The Future of Employer Based Coverage

employer-based health coverageEmployers are likely to continue providing health coverage as long as they get a federal tax incentive. They will also provide coverage as long as it remains a competitive advantage to do so, since workers want group health coverage, said Chris Jennings, president of Jennings Policy Strategies. He addressed a recent a May forum in Washington, D.C., sponsored by the Employee Benefits Research Institute.

Noam Levey, who covers national healthcare policy for The Los Angeles Times said, “It is interesting to hear what people in Washington think is going to happen with employer-provided coverage, and then you talk to people in the benefits world, and you get a very different picture. The simple fact of the matter is that employer-provided health coverage clearly has a value for employers.” Levey said that employers are working to tier their benefits, at different levels for different workers. He said that he real wild card with health benefits is the federal tax treatment of health coverage and how Congress may change it. “The Cadillac tax obviously is going to be something that’s going to get a lot of debate here, and when it actually goes into effect, I’ll guarantee you we’re going to have some fireworks in Washington,” he said.

A recent EBRI survey reveals how much employees value health benefits. Seventy percent of workers rate health coverage as the most important benefit and another 10% rate it as second most important. Of the 60% of workers who report rising health care costs, one-third reduced their retirement plan contributions, which means trading off retirement benefits to maintain health benefits.

When considering a specific job, 77% of workers say health benefits are the most important benefit while only 11% say retirement savings plans are most important.

Ninety percent of workers are confident that their benefits are less expensive than what they could purchase on their own, and 80% are confident that their employer had picked the best plan for them. Ninety percent are satisfied with their health coverage, and 75% are satisfied with the mix of health coverage and wages. Ninety percent want in more choice in their health plans, which may explain the interest in health care exchanges. EBRI found that 45% of employees prefer something along the lines of a defined contribution health offering. Fronstin added, “It’s going to be interesting to see what happens down the road as workers understand more about the benefits of public exchanges and as employers introduce private exchanges. We’ll see what kind of shift there is and whether it’s employer-driven or worker-driven.”

Jennings predicts that many employers will go into private exchanges. The most likely candidates are small businesses, retailers, and employers with part-time, low-income work forces. While many employers are considering private health exchanges, Americans who work for larger employers will probably not see that change immediately, he said.

Jennings said, “It’s going to take a few years for all that to shake out. Employers are slow to react…They want to see how the exchanges are operating. They want to see satisfaction rates.” However, Jennings said that employers will have more incentive to look at alternatives if there is a major resurgence in healthcare-cost inflation. Jennings doesn’t anticipate an abrupt reduction in benefits among employers since larger employers are already preparing for the Cadillac tax and high-cost plan assessment.

George Washington University professor Joe Antos cited an Aon Hewitt study of workers in its own private exchange, which found that 58% selected a different level of coverage from one year to the next. “What that says is that having somebody else decide what your coverage should be probably isn’t going to suit a lot of people. A private exchange gives people more choices. It’s an opportunity to find out what people really want and not pour more money into something that may not be of such great value.”

Antos said that the Affordable Care Act’s (ACA) coverage mandate primarily affects lower-wage workers. Higher-income workers generally work for companies that already offer coverage. Antos said, “If you’re a part-time worker and you’re working 32 hours a week, you might drop to 29 hours because your employer doesn’t want to get caught in all of this. Are you going to be able to make up those hours? Are you going to be able to get another job?” He cited a recent study by the Urban Institute that calls for eliminating the employer mandate since relatively few people will not have insurance. Antos said that it’s highly unlikely that the federal government will enforce the unpopular employer mandate. He also said that a shift to defined contribution health plans is inevitable. For more information, visit http://www.ebri.org/publications/ib/index.cfm?fa=ibDisp&content_id=5435

Last Updated 10/21/2020

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