A study published in July 2012 by Truven Health Analytics found that employers opting to drop their health care plans in 2014 and pay the penalty imposed by the Patient Protection and Affordable Care Act (PPACA) will not benefit economically in the short- or long-term.
Beginning in 2014, employers with 50 or more full-time employees will be required to provide “minimum essential” health care coverage for their full-time employees or pay an annual penalty of $2,000 per employee (excluding the first 30 employees). The study, Modeling the Impact of “Pay or Play Strategies on Employer Health Costs, analyzes four separate benefit design scenarios in which employers eliminate their group health coverage to determine how employers fare under this “pay or play” system.
The report includes the following key findings:
• Employers will not experience immediate or long-term cost advantages if they choose to eliminate group health benefits.
• It will be more costly for employers to “make employees whole” when shifting their benefits to a health insurance exchange (“Exchange”) than to continue existing group health plans.
• Dropping employer-provided coverage will result in a significant reduction in overall employee compensation, as the incremental costs of benefits will shift to the employees.
The study concludes that:
Employers must provide market value—in benefits and compensation—to retain skilled workers and will not be able to unilaterally cut benefits and expect employees to absorb the projected inefficiency of exchanged-based coverage. The potential penalties for dropping group plans, as well as the net gain most employees would need to receive in their compensation packages to make up for not receiving health benefits, should be enough to discourage most companies from discontinuing such services to their workers.