Expert: Reform could prompt employers to drop health insurance

An executive from a national health insurance brokerage told a House committee that administrative burdens caused by health reform could prompt employers to drop health insurance benefits in 2014, when federal insurance exchanges are scheduled to open.

"Our clients find that the health reform law makes what is already a costly and administratively burdensome endeavor – the sponsorship of a simple group health insurance plan – even more expensive and more hassle-prone," said Mike Brewer, president of Lockton Benefit Group, which is billed as the world's largest privately held insurance broker. Brewer testified Thursday before the House Education & Workforce Committee's Subcommittee on Health, Employment, Labor and Pensions.

In conjunction with House hearing, the Kansas City, Mo.-based company released a study indicating the Affordable Care Act creates a financial incentive for some employers to terminate health benefit plans once employees have another subsidized health insurance option available through the exchanges. The study was based on a survey of 130 employers, who said paying the penalty for not providing coverage will be cheaper than providing insurance.

[See related story: Employers want guidance, not repeal, of ACA.]

"The vast majority of our clients currently spend far more on health insurance per employee than the nondeductible penalty under the 'play or pay' mandate. By 2014, this gap will be much larger still," Brewer said.

"The majority of our clients tell us they will wait and see. What they will do in 2014 depends on their health insurance costs and budget in 2014, and their perceived need to use a health plan to gain a competitive advantage for labor. With regard to this latter point, many clients have told us, 'We won't be the first to drop coverage, but we won't wait to be third, either,'" he said.

According to Brewer, Lockton actuaries modeled the impact of health reform for hundreds of clients and aggregated results from 136 of those analyses into a report that examines the impact of the health reform law on middle-market health plan sponsors. The report spans a variety of industry segments, including construction, government, healthcare, manufacturing, professional services, transportation and retail and entertainment. 

The modeling project assesses the additional costs for employers and employees in their current health plans due to changes imposed this year by the health reform law, he said. It also evaluates the financial implications of options employers will have in 2014 when they are required by to offer health coverage to full-time employees or risk penalties. 

Read the entire Lockton study here.

[Read about a similar study: Employers anticipate higher costs due to health reform.]