August 14, 2022

You’re the Boss: Debating Whether Businesses Will Continue to Offer Health Insurance

The Agenda

Two weeks ago, the international consulting firm McKinsey Company threw itself into the rancorous partisan debate over the 2010 health care overhaul by publishing research that appeared to predict that many employers would dump their health insurance plans when the new law fully took effect in 2014. The new law offers subsidies to help low-income people purchase health insurance from state-run exchanges, and it also penalizes companies with more than 50 employees when they fail to offer those employees affordable coverage. As McKinsey notes, paying the penalty will cost less than providing the insurance, so companies could profit by socializing that cost.

Nonetheless, the finding was surprising, and controversial, because, as The Agenda reported in April 2010 (and also in 2009), most economists say they believe that a mix of market pressures, a tax incentive and the penalty will deter all but a relative handful of employers from casting off their health insurance plans. The Obama administration slammed McKinsey’s apparent prediction, and Senate Democrats demanded that the consultants release the proprietary methodology behind it. For several days, McKinsey refused.

I say “appeared to predict” because on Monday, when McKinsey finally released the methodology, it came with a statement insisting that the survey had done no such thing. Rather, “it captured the attitudes of employers and provided an understanding of the factors that could influence decision-making related to employee health benefits.” Two paragraphs later, the statement continued, “We understand how the language in the article could lead the reader to think the research was a prediction, but it is not.”

The Agenda understands, too: The original article was titled “How U.S. Health Care Reform Will Affect Employee Benefits.” Its second sentence declared, “While the pace and timing are difficult to predict, McKinsey research points to a radical restructuring of employer-sponsored health benefits following the 2010 passage of the Affordable Care Act.” One word that appears frequently throughout the article is the future-tense “will,” not the conditional “could” — as in, “30 percent of employers will definitely or probably stop offering E.S.I.” — employer-sponsored insurance — “in the years after 2014.” (The Times reported Tuesday that Democrats were not impressed by McKinsey’s explanation.)

Still, the distinction between making predictions and capturing present attitudes — or, really, aspirations — is important. It should come as no surprise that employers, given their choice, would rather focus on their business than go through the administrative hassle of arranging health insurance for their work force. Companies probably wouldn’t offer it now if their employees didn’t demand it and weren’t willing to trade away a portion of their wages to have it. (Economists say that, contrary to broad public perception, employers don’t pay more to offer health insurance. Instead, insurance is merely a component of total pay — and employers that stopped offering it would have to provide some other, well, compensating compensation.)

Strikingly, the overall impression from the McKinsey article is that employees’ views count for little in the coming debate over whether employers will provide health care — or that they’ll accept whatever employers choose to offer. Here, for example, are two findings from McKinsey, based on separately conducted consumer research: 85 to 90 percent of employees would still work for their current company even after it dropped health insurance coverage, but only 60 percent would demand increased compensation to make up for it. That may, or may not, be true in 2011 — we’ll leave it to others to assess the soundness of McKinsey’s survey techniques — when the prospect of an employer dropping health insurance is too abstract for many in the work force to think seriously about what their coverage is worth. But who can say how they’ll think in 2014, as the new system is put in place — accompanied, no doubt, by extensive media coverage?

Employers might see an opportunity to shed their insurance burden once 2014 arrives, but the system that’s coming is so new and different — and complicated — that it seems foolish to presume this will happen right away, if at all. The new law could ultimately dismantle the underpinnings of workplace-provided insurance, but employees, too, will probably have something to say about this. It could take years, maybe even a generation, for people to grow comfortable with buying insurance on their own, and if they continue to insist on insurance from their employer, or prospective employer, in the meantime, companies are likely to comply. That’s what happened in Massachusetts after that state passed its own health care reform in 2006, as health economist Jonathan Gruber told The Agenda the last time we looked at this. There, employer-sponsored coverage actually increased.

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