Health Care Survey: Employers May Cut Plans After 2014

By ALAN FARNHAM

June 9, 2011

Employees can kiss goodbye employer-provided

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health coverage, at least as it exists today. That's the message of a survey of 1,300 employers just released by McKinsey & Co. Overall, 30 percent of employers said that after 2014, when most of the provisions of the Obama administration's health reforms kick in, they would definitely or probably stop offering company-sponsored health coverage.

The findings dramatically differ from those of previous surveys and analysis. The Congressional Budget Office, for example, has estimated that only about 7 percent of employees currently covered by corporate health plans will have to find alternatives.

McKinsey's findings, if correct, contradict the White House's view of how health reform will play out. They would constitute, in the eyes of the administration, a highly inconvenient truth. A White House spokesman yesterday addressed them in an interview with ABC News's Jake Tapper, noting that McKinsey's survey was "pretty starkly at odds" not just with the CBO's analysis but with those of the RAND Corporation and "with history."

By "history" he said he meant the experience of Massachusetts, after that state passed its own version of health care reform. Said the spokesman: "History has shown that reforms motivate more businesses to offer insurance." The number of employees with employer-sponsored health coverage in Massachusetts, he said, has increased, not decreased. Addressing the McKinsey findings he said, "We simply just disagree with those conclusions."

How could McKinsey's findings differ so dramatically from prevailing wisdom? Easily, say its authors.

Unlike other surveys, they say McKinsey's first "educated respondents" about the implications of health care reform (for their companies and employees) before it asked them about their post 2014 strategies. "The propensity of employers to make big changes [to company-provided health coverage] increases with awareness, largely because shifting away will be economically rational, not only for many of them but also for their lower-income employees, given the law's incentives."

Further, the McKinsey survey, unlike some others, presented employers with a range of alternatives to their continuing to offer presently existing coverage--not just keeping it as-is or dropping it outright. Not surprisingly, respondents showed "a level of interest higher than that generated by surveys asking only about plans to keep or drop" insurance.

Other findings of the survey include:

-Though 30 percent of employers say they will stop offering health coverage after 2014, the percentage rises to 50 percent among employers with "a high awareness of reform."

-At least 30 percent of employers would gain economically by dropping coverage, even if, to retain employees, they had to offer some other form of compensation (higher salaries, say, more vacation or greater flex-time).

-Contrary to what some employers assume, most employees (85%) say they would stay at their present jobs if their employer stopped offering health coverage. A majority, however, would expect to get some some kind of increased compensation in exchange.

-Up to half of all employers (45-50 percent) say they will definitely or probably pursue alternatives to company-supplied health coverage after 2014. "Those alternatives," write McKinsey's authors, "include dropping coverage, offering it through a defined-contribution model, or in effect offering it only to certain employees"--for example, those whose skills they need to retain.

The government has a special web page that explains the health care law.