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Deloitte survey finds 1 in 10 U.S. employers to drop health coverage

Posted on July 26, 2012 | No Comments

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Key Developments

In the 2012 Deloitte Survey of U.S. Employers: Opinion about the U.S. Health Care System and Plans for Employee Health Benefits, nine percent of companies, which represent three percent of the workforce, anticipate dropping health insurance coverage sometime within the next three years. The survey reported that 81 percent of companies, which represent 84 percent of the workforce, plan to continue offering employer-sponsored health insurance. Ten percent of companies, which represent 13 percent of the workforce, reported that they were unsure whether or not they would keep employee health benefits.

According to the survey, many employers are considering sending their employees to participate in the Affordable Care Act’s (ACA’s) Exchanges. Small employers are the most likely to be interested in such an option. Deloitte’s report collected the results of a web survey of 560 randomly selected employers with 50 or more employees. Participants included chief executive officers, chief financial officers, and chief human resources officers.

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The Internal Revenue Service (IRS) issued final temporary regulations for how it will assess the health insurance tax in 2015, including how it defines a covered entity, which is subject to the fees. The IRS also released guidance on the excise tax on high cost employer-sponsored health coverage, or "Cadillac tax", which is scheduled to go into effect in 2018. This notice is intended to initiate and inform the process of developing regulatory guidance on the tax.
A study released by the Employee Benefit Research Institute (EBRI) found the prevalence of health care insurance amongst part-time employees has been on the decline. Between 2007 and 2011, the likelihood of a full-time employee having employer-sponsored health care coverage decreased by 2.8%, while the coverage likelihood for part-time employees decreased by 15.7%. Similarly, the overall percentage of individuals employed part-time has increased by 5.5% during that same time period. In the wake of the Affordable Care Act (ACA), many fear that employers will choose to deny health care coverage to part-time employees, or increase the number of part-time employees to avoid incurring penalties under the ACA.
The Robert Wood Johnson Foundation and State Health Access Data Assistance Center released a report finding that 60% of all insured Americans receive insurance through their work. This percentage is down from 70% in 2000, indicating a difference of 11.5 million individuals. The study notes that the decrease in receipt of employer coverage began prior to the 2010 implementation of the Affordable Care Act (ACA), and is caused by a combination of employers no longer offering coverage and employees no longer accepting it. Rising insurance costs is identified as the culprit responsible for the decline of employer-based health insurance.
According to a U.S. Census Bureau report released this morning, the rate of individuals with employer-sponsored health coverage dropped from 64.4 percent in 1996 to 55.1 percent in 2011. Among the employed population aged 18 to 64, 68.2 percent received health insurance through their own employer or another person’s employer. In addition, 34.7 percent of individuals who did not work received coverage through employment-based health insurance and 43.3 percent of individuals with family incomes less than 138 percent of the federal poverty level were employed by firms offering health benefits. The Census Bureau report uses data from the Survey of Income and Program Participation (SIPP) to examine the characteristics of people with employer-provided health insurance coverage as well as characteristics of employers that offer health insurance.
According to a new study for the National Institute for Health Care Reform (NIHCR), offering employer-sponsored health insurance will continue to make fiscal sense for businesses employing most workers (81%) now offered insurance. The study found that the economic incentives to offer coverage will remain strong under the Affordable Care Act (ACA) for most larger, higher-wage firms,  but will weaken for small and low-wage employers. These smaller firms are the companies already more likely to drop coverage to due rising costs. Pre-ACA, all businesses had the option to offer health insurance coverage. After 2014, employer premium contributions remain tax exempt, and two new policies will take effect. First,  larger employers that do not offer affordable health insurance will be penalized and second, premium tax credits for lower-income people to purchase insurance in new state exchanges if they lack access to affordable employer coverage will be available. The economic incentive to cover employees is calculated by adding the dollar value of the employer-sponsored insurance tax subsidy and the value of avoiding the penalty for not offering insurance, and then subtracting the value of the premium tax credits that eligible workers could use in an exchange if their employer does not offer coverage. After 2014, the largest firms (500 or more workers) will continue to have a strong economic incentive, with an average incentive of $2,503 per employee. However, the smallest firms (fewer than 50 workers) will face lower economic incentives because they are exempt from the penalty. Certain industries, such as food service, entertainment, agriculture, forestry and fishing, will have less incentive to offer employer coverage, as their workers will be eligible for exchange subsidies. The study draws on data from the 2008-2010 Medical Expenditure Panel Survey.
