Is Company Health Insurance a Thing of the Past?

Employers to consider dropping health coverage in 2014

As if the news of a worsening economy wasn’t enough for Americans, a new study released this week reveals that employers will most likely drop all health insurance benefits for their workers.

Towers Watson, a global professional services company, conducted the study by focusing on the debate in Washington over health care reform legislation.

Researchers say one of every 10 mid-sized or "big employers" will probably stop offering health coverage to workers once the federal insurance program kicks off in 2014.

Financial experts say employer-sponsored health insurance has long been the backbone of the nation's health insurance system and an economic engine for some industries.

The average reported cost of medical and pharmacy coverage every year is $11,204 per employee for active coverage, according to the National Association of Insurance Commissioners.

Many workers in America cannot support their families without employer-based insurance because it is less expensive than individual insurance policies.

This research now suggests that some employers, especially retailers or those offering minimum wages, feel they will be better off paying fines and taxes in lieu of continuing to provide benefits that take up a large part of their budget annually.

Critics of the health care reform bill say the government has no place in the health insurance business while others say the debate has turned into one of moral values in America.

"It is clear from our research that employers remain committed to providing employer-sponsored benefits for the foreseeable future," said Randall Abbott, senior health care consulting leader at Towers Watson.

"But, 2012 will ultimately be a defining year. The year some employers head down a path of bold and decisive actions, while others will wait and see. Whether choosing to pay or play, employers will need a strategic view for the future."

More than 70 percent of the companies participating in the study indicated they will continue offering health care benefit coverage to their active employees through 2014, but the outlook is unclear, the study reports.

Among the remaining 29 percent, most are unsure about whether they will continue sponsorship or offset the loss of health care benefits with an equivalent salary increase.

For retirees, more than half of employers that offer health care benefits plan to discontinue them for both pre-65 and post-65 retirees.

"Dropping coverage is going to be very difficult for these companies to do," said former insurance executive Bob Laszewski, a consultant who was not involved with the study.

If companies decide to act in such a fashion, there will be potential payroll-tax difficulties which could subject firms to fines. It would also give their employees a steep compensation cut if companies don't raise pay in exchange for ending coverage.

Experts say there will be steep ramifications if employers stop offering health insurance to their employees and many businesses will probably lose valuable workers, the study reports.

Laszewski said the health care overhaul also faces court challenges, and President Obama is up for re-election next year, two more variables that could shape what happens with health care in 2014.

Cost shifting is also expected to continue well beyond 2012. According to the survey, by 2013 or 2014, many employers are considering significantly reducing their subsidization of coverage for spouses and dependents and using spousal waivers and surcharges when other coverage is available.

Other interesting data points emerging from the survey include:
• Seven out of 10 employers expect to lose grandfathered status by 2012.
• More than half of employers are considering rewarding or penalizing their employees based on insurance issues.
• One in three employers don't offer health care coverage to their part-time employees.
• More than four in 10 employers currently use or are considering using social media tools to impact employee health and well being, and 26 percent currently support or are considering supporting employee health management with the use of online games.

Towers Watson surveyed 368 midsize to large companies for the study.

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