June 8th, 2011
Econintersect: The June McKinsey Quarterly report contains an analysis by Shubham Singhal, Jeris Stueland, and Drew Ungerman that describes survey results about the future of employer provided health care insurance. The report indicates that more than 30% of businesses will drop health care plans by 2014 when insurance exchanges are due to be fully implemented under the 2010 Affordable Care Law. The details in the report indicate that the changes may be beneficial for many employers and employees. A total of 1300 companies were covered in the survey reported. Follow up:
Follow up:Statements from the report about ESI (employer sponsored insurance) include:
- Overall, 30 percent of employers will definitely or probably stop offering ESI in the years after 2014.
- Among employers with a high awareness of reform, this proportion increases to more than 50 percent, and upward of 60 percent will pursue some alternative to traditional ESI.
- At least 30 percent of employers would gain economically from dropping coverage even if they completely compensated employees for the change through other benefit offerings or higher salaries.
- Contrary to what many employers assume, more than 85 percent of employees would remain at their jobs even if their employer stopped offering ESI, although about 60 percent would expect increased compensation.
- Reform preserves the corporate tax advantages associated with offering health benefits—except for high-premium “Cadillac” insurance plans.
- As we have seen, a Congressional Budget Office report estimated that only 9 million to 10 million people, or about 7 percent of employees, currently covered by ESI would have to switch to subsidized exchange policies in 2014. Most surveys of employers likewise show relatively low interest in shifting employees from traditional ESI.
- Our survey found, however, that 45 to 50 percent of employers say they will definitely or probably pursue alternatives to ESI in the years after 2014.
- The propensity of employers to make big changes to ESI increases with awareness largely because shifting away will be economically rational not only for many of them but also for their lower-income employees.
- To make up for lost medical insurance, most employers that drop ESI will increase employee compensation in other ways, such as salary and other benefits like vacation time, retirement, or health-management programs.
- Higher-income employees, who won’t receive subsidies and would have to pay the entire cost of individual coverage out of pocket, will have a greater need to be made whole. These higher-income employees, however, are also more likely to be satisfied with partial compensation or with tax-advantaged forms of compensation, such as retirement benefits.
- The need to make employees whole will decrease over time. Subsidies will be awarded to keep premiums below a fixed percentage of an individual’s household income.
- As long as income continues to rise at a rate lower than that of medical inflation, even employees who initially have to pay more out of pocket toward an exchange policy than they would toward ESI will have less of a difference to make up each year, and the employer will have to provide less to make employees whole.
- Because lower-income employees will be eligible for exchange subsidies if their employers don’t offer them affordable health coverage, we expect that ESI will shift toward higher-income employees.
- Even for an employer that drops ESI for all or some employees, maintaining their health, productivity, and satisfaction will continue to be important. Employers could not only expand or refine wellness programs to focus on elements that have a substantive, positive, and documentable impact on employee health and satisfaction but also provide the right incentives to encourage participation.
- In addition, employers could establish clinics at work sites, or partnerships with local providers or pharmacies so that employees can easily and affordably receive preventative care, such as flu shots or annual physicals.
- Another way to keep employees satisfied and avoid disrupting their lives would be to partner with a broker or another enterprise that helps them understand their benefit options and enroll for coverage on insurance exchanges.
Editor's note: The statements quoted above are mostly not contiguously written in the McKinsey report.
Source: McKinsey Quarterly