Will Employers Drop Coverage in 2014?

Good review of this issue by CF. Focus though is on large employers not small ones. Major points to ponder include:

• Early adopters' experiences. Whenever a new survey on the subject comes out Fronstin tends to look at the small numbers first. "There's never a zero," he says, meaning that no survey thus far has found that zero percent of employers are considering dropping coverage. That, he says, is significant. "Employers that actually do drop coverage will be watched carefully and they'll talk to other employers. If they save money, don't lose or alienate employees, and otherwise have a seamless transition, others will certainly follow." At least three different surveys conducted since June 2010 have found that if some employers drop coverage, a great many more will at least consider following suit.⁵
• Cost. There is no simple or standard way to calculate the cost to employers of dropping coverage and encouraging employees to seek it on their own through the exchanges, but the bottom line will certainly weigh heavily on many employers. At first glance, dropping coverage might seem like a reasonable cost-cutting strategy. After all, the penalty for not providing coverage is only $2,000 per employee and the average cost of providing coverage is almost $10,000. That $8,000 differential is quickly eaten up, however, by the costs associated with increasing the salaries of employees (especially those not eligible for premium subsidies) so they could afford to purchase coverage on their own. The higher salaries alone would tip the balance in favor of maintaining coverage for some employers; on top of that, employers that drop coverage would also face higher Federal Insurance Contributions Act (FICA) taxes, which fund Social Security and Medicare.
• Recruitment and retention. The state of the economy in 2014 will be a major factor in how health benefits might affect recruitment and retention of key employees, says Fronstin. Even at the present 9 percent unemployment rate, there's still tough competition for talented workers, and workers consistently rank health benefits as the most important employer-based benefit.⁶ "No employer will want to be the outlier that doesn't offer good benefits, unless the economy takes a turn for the worse," he says. If the economy slows down and unemployment ticks up significantly, though, all bets are off.
• Concerns about productivity. Also on employers' list of factors to consider is whether moving employees to the exchanges will have an adverse impact on productivity. Large employers have embraced the idea that healthier workers are more productive workers and many will be loathe to cede responsibility for keeping workers healthy to an untested, government-run exchange. "Quality-conscious employers would need to feel comfortable that exchanges have the same focus on wellness that they do before they could really feel comfortable moving employees to the exchanges," said Fronstin.
• Viability of the exchanges. Many key aspects of the exchanges remain unknown at this point. How much will they cost? Will adverse selection make them unstable? Will enrollees be satisfied with the plans? Employers will look at these and other factors to determine their comfort level with a given exchange. But because states are being given a high degree of flexibility in terms of designing and managing their exchanges, employer reaction can be expected to vary considerably from state to state.

http://www.commonwealthfund.org/Newsletters/Purchasing-High-Performance/2011/September-19-2011/Perspectives-on-Policy/Will-Employers-Drop-Health-Coverage-in-2014.aspx