A much-debated poll recently predicted a majority of companies likely would drop employee health insurance as a result of the impending federal health care overhaul. Despite the controversy, North Bay insurance experts say businesses must grapple with coverage questions at the heart of the poll results now rather than waiting until the rules take effect.
The poll, conducted by international consulting firm McKinsey & Company, has become a political lightening rod since it was released in late June. Opponents and proponents of the Affordable Care Act of 2010 are using the results to bolster their claims. The Obama administration sharply criticized the study.
Yet local insurance experts are asking: What incentive do employers have to maintain benefits packages? Would it conceivably be more cost-effective to eliminate health coverage altogether?
“I think you’ll see that will be a big question as we move toward 2014,” said Victor McKnight, a broker and consultant with Sitzmann Morris and Lavis in Santa Rosa. “It’s still a really valid question to ask despite the protestations about the study.”
Specifically, it still remains to be seen whether or not the individual penalty for not providing insurance to employees will be enough of a deterrent for employers, he said.
“The problem is the mandate isn’t strong enough to really motivate people to buy insurance,” said Mr. McKnight.
A stronger penalty could go a long way in clearing up some of the confusion, he added.
Bud Martin, senior vice president of employee benefits for Wells Fargo Insurance Services, said he thought the survey by McKinsey was interesting and thorough, but had doubts about whether employers would abandon insurance plans en masse.
“I don’t think you’ll see a lot of quick drops,” Mr. Martin said. “[Employers] will be making a lot of changes, but the changes may be in plan design.”
Chris Reiter, vice president of Woodruff Sawyer & Co.’s employee benefit practice in Novato, said he hasn’t heard the same refrain from employers as the McKinsey study’s results suggest.
“Lots of studies have been produced at this point that look at this issue and show a larger percentage would drop plans, but I am just not hearing that in the marketplace,” Mr. Reiter said. “As we get closer to 2014, that could change.”
Mr. Martin of Wells Fargo cautioned that employers should be exploring the issue sooner rather than later.
“You’ve got to start planning now, and some of the law will be based on portions of 2013,” he said. “So there’s a lot of issues that employers need to learn — there’s only a couple of renewals left until then.”
Both Mr. Martin and Mr. McKnight said larger employers of relatively low-wage labor forces would likely be more inclined to abandon health plans, as a higher percentage of employees may be eligible for government subsidies or would be able to purchase plans through health exchanges at a more affordable rate than the employer-sponsored plan.
“It depends on what percentage of their employees would get a subsidy and if they buy insurance from an exchange,” Mr. McKnight said. “If I’m winery XYZ with 250 employees, and I think 180 to 200 of them would receive a subsidy for health insurance, why would I not drop health insurance?”
But Mr. Martin said the penalty, whether it is $2,000 or $3,000 per employee, is indeed enough incentive to maintain employee coverage, because the penalty is not tax-deductible.
“This is a tax penalty, not a business expense,” Mr. Martin said. “You figure that into it, it’s not as simple.
“So, it’s a big deal. The big thing about McKinsey is that it threw out something that shocked everyone, which is good. It points out that employers don’t really understand this.”
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