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Waiting for 2014 and Beyond

David P. Lind BenchmarkUncertainty remains…we continue to wait.

A Deloitte study was released on July 24 indicating that 9 percent of employers in the U.S. said they may stop offering health insurance in the next three years. Based on numerous study results from last year, this number is not at all surprising. In fact, we surveyed Iowa employers last summer and found that less than 6 percent of employers reported the possibility of dropping health coverage when 2014 arrives (see below).

2011 Iowa Employer Benefits Study 

So what gives? Why do employers feel that they may no longer offer coverage? For one, in 2014 employers with over 50 employees who fail to offer minimum essential coverage will incur a penalty of up to $2,000 annually per employee. In addition, if employees are required to pay more than 9.5 percent of their income for self-only coverage, the employer would be penalized $3,000 per year, per full-time employee who enrolls in the exchange and is eligible for government subsidies…a non-deductible expense to the employer.

Perhaps another more plausible approach employers might take would be to pursue a “defined contribution” strategy whereby the employer provides a defined amount of money to each employee who will then purchase coverage through the exchange. Keep in mind that by 2014, individuals will not have to worry about pre-existing conditions when applying for individual coverage. Employers may find this approach more palatable than offering their own health plan, which takes time and resources to keep the plan in compliance (and remain competitive).

When we asked Iowa employers whether they would terminate their current group medical plan, pay the $2,000 penalty per employee, and increase employee compensation with the money saved from dropping health coverage, less than 1 percent said they were “very likely” to pursue this approach (see below).

 2011 Iowa Employer Benefits Study

There are many studies to draw from when attempting to understand what employers will do in 2014 and beyond. Needless to say, there is still much confusion from the employer community about how the health reform law will impact their health coverage.

Playing a “wait and see” approach may be the most logical strategy for the time being.