Will Big Companies Drop Health Benefits?

Once the dust settles on the forthcoming state insurance exchanges, small companies may not be the only ones seeking to shed employee health plans.

Large employers plan to continue offering health benefits after the health-insurance exchanges provided for under the Affordable Care Act (ACA) begin operating — whether that’s in 2014, as the law currently requires, or later, as seems more likely.

At least, that’s what those employers are saying now. “My corporate clients, most of which are large, are asking a lot of questions about [the ACA], but none are about the exchanges,” says Priscilla Ryan, a partner at law firm Sidley Austin, which has a large health-care practice. “None of them are considering dropping their health-care coverage.”

Many such companies considered the idea when the law was enacted in 2010, or even earlier, and rejected it, according to Ryan. “They’ve moved on and are well on to new plan designs and expanding coverage as required by the law,” she says.

But companies have no reason to show their hands now. That’s especially so because timetables for the state-run exchanges, as well as federally operated exchanges that are to be created for residents of states that decline to tap federal subsidies and create their own, are so iffy. Thirty-six states have achieved less than 10% of the 109 milestones toward the establishment of an exchange identified by the National Academy for State Health Policy.

That may mean it’s a long shot that a majority of states will meet a November 16 deadline to indicate whether they plan to set up an exchange and, if so, provide a blueprint demonstrating their readiness in 13 areas so that the exchange will be operational by January 1, 2014, as stipulated in the ACA. That will in turn delay the federal government’s work on creating the state exchanges it will run (which could turn out to be as many as half of them, by some estimates), since the health insurers that will participate in the exchanges will vary from state to state.

“Maybe a few states will be ready, but it seems quite unlikely that most of these things will be running by 2014,” says Susan Nash, a partner at McDermott Will & Emery, another law firm with a strong health-care focus.

So companies have plenty of time to make the “pay or play” decision. It’s called that because employers with more than 50 full-time-equivalent workers that decide to forgo offering health insurance will have to pay a tax, in most cases $2,000 per employee per year, minus 30 employees.

Companies that now say they have no intention of abandoning employee health-care benefits — even though it likely would be a financial plus for them, because average per-employee costs are almost always greater than $2,000 per year — might change their mind if a competitor makes the move.

“I think it’s going to be like the lemmings: who’s going to jump off the cliff first?” says Nash. “I haven’t heard any large employers say they’ll do it yet, but it’s highly possible. If Wal-Mart or Costco did it and were successful, it might become an easier and easier decision for other retailers to make and it could become a standard in that sector.”

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