More employers will drop health insurance following a trend in retirement benefits

If you are a regular reader you know I am a great believer in unintended consequences. You may also know that during the health care reform debate I said that the legislation was constructed in such a way that employers would be encouraged to drop their coverage, pay the fine and thereby shift employees to the exchanges even if it meant providing employees with an additional payment toward the premium. Given that most Americans would be entitled to a federal subsidy toward the cost of coverage this would result in more costs than projected for the federal government.

For many workers and their employers this is a win-win situation as it is for policymakers seeking more government control over the system (perhaps the intended consequences). It may not be such good news for the federal budget and assumed savings from health care reform.

A recently released study conducted in early 2011 by McKinsey and Co and reported in McKinsey Quarterly reports the following:

Overall, 30 percent of employers will definitely or probably stop offering ESI (employer subsidized insurance) in the years after 2014.

Among employers with a high awareness of reform, this proportion increases to more than 50 percent, and upward of 60 percent will pursue some alternative to traditional ESI.

At least 30 percent of employers would gain economically from dropping coverage even if they completely compensated employees for the change through other benefit offerings or higher salaries.

Contrary to what many employers assume, more than 85 percent of employees would remain at their jobs even if their employer stopped offering ESI, although about 60 percent would expect increased compensation.

One thing is very clear, the world of employee benefits is rapidly changing because of cost pressures and legislation. Pensions have all but disappeared, health benefits are dwindling and shifting costs to workers and even government workers are facing significant changes.

There are only two choices left; employees will be completely on their own for their security needs or there will be more government involvement. Neither is appealing for several reasons.

Employers may see short-term benefits, but in reality they are making a big mistake by losing control, risking higher taxes, creating a detached workforce more distracted by life’s security needs, and dealing with an employee base finding it more difficult to retire.


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