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Employer-Sponsored Health Insurance: Is This the End?

When the Affordable Care Act passed, many who studied its provisions predicted that an unintended consequence could be that employers would cease to offer employer-sponsored health insurance to their workers. Now in its second year of implementation, there is conflicting data about the exact impact the act has had.

One thing that does not appear to be in dispute regarding employer-sponsored health insurance is that employers remain concerned and even fearful about the ultimate effect of the Affordable Care Act on their businesses.

Current Studies Regarding Employer-Sponsored Health Insurance

A recent survey of employers by the International Foundation of Employee Benefit Plans showed that two-thirds still believe the act will have a negative impact on their organizations. Some of the most significant findings related to small employers. According to the report, among that group:

  • One in six has reduced their workforces.
  • More than 10% reduced hours so fewer employees work full time.
  • More than 10% froze or reduced pay raises and compensation.
  • One in 10 cut back on hiring in order to stay below the 50-employee threshold.

One of the architects of the health care act, Dr. Ezekiel J. Emanuel, in 2014 released a book titled “Reinventing American Health Care.” In that book, he predicts that by 2025, “fewer than 20% of workers in the private sector will receive traditional employer-sponsored health insurance.”

While it is too soon to say whether or not his forecast will prove to be accurate, a November 2014 report by the Employee Benefit Research Institute found that of more than 3,000 employers surveyed, less than 1% planned to discontinue coverage in 2015.

In another report, the Urban Institute reviewed seven surveys by five organizations and found that in all but one case, fewer than 10% of firms expect to discontinue employer-sponsored health insurance coverage for employees because of the Affordable Care Act. The report noted, however, that the impact will be greatest on small businesses and that area should be the focus of continued monitoring.

While many changes in employer-sponsored health insurance can be attributed to the Affordable Care Act, some of those trends were in place before its passage. The Urban Institute found that between 2000 and 2010, the number of insured workers in companies with more than 1,000 employees declined from 87% to 82%. Among small companies, the decline was more significant—from 43% to 33%. In other words, employers were already reducing employer-sponsored health insurance benefits before Obamacare became law.

In 2010, a report by the American Action Forum estimated that the Affordable Care Act would result in as many as 43 million employees losing employer-sponsored health insurance coverage. That forecast was resurrected in a November 2013 Forbes article about Obamacare. So far, that dire prediction does not appear accurate, but it is still too early to be definitive.

Factors to Take Into Account When Viewing Study & Survey Results

While 2014 saw the implementation of the Affordable Care Act, many of its provisions were delayed. As a result, many employers believe that the act will have a greater impact on their firms in 2015. One likely reason is that employers become subject to penalties specified in the act in 2015.

Some employers might be concerned about inadvertently running afoul of the act simply because they don’t fully understand it. And the Employee Benefit Research Institute study found that only one-third of companies are confident that they are in compliance.

Many of the provisions for offering employer-sponsored health insurance and for avoiding penalties are complex and confusing. For example, consider this excerpt from the University Of California Berkeley Labor Center of a summary of provisions in the act that affect employer-sponsored health insurance:

“Applicable large employers not offering coverage or offering coverage to fewer than 95% of its full-time employees pay $2,000 multiplied by the total number of full-time employees minus 30. This penalty only applies if at least one full-time employee receives subsidies in the Marketplaces. The $2,000 penalty also applies to employers that do not offer coverage to the children (under age 26) of full-time employees regardless of whether or not the coverage offered to children is affordable.”

Huh?

For now, it seems premature to conjecture whether or not the Affordable Care Act will eventually result in even small employers discontinuing employer-sponsored health insurance. After all, there are still significant tax breaks available to employers that provide health insurance and it still offers companies a competitive advantage when competing for talented employees.

Of course, that does not even take into account the fact that members of the now Republican-controlled House and Senate have promised to try to repeal or revamp the Affordable Care Act. As a result, it is still likely to be many years before all of the consequences and ramifications are known.

To speak with an Alltrust Specialist about how the Affordable Care Act could affect your organization, click here.