Thursday, June 9, 2011

Will the Affordable Care Act (ACA) Cause Employers to Drop Insurance? Why The McKinsey Report Is Credible

...and the battle continues!
By now readers may have heard about the McKinsey Quarterly Report "How US health care reform will affect employee benefits" that purports to show, as a result of the Affordable Care Act (ACA), that a significant number of employers are going to abandon offering health insurance for their employees.

Knowing that readers may not have time to sign-up for an email address and password McKinsey "account" or read the 11 page report, the Disease Management Care Blog has summarized the highlights and the controversy below.  The bottom line, however, is that a respected consulting firm has punched a small hole in the side of the U.S.S. Administration Assumptions.

The DMCB presented at and listened in on a number of Washington DC health policy conferences during the Fall of 2010.  It specifically recalls a common refrain among the human resource experts and benefits consultant speakers: they wanted to continue offering employer-based insurance, they said, but they needed more time understanding what the ACA did and did not do. 

As a result, the DMCB suspects most employers in the earliest days of the ACA were inclined toward the status quo.  The DMCB also suspects that the nation's larger employers were not inclined to say anything publicly that might annoy the Administration and prompt Mr. Obama to introduce some of them to the political underside of Mr. Bus.

Now that employers have had a chance to mull over all of the ACA's provisions, a substantial minority have apparently decided that the upsides of dropping employer-based insurance outweigh the downsides.  Not only could "Medicare as we know it" change, but, based on these data, "if you like your insurance..." you won't be able to keep it. 

Now onto the report itself:

Noting that the Affordable Care Act in 2014.....

1) guarantees individual coverage for all, arguably absolving employers of their duty to provide insurance,

2) requires employers to provide a comprehensive - and relatively more expensive - insurance benefit package,

3) provides income-indexed premium support as well as premium caps that will make it easier for workers to get coverage in the individual market and

4) fines employers only $2000 per employee that isn't insured,

....authors Shubham Singhal, Jeris Stueland and Drew Ungerman surveyed "more than 1300 employers across industries, geographies and sizes" using "proprietary" research and found:
  • the $2000 penalty will cost less than offering health insurance
  • "45% to 50%" of employers are seriously looking at insurance "alternatives" such as dropping out, going with a defined contribution model or limiting access to a minority of employees
  • "30%" of employers will drop coverage.  This will enable them to offer higher wages
  • employees will no longer prize their employer sponsored insurance, making it less of a retention tool.  85% of employees will not quit if their employer stops offering insurance.
The White House respectfully disagrees and has provided summaries with links to supportive no-impact-on-employer-insurance policy analyses. They are an employer survey by Mercer (released in November of 2010 - potentially when employers hadn't had a chance to fully digest the ACA) and two "economic simulation" models by the Urban Institute and Rand.

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