According to a new Employee Benefit Research Institute (EBRI) report, the uninsured rate shrank for working-age Americans last year. The percentage of non-elderly Americans with coverage increased to 82 percent in 2011, up from 81.5 percent in 2010. Employment-based health insurance coverage rates dropped, however. Although employer-sponsored coverage remains the dominant source of health coverage in the United States, providing coverage for 155.5 million people under age 65 in 2011, the percentage of non-elderly individuals with employer-sponsored coverage has declined every year since 2000.
Annual premiums for employer-sponsored family health coverage reached $15,745 this year, up 4 percent from last year, with workers on average paying $4,316 toward the cost of their coverage, according to the Kaiser Family Foundation/Health Research & Educational Trust (HRET) 2012 Employer Health Benefits Survey. This year’s premium increase outpaced the growth in workers’ wages (1.7 percent) and general inflation (2.3 percent). The 14th annual survey of more than 2,000 employers highlights trends in employer-sponsored health insurance costs and coverage. The survey reveals significant differences in the benefits and worker contributions toward family premiums between firms with many lower-wage workers (at least 35 percent of workers earn $24,000 or less a year) and firms with many higher-wage workers (at least 35 percent of their workers earn $55,000 or more a year). According to the survey, an estimated 2.9 million young adults are currently covered by employer plans this year as a result of an Affordable Care Act (ACA) provision that allows young adults up to age 26 without employer coverage of their own to be covered as dependents on their parents’ plan. That’s up from the 2.3 million in the 2011 survey. The survey also reports that 48 percent of covered workers are in “grandfathered” plans as defined under health reform, down from 56 percent last year.
The 2012 Towers Watson/National Business Group on Health Employer Survey on Purchasing Value in Health Care offers insights into the actions and plans of leading U.S. employers and views of what the future of employer-provided health care in the U.S. may look like this year and in the coming three years. According to the study, as health care costs continue to rise, employers are looking for ways to cut costs. While the total cost of health care is predicted to rise 5.3%, to $11,507 per employee in 2013, the growth is slowing. Many companies will keep premium increases in line with the health care cost increases. The study found that 13% of companies would increase premiums by 5% in 2013, for example.
The Government Accountability Office (GAO) released a report yesterday which reviews estimates of the impact of the Affordable Care Act (ACA) on employer-sponsored coverage. According to some researchers, the ACA's Medicaid expansion and subsidized coverage for low- and moderate-income people who buy health insurance through Exchanges beginning may discourage employers from offering coverage. However, other researchers believe that the financial penalties imposed by the ACA will actually encourage employers to offer coverage. The GAO report examines 27 studies published between January 1, 2009 and March 30, 2012 that offer estimates regarding changes in employer-sponsored health coverage as a result of the ACA.
A new report published by Truven Health Analytics says that employers choosing to drop their group health insurance plans and pay the penalties under the Affordable Care Act (ACA) would experience no cost advantages. Furthermore, the report suggested that employers who do choose to suspend health benefits would incur sizable operational and productivity repercussions. These negative outcomes, the report concluded, would thus discourage most large employers from shifting employee health benefit strategies after ACA implementation. Truven reported three key findings. First, employers would experience no immediate or long-term cost advantage by eliminating group health benefits. Second, employers would experience higher costs in scenarios where employees are shifted into exchanges for health benefits. Employees would suffer a significant cut in total compensation in situations where employers eliminate group health benefits and thus force employees to assume benefit costs.