Why Large Employers Won’t Stop Offering Health Insurance Coverage

The Benfield Group is pushing back against the highly problematic McKinsey study about employers dropping coverage as a result of the Affordable Care Acrt and has released this four page perspective showing that large employers — those with 5000 or more employees — “will continue to offer comprehensive health insurance coverage to their employees”:

Under the right circumstances — and some might say extreme circumstances — Benfield’s research suggests that some jumbo employers could drop ESI. However, when we asked about what would cause employers to exit employer sponsored healthcare, the responses we received focused more on the need to compete for talent than to manage costs. In fact, nearly three-quarters of employers we surveyed indicated that “competing for talent” was the main factor they would consider in a decision to continue providing health and pharmacy benefits to employees. Conversely, when asked the likelihood of discontinuing benefits to their employees, 21% said they were highly likely and 49% somewhat likely to drop coverage if their industry competitors stopped offering health benefits. Think “arms race,” with health care benefits as weaponry. Economics of the decision came in second to talent retention concerns. […]

McKinsey reports it is advantageous for employers to drop healthcare coverage and pay the penalty vs. bear cost of continuing to provide coverage. Meanwhile, Benfield’s jumbo employer panel indicated that the math behind dropping ESI doesn’t work out to an economic benefit… If you take whatever you’re spending today on behalf of your employees and give that to them saying “go out and buy what you can with that,” then you have to do a couple things (to keep employees whole). One, you’ve got to make up to them the tax basis that they’re now going to have to account for as income. And two, in doing so, you’re going to have to replace the lost income to them in their overall remunerations.

Benfield’s findings are in line with other reports predicting relatively small drops in insurance coverage. After the first 10 years, the Congressional Budget Office estimates that “the number of people obtaining coverage through their employer would be about 3 million lower in 2019 under the legislation.” Actuaries at CMS estimated that just 1.4 million would move out of employer coverage. Some of this is premised on the belief that employers are generally reluctant to give up control over a key employee benefit and recruiting tool, which the Benfield findings reinforce.