There’s been an ongoing debate since reform was first enacted about the possible merits of employers eventually exiting health care benefits altogether and moving employees en masse into the public marketplace. Stirring the pot most recently is financial industry research firm S&P Capital IQ, which estimates that by 2020 — just five years from now — 90% of American workers who currently receive health insurance through their employers will be shifted to government exchanges. S&P authors cite rosy bottom lines, trickle-down increases in employee pay and benefits, and the lure of federal subsidies for low-wage workers as the impetus for the grand exodus.
But these projections fly directly in the face of data systematically collected through Mercer’s National Survey of Employer-Sponsored Health Plans — and of the strategies employers are using successfully to manage spending and stay competitive. Most large US employers — 94% in 2013 — remain committed to offering employer-sponsored health plans for at least the next five years. Even among the smallest employers — those with just 10 to 49 employees and the least inclined to offer coverage to begin with — only 34% of current health plan sponsors say they are they are “likely” or “very likely” to terminate health coverage within the next five years.
Still, for those who remain skeptical, I offer three compelling reasons why so many employers have decided to stay the course.
1. Employees value health benefits as highly as pay.
An overwhelming 93% of employees say their health care benefits are as important as their pay. Every year, the Mercer Workplace Survey asks approximately 1,500 US employees who have medical and 401(k) plans to value their benefits. Even as deductibles have risen and benefits have become less rich, these results have strengthened over time, sending a clear message to employers: To attract and retain the best talent, you must stay in the game.
2. The public marketplace remains a huge unknown.
The exchanges may be here to stay, but the fate of plan rates and the true benefits of the public marketplace as an exit strategy are very much up for grabs. To walk away from health benefits now would introduce far too much financial risk to employers that are already in dire need of predictability and proven cost-effectiveness.
3. The math doesn’t work — for employers or employees.
The tax implications for employers constitute a triple whammy. First, they will pay the $2,000 per-person penalty (and that amount is indexed; it goes up each year). Then, they will lose the tax deduction on that money, in turn reducing the funding available to employees to purchase coverage through the public marketplace. Finally, whatever money they might add into paychecks to help employees purchase benefits on a public exchange will be subject to payroll taxes, thus reducing its value as a substitute for employer-provided benefits.
On average, health benefits cost $10,779 per employee in 2013, according to Mercer’s research, with the employee typically picking up about 20% of this cost — or about $2,200. However, most employees will pay far more than that for individual coverage in the public marketplace, and families will take an even harder hit — the lowest-level public exchange plan on average costs $20,000 a year for a family of four. Only the 25% or so with incomes below 400% of the federal poverty level are eligible for government subsidies.
As organizations continue to sort through the expanding options in today’s new order of health benefits provision, one thing is certain: A full-scale exit at the expense of talent, predictability, and affordability — for both employers and employees — remains a highly unlikely proposition.