New Report: Employers will save billions by dropping health care benefits…it’s not a good thing!

The House Ways and Means Committee has released a report showing the potential savings large employers could realize by dropping their health benefits, paying a fine and turning employees loose on the individual insurance market. Admittedly this is a highly political document that draws conclusions of a questionable nature in the real world.  However, the very idea that employers will seriously consider dropping employee coverage is scary.  There are big dollars at stake here and no doubt there are some CFOs and CEOs who would very much like to get out from under the unpredictable costs of health care benefits…as many have already done for their retired employees.

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One can make a case that this coverage should not be linked to employment. In addition, workers who receive employer-sponsored coverage clearly have an advantage over those who must purchase coverage on their own.  Neither point makes the case for throwing the baby out with the bath water (a reference to the medieval practice of giving babies the last bath in the same water during the annual family washing).

I spent nearly fifty-years designing and managing health benefit programs for a Fortune 200 company.  I know the value this type of coverage provides to tens of millions of workers and their families.

Employer coverage provides a wide arrange of benefits beyond the financial advantages for workers. Virtually all large employer plans are self-insured; only the use of health care by the workers and their families are considered in setting premiums.  This means that workers can affect the cost of their care. Employers negotiate the best deal for administrative costs.  Most employers hear and resolve disputed claims or oversee the process if outsourced. Employers communicate extensively with employees about their benefits and health care issues.  Employers provide an array of services and programs to assist employees in obtaining care and manage their care and costs.  Employers have an incentive to manage costs beyond any applicable to an insurance company. Many employers will assist their workers in dealing with problems, they handle enrollment, and even assist workers negotiating with high fee, non-participating providers.  Most large employers provide several choices in health plan options.

On his Forbes blog Avik Roy writes:

Free-market reforms, on the other hand, would increase consumer choice, by giving workers control over their own health dollars. Under a free-market system, workers could stay with their employer’s plans, or buy insurance on their own that better suits their needs. For example, young, healthy workers could take dollars out of their company’s expensive plan and steer them towards high-deductible insurance combined with a health savings account.

Note to Mr. Roy, most workers do not want more choice and indeed are afraid of choice, afraid of making the wrong choice. Large employers are already adding HDHPs within their array of choices and this allows the experience for the entire group to be aggregated.  Setting up a system that allows young, healthy workers to leave the employer plan is called adverse selection and would add to the cost of coverage for the remaining workers and the employer eventually creating a death spiral as new young individuals are employed.

In summary, workers are far better off within an employer sponsored plan than they would be on their own deciding which plan and insurer to use and then having only the insurer selected to deal with problems and concerns that arise.

While there is no indication that large employers are seriously considering dropping health benefits en mass, with escalating costs and the growing number of federal mandates and compliance requirements that situation could change in the future. It would not be a good thing, be careful what you wish for.

Washington, DC – Today, in a new report prepared for Ways and Means Committee Chairman Dave Camp (R-MI), data from America’s Fortune 100 companies show they could save hundreds of millions of dollars a year under the new health care law by simply terminating health insurance for their workers and dumping these employees into taxpayer-funded health care exchanges.  

More than 70 percent of America’s Fortune 100 companies detailed their health care costs for the Committee, providing the ability to analyze how those self-reported costs would compare to ending employer-sponsored insurance and paying the employer mandate penalty.  Based on an aggregation of the data received, if the 71 Fortune 100 companies that replied to the survey ceased to offer health care coverage and paid the employer mandate penalty, they could save a total of:

• $28.6 billion in 2014 (an average savings of over $400 million per company) and
• $422.4 billion from 2014-2023 (an average savings of nearly $6 billion per company).

“The findings of the report, along with existing research, show that the Democrats’ health care law threatens the stability and sustainability of the employer-based health insurance system,” said Camp.  “Anyone who gets insurance through their job should be worried about what will happen next, because there is a distinct financial incentive for employers to terminate health care coverage under the Democrats’ health care law.  It is clear to me that because of this law, Americans will not be able to keep the health care plan they have and like.  American workers and taxpayers simply cannot afford to have this law remain on the books.”

The report is entitled “BROKEN PROMISE:  Why ObamaCare Will Force Americans to Lose the Health Care Coverage They Have and Like.”  Click here for the key findings, and here for the full report.

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