Thursday, September 1, 2011

30% of Employers Likely to Drop Insurance After 2014

Before the Patient Protection and Affordable Care Act was signed into law by President Barack Obama, the Congressional Budget Office estimated that 7% of employers would stop offering health insurance to their employees.  A new survey by the consulting group McKinsey found a starkly different answer.

Photo: Jacob Windham

January 1st 2014 is when the majority of the act goes into effect.  The act expands Medicaid eligibility to 133% of the poverty line and subsidizes health insurance to 400% of the poverty line.  Tax credits are given to small businesses under 25 employees, and $2,000 penalties (per employee) are given to businesses over 50 employees for not insuring their workers.  Health insurance exchanges and other changes are introduced at that time as well.

McKinsey found that 30% of employers were likely to stop offering health insurance as part of their compensation package for their workers.  Among employers that had a high awareness of the reform, that number jumped to 50%.  McKinsey also surveyed employees to find that 85% of employees would stay at their job even if they lost their health insurance, although 60% of them expected increased compensation.  They also found that 30% of employers would gain economically if they eliminated their insurance even if they increased wages the same amount.

The gaming of Obamacare has not even begun yet, but it seems clear from this study that it will lead to a period of profound transformation.  Employer expectations of imminent change coupled with the likelihood of increased worker turnover and overall employment market volatility make it possible that employers have had an increased and increasing reluctance to hire until the rules take effect in 2014.  If this is true, it is not helped by the fact that the law may be thrown out by the Supreme Court before then.  Lower courts already have conflicting rulings, which virtually guarantees the Court's attention.

If it does stand, it is possible that the Affordable Care Act may actually lead to lower total compensation for U.S. workers.  If the the employment situation hasn't recovered to pre-recession levels, employers may use it as a method of fighting the wage-price stickiness issue.  This will have to be one of worst unintended consequences in the history of Congress, if it does happen.


  1. Don't be fooled by that study. McKinsey got a lot of heat for the methodology and it was all over the news. One example, from National Journal:

    McKinsey conceded that its survey "was not intended as a predictive economic analysis of the impact of the Affordable Care Act." . . . [T]he survey was more of a point-in-time reading of employer opinion. "As noted, the survey only captured current attitudes," the firm explained.

    "Employers’ future actions will be determined by many considerations. Among them: medical-cost inflation; the details of new state health insurance exchanges; employee attitudes toward compensation and benefits; a company’s ability to attract and retain talent; actions taken by competitors; and the state of the economy."

    Eventually, McKinsey released its methodology—albeit, in incomplete form. And it only disclosed the survey's questions in response to a letter of inquiry from Sen. Max Baucus (D-Mont.). Apparently, there was a reason for the firm's reluctance:

    "[E]mployers were asked leading questions that made it seem logical for them to stop offering insurance. Respondents were told that the new health insurance exchanges would become "an easy, affordable way for individuals to obtain health insurance." Then they were given examples of how little their low- and moderate-income workers might have to pay for insurance, thanks to new federal subsidies. Only then were they asked how likely they would be to stop offering health insurance."

  2. Could this be one survey where leading questions could be still be helpful for the survey? McKinsey is a consulting company. A company that is designed to lead companies to optimized results (supposedly, hopefully). Questions that could become part of their marketing could be helpful for a survey of prospective clients because their clients may not fully understand how they could optimize. Once they receive literature that they may be able to save X% with a trade-off of Y% turnover, they might be willing to hire McKinsey consultants who will then implement that strategy.