employees. However, if the employer elects to offer health care benefits and just one of their employees acquire federally subsidized health care benefits; the employer is still subject to a potential penalty of $2,000. Based on a Towers Watson 2011 survey, total employer and employee health care cost for employee only coverage of $8,425 is expected to increase to over $10,000 by 2014. So the question posed is, will employers Pay or Play?

That is the question that Christopher Justice of Truven Health Analytics, formerly Thomson Reuters, attempted to answer in a July 2012 white paper titled ”Modeling The Impact Of “Pay Or Play” Strategies On Employer Health Costs”.

With data from 33 large employers totaling some 933,000 employees Truven modeled four scenarios for the 2014-2020 time frames:

1. Eliminate Group Health, Make Employees “Whole”

2. Eliminate Group Health, Cost-Neutral Impact for Employers

3. Eliminate Group Health, Provide Subsidy to Achieve 20 Percent Savings

4. Eliminate Group Health, No Employee Subsidy to Purchase Exchange Healthcare

To summarize Truven’s findings:

1. No immediate or long-term cost advantage for employers to eliminate group health benefits.

2. Employers will spend more to “make employees whole” shifting to an Exchange rather than to maintain existing group health plans.

3. Employers, who choose to eliminate group health, will have a significant impact on total employee compensation.

In closing, Truven concluded”

“Not only is eliminating group health coverage not cost efficient, it may potentially have a large impact on an employer’s competitive market position for retaining and recruiting talent.”

While Truven’s research looked at large employers, averaging 30,000 employees, small and mid-size employers may be at greater risk of talent management issues than their larger brethren. With fewer resources to make up for the lack of health care in a post-2014 world, small and mid-sized organizations often cannot afford to lose their top designer, engineer, sales staff, technician or money maker. That means spending much more on cash compensation to overcome the attraction of a larger competitor’s health care plan, paid time off, 401(k), and numerous advancement opportunities.

Ultimately, it is a business management decision to eliminate or keep employee health care or any other employee benefit program. Although it may appear to be a clear-cut decision, that decision could have a long reaching impact on the continuing viability of an organization.