In last month’s blog post, I mentioned that in a recent Mercer survey, half of the respondents that don’t already cover all employees working 30 or more hours per week said they were planning to reduce the hours of some workers to minimize the impact of this upcoming PPACA requirement. I didn’t mention, however, how many employers were planning to drop coverage entirely.

According to the same survey, only 8% of employers believe they are “likely” or “very likely” to drop their plans and send all their employees out into the insurance exchanges. Smaller employers are more open to dropping coverage and large employers less so, but, interestingly, their opinions on this point haven’t changed since Mercer surveyed them just after PPACA was signed into law last year. 

This finding begs the question: Why would employers choose to continue to pay, on average, close to $10,000 per employee for benefits when they could get away with a $2,000 penalty for not offering benefits at all?

A recently released brief prepared by researchers at The Urban Institute describes some of the variables that make the equation not quite that simple. The availability (or lack thereof) of subsidies for individuals beyond certain income levels, the current favorable tax treatment of employer premiums and the competitive environment for the talent you would least like your competitors to steal from you. Because most employers pay the lion’s share of the cost of coverage and because most employees won’t qualify for subsidies in the exchanges, in most cases, terminating the medical plan would amount to a serious pay cut.  If an employer chose to gross up employees’ pay to make them whole, the cost savings would go away. The conclusion of the brief, which is supported by Mercer’s survey data, is that a groundswell of employers dropping coverage entirely is not likely to occur.

This doesn’t mean that employers won’t change the strategies they use to offer benefits, though. They will be relying heavily on their advisers to help them analyze their populations and consider changes in strategy; including, yes, an exit strategy. But, at this point, it would appear that any reports of the ultimate demise of employer-sponsored insurance are being greatly exaggerated.

Lane is principal at Mercer in Washington, DC. He can be reached at or 202-331-5222.


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