Dropping Health Care Coverage in 2014?

In a controversial survey of more than 1,300 employers of all sizes released by McKinsey & Co. earlier this month, 30 percent of respondents indicated that they would “definitely” or “probably” drop health care insurance coverage after 2014. The McKinsey survey’s potential drop rate is higher than the rate determined by other recent surveys. A 2010 Mercer survey found that 20 percent of employers with 10 to 499 employees and 6 percent of employers with more than at least 500 employees predicted they would drop coverage in 2014. These employers would be willing to pay the penalty of $2,000 for each full-time employee not covered, a figure that is much lower than the average group plan coverage of $9,500 per employee, as determined by Mercer.

Most employers seem to be taking a “wait and see” attitude–waiting to see what health care costs will be in 2014 and whether or not dropping coverage really is the best way to go. Shifting from the traditional model of the employer providing health care coverage to employees will be a huge culture shift for the organization, but dropping coverage may not be in the best financial interest of the company. Tracy Watts, a partner in Mercer’s Washington office cautions that “[o]nce you consider the penalty, the loss of tax savings, and grossing up employee income so they can purchase comparable coverage through an exchange, for many employers dropping coverage may not equate to savings.”