However, based on what I’ve learned in my not-entirely-random walk through the health insurance market, McKinsey’s findings accurately reflect current employer thinking. The ACA’s incentives to move toward a consumer market and away from employer-provided health insurance could prove to be far stronger than its drafters intended. I was surprised that only 37 percent of employers under fifty employees “probably or definitely” intended to drop coverage, since there are no penalties for doing so and the subsidies for their workers to get Exchange-based coverage are so compelling. If anything, McKinsey’s survey understates the likely employer abandonment of the small group market.
According to Urban Institute’s Eugene Steuerle, a family of four with cash income of $30,000 a year is almost $14,000 to the good by going through the Exchange and picking up the premium subsidies rather than getting coverage from their employer. Even at $42,000 in family income, the Exchange advantage is close to $7000 a year. On this point, my employee benefit friends are virtually unanimous: except for high wage employers like law firms or consultants, it doesn’t make sense, for small employers or their workers, for small employers to continue offering coverage given these incentives.
How large employers will respond is a conundrum. The angry reaction to the McKinsey study was clearly intended to tamp down a stampede for the exits (as well as to deter further studies which reached a similar conclusion). There is no consensus among the employee benefits community about what large employers should do. Some analysts rightly point to corporate inertia, the “malign paternalism” of corporate human resources managers, and collective bargaining agreements as supporting continued provision of employer sponsored health benefits. There is also the “what is my competitor doing?” factor. McKinsey’s study findings probably significantly overstate, (in the mid 20 percent range) the number of large employers that will ultimately drop coverage. Far more likely is a shift to some type of defined contribution model.
From Health Affairs blog
