Reform Has Businesses Weighing Options for Worker Health Benefits

In the wake of the federal health reform law, U.S. employers increasingly are examining their options in regard to health benefits, the AP/Los Angeles Times reports.

Two provisions in the law are causing some employers to reconsider sponsoring coverage at all, according to the AP/Times.

One provision is the "Cadillac tax" on high-cost health insurance plans, which takes effect in 2018. The tax is 40% of the annual value of a plan above $10,200 for individuals and $27,500 for families.

The second provision establishes the state-based health insurance exchanges, which will allow individuals beginning in 2014 to shop for coverage among several plans.

Exchanges Create Concern for Tennessee Governor

In a Wall Street Journal opinion piece last week, Tennessee Gov. Phil Bredesen (D) wrote that employers could reduce health-related costs by eliminating employer-sponsored coverage and leaving employees to obtain coverage through the exchanges.

Bredesen noted the existence of a financial incentive for employers to drop coverage: under the reform law, employers can be fined $2,000 per worker for not providing coverage, which would be less than the cost of providing the benefit.

However, Erin Shields -- a spokesperson for the senators who authored the provision to penalize employers who do not provide coverage -- said that most employers will decide to continue sponsoring coverage when they calculate the costs of sending employees to the exchanges. Health benefit costs are tax deductible, a benefit that employers would lose if they drop coverage.

In addition, employers likely would have to pay workers more to get them to agree to the benefit cut, leading the company's income taxes to increase, as well as their share of Social Security and Medicare payroll taxes.

Shields said, "It is clearly cheaper for employers to continue providing coverage."

Analysts Question CBO Assurance

Meanwhile, a number of analysts are questioning data released by the Congressional Budget Office about the effect of the overhaul on employer-based coverage, the AP/Times reports.

During the health reform debate, CBO estimated that about three million of the 150 million U.S. residents who receive employer-sponsored health coverage would lose their coverage, though they would be able to get insurance elsewhere.

However, according to James Klein, president of the American Benefits Council, the reform law's effect on employer-sponsored coverage is "a huge roll of the dice." He said, "It could work out well and build on the employer-based system, or it could begin to dismantle the employer-based system."

Paul Keckley -- executive director of the Deloitte Center for Health Solutions -- said that the firm is hearing from its clients, "'We don't want to be the first one to drop benefits, but we would be the fast second'" (Alonso-Zaldivar, AP/Los Angeles Times, 10/25).