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CCH® BENEFITS — 06/23/11

Economics Favor Retaining Health Coverage In Large Employer Plans, According To Benfield Report

from Spencer’s Benefits Reports: Large employers will continue to offer health care benefits to their employees, according to a recent report from the Benfield Group that explores employers’ perspective on the impact and implications of health care reform under the Patient Protection and Affordable Care Act (ACA). The report surveyed more than 100 self-insured employers with more than 5,000 employees.

The Benfield report concluded that for employers with more than 5,000 employees, maintaining employer-sponsored insurance (ESI) under the ACA makes economic sense: “The math behind dropping ESI doesn’t work out to an economic benefit.” The Benfield report noted that its conclusions are different from those of a recent survey by McKinsey & Company, which suggests that it would be advantageous for employers to drop health care coverage and pay the penalty rather than bear cost of continuing to provide coverage.

Benfield’s research indicated that large employers will remain active and involved in health care decisions and benefits offerings for their employees and dependents for the foreseeable future. Benfield also noted that “employers will continue to strategically evaluate their options in light of both financial and human capital consequences as they seek to grow and profit in a globally competitive marketplace.” The Benfield conclusions agree with a recent International Foundation of Employee Benefit Plans study that indicated few employers will drop health care coverage, but many will make changes in light of the ACA.

The Benfield report cited the following example from a Milliman Benefits Perspective to bolster its argument that few employers will find it economically sensible to drop health coverage

“Let’s say you’re currently paying 80% of employee premiums and decided to terminate your plan. If you wanted to increase cash compensation to allow purchasing the same policy on the exchange, it would cost the following for an employee (family coverage) at a 35% marginal tax rate:

• $15,600 more in salary to pay for exchange coverage ($19,500 estimated 2014 total premium equivalent to the Silver Plan);
• $10,500 more in salary to pay the additional taxes necessary to increase net pay by $19,500 (additional taxes on $15,600 salary increase and former $3,900 employee premium contribution);
• $2,300 in additional employer payroll taxes (7.65% of $30,000—taxable salary increase); and
• $2,000 ACA penalty for not offering a qualified health plan (with additional taxes for non-tax-exempt employers).

“You would spend $15,600 on the employee’s health insurance if the plan continues. However, the cost of providing equivalent cash compensation balloons to $30,400—an increase of nearly 95% in your cost.” (For more information on the Milliman article, visit http://publications.milliman.com/periodicals/bp/pdfs/BP02-15-11.pdf).

The Benfield report concluded, “In addition to concerns over competing for valuable (and increasingly scarce) human capital talent, the math behind the decision is likely behind our finding that only 7% of jumbo employers are considering dropping active employee health care coverage in 2015 and beyond. An additional 7% of jumbo employers are considering dropping health care coverage, but will provide employee vouchers or supplemental compensation.”

For more information on the report, Benfield Research Special Report: Employer Market Healthcare Reform, visit http://www.benfield.com/perspectives/Pers6_9_11.php.

For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer's Benefits Reports.

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