On Monday, the Congressional Budget Office reduced its estimate of how many people would get health insurance this year through the public exchanges from 21 million to 13 million -- with 11 million people a month, on average, receiving subsidies, down from its prior estimate of 15 million. As a New York Times article by Robert Pear points out, this is at least partly because employers are not dropping health insurance plans at the rate that CBO analysts initially expected.
The government projections for employer coverage were predicated on the assumption that employers would find it less expensive than continuing their own plans. Employers who no longer offer health coverage would pay a $2,000 per employee penalty and would likely need to boost employees' salaries to help offset premiums employees would pay for coverage in exchanges. The math just doesn’t work. The $2,000 penalty is not tax deductible and the gross up in pay also has tax implications for employees. In most scenarios, the employer pays more or runs the risk of employee backlash.
Mercer has been tracking employers’ intentions about terminating plans since 2008. From the beginning, we’ve reported that very few large employers seriously contemplated dropping their plans. However, small employers are less likely to offer coverage to begin with, and in the early years of health reform, about 20% of health plan sponsors with 50-499 employees said they were likely or very likely to drop coverage within five years. That number began to fall in 2014, the year the public exchanges became operational, and fell even further in 2015, to just 7%. That is now similar to the percentage of large employers that say they are likely to drop coverage (5% in 2015).
Why are small employers changing their minds about dropping coverage? Probably for many of the same reasons that large employers didn’t see it as a good option from the beginning. In general, smaller employers offer less generous coverage, have lower average costs, and realize higher annual increases than larger employers. It is a tricky balance to keep health benefit costs within their financial comfort zone, but so far they have been able to manage it.
Employers may also be waiting to see how the public exchange plans perform. It has been widely reported that the insurance companies are already challenged to maintain these plans, even with reinsurance risk funding. Employers are very savvy when it comes to understanding insurance risk. Last week, HHS reported that 8.8 million people had selected health plans or been automatically re-enrolled through the federal exchange, with another 2.7 million in state exchanges. The more people in the pool, the more stable the risk. Time will tell if the state exchanges will have enough enrollment to support a healthy risk pool for the long term.
Bottom line, Mercer’s recent Inside Employees’ Minds Survey shows that 89% of US employees say getting health benefits through work is just as important to them as getting a salary. This goes to show that employees consider benefits a huge part of the overall value proposition, and employers need to keep this top of mind as they aim to attract and retain top talent.