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Study Predicts Almost One Third of Employers Will Drop Health Insurance Benefits


According to the predictions of McKinsey & Company, a global management consulting firm, 30% of US employers are likely to discontinue offering health insurance benefits after the majority of the new health care reform law takes effect in 2014.

Shift Away From Employer-Provided Health Insurance Will Be Dramatic

Previous research by The Congressional Budget Office estimated that only about 7% of employees currently covered by employer-sponsored insurance (ESI) would switch to the new Health Insurance Exchange policies that will be offered in 2014, but the business advisory firm suggests that when employers become more aware of the option to restructure benefits, many will make “dramatic changes.”

McKinsey & Company surveyed 1,300 employers earlier this year and found that 30% said they would “definitely or probably” stop offering employer coverage in the years after 2014. Nearly half of the employers would consider alternatives to their current plans, which could include a model of insurance that would only offer coverage to certain employees.

Read: Forgoing Care Benefits Insurance Companies But Negatively Affects Americans' Health

"The shift away from employer-provided health insurance will be vastly greater than expected and will make sense for many companies and lower-income workers alike," according to the study, published in McKinsey Quarterly. "While the pace and timing are difficult to predict, McKinsey research points to a radical restructuring of employer-sponsored health benefits."

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Businesses with 50 or more full-time employees will have to offer affordable health insurance coverage to its employees or face paying a penalty, however smaller businesses exempt from this requirement that currently offer benefits may drop coverage. Even larger employers may decide to drop coverage and opt to pay the penalty - $2,000 per worker after the first 30 workers – because it would be a more affordable option than retaining coverage.

Another option that businesses may take is to increase the number of part-time workers, reducing the number of employees who have health insurance benefits without violating the law.

Read: The Number of Americans Without Health Insurance Coverage Increases

The Wall Street Journal says that the Obama administration is working to encourage employers to retain health insurance coverage for its employees. But when Americans will have other options outside of the workplace with the Health Insurance Exchange policies, employers may feel a “reduced moral obligation” to provide their own coverage.

According to statistics released by the US Centers for Disease Control and Prevention (CDC) last year, about 46 million Americans do not have health insurance coverage. The CBO estimates that the new Health Reform Law will allow for 32 million of these to obtain affordable health insurance they may have previously been denied.

Singhal S, et al "How US health care reform will affect employee benefits" McKinsey Quarterly, June 2011.