Employees Will Pay More For Health Care If Employers Drop Coverage

Sarah Kliff has this very interesting piece arguing that employers who dump coverage as a result of the Affordable Care Act may increase health care costs for their employees, many of whom would have to pay more for insurance in the new exchanges:

For the employer, dropping coverage is a pretty decent deal: A company would see its health care costs reduced by over 40 percent. They don’t drop to zero, however, since the employer would still be on the hook for the fines that come along with not offering coverage.

But for the employee, it’s a pretty lousy deal. Lockton ran the numbers, using data on how much employers pay for health insurance now and how much health insurance on the exchanges is projected to cost.They found that employers foot a significantly larger chunk of the insurance bill than the federal government would, even with the new subsidies they’d receive. The firm predicts their premiums would increase anywhere from 79 to 125 percent if they lose employer coverage and have to go to the exchange. There’s such a big variation because exchange subsidies vary by income: Those who earn less are eligible for a larger subsidy.

Look at the blue section:

So what does this tell us about how employers will react and whether they’ll be more or less likely to drop health insurance coverage? Well, I’d argue that employers are far less likely to do something that leaves their employees — particularly their most valuable better-paid employees — worse off, particularly since the talent can walk across the street to a competitor’s firm. In fact, even if employers were to offset some of the increases with higher wages, the employees would have to pay taxes on those amounts and would still experience a net loss.