Reality “Checks”

By Nevin Adams, EBRI

A recent opinion piece by Teresa Ghilarducci in the New York Times took on what she termed a “ridiculous approach to retirement,” drawn from what appears to be a series of “ad hoc” dinner conversations with friends about their “retirement plans and prospects.”

Most of the op-ed focused on the perceived shortfalls of the voluntary retirement savings system: People don’t have enough savings, don’t know how much “enough” is, make inaccurate assumptions about the length of their lives and their ability to extend their working careers, and aren’t able to find qualified help to help them make more appropriate savings decisions.   In place of the current system, which Ghilarducci maintains “will always fall short,” she proposes “a way out” via mandatory savings in addition to the current Social Security withholding.  Consider that, just three sentences into the op-ed, she posits the jaw-dropping statistic that 75 percent of Americans nearing retirement age in 2010 had less than $30,000 in their retirement accounts.

“You don’t like mandates?  Get real,” she declares.

When we looked across the EBRI database of some 2.3 million active1 401(k) participants at the end of 2010 who were between the ages of 56 and 65, inclusive – people who have chosen to supplement Social Security through voluntary savings – we found only about half that number (37 percent) with less than $30,000 in those accounts.  Moreover, when looking at those in that group who have more than 30 years of tenure, fewer than 13% are in that circumstance – and neither set of numbers includes retirement assets that those individuals may have accumulated in the plans of their previous employers, or that they may have rolled into Individual Retirement Accounts (IRAs), as well as pensions or other savings (see Average IRA Balances a Third Higher When Multiple Accounts are Considered).

That’s not to say that the financial challenges outlined in the op-ed won’t be a reality for some. In fact, EBRI’s Retirement Security Projection Model® (RSPM) developed in 2003, updated in 20102, finds that for Early Baby Boomers (individuals born between 1948 and 1954), Late Baby Boomers (born between 1955 and 1964) and Generation Xers (born between 1965 and 1974), roughly 44 percent of the simulated lifepaths were projected to lack adequate retirement income for basic retirement expenses plus uninsured health care costs (see “Retirement Income Adequacy for Boomers and Gen Xers: Evidence from the 2012 EBRI Retirement Security Projection Model”) .

The op-ed declares that a voluntary Social Security system “would have been a disaster.”  Indeed, an objective observer might conclude that that is why Congress originally established Social Security as a mandatory system, to provide a base of income for retirees as it still does today.   With the underpinnings of that mandatory foundation of Social Security, the current voluntary system was established to allow employers and individuals to supplement that base.  In recent decades Social Security’s benefits have been “reduced” by increases in the definition of normal retirement age, and a partial taxation of benefits, despite increases in the mandatory withholding rates, in order to adjust to the realities of rising costs from changing demographics.  Even before the recent two-year partial withholding “holiday,” Congress was, and is still today, discussing additional adjustments to that mandatory system.

The voluntary system should be judged as just that, a voluntary system.  As noted above, the data makes it clear that voluntary employer-based plans are, in fact, leading to a great deal of real savings accumulated to supplement Social Security.  Many in the nation work every day to encourage those savings to be increased (see www.choosetosave.org ).

The “real” questions, certainly as one reflects on the debate over the Affordable Care Act mandate, amidst today’s political and economic turmoil, are whether the Congress and the nation will be willing – and able – to pay the price of an expanded or new retirement savings mandate, and, regardless of that outcome, how can a voluntary system be moved to higher levels of success?

Notes

1 Active in this case is defined as anyone in the database with a positive account balance and a positive total contribution (employee plus employer) for 2010.

2 The RSPM was updated for a variety of significant changes, including the impacts of defined benefit plan freezes, automatic enrollment provisions for 401(k) plans, and the recent crises in the financial and housing markets. EBRI has recently updated RSPM to account for changes in financial and real estate market conditions as well as underlying demographic changes and changes in 401(k) participant behavior since January 1, 2010.  For more information on the RSPM, check out the May 2012 EBRI Notes, “Retirement Income Adequacy for Boomers and Gen Xers: Evidence from the 2012 EBRI Retirement Security Projection Model.”

Last June EBRI CEO Dallas Salisbury participated in an “Ideas in Action with Jim Glassman” program discussion with Ghilarducci and Alex Brill from the American Enterprise Institute titled “America’s Retirement Challenge: Should We Ditch 401(k) Plans?”  You can view it online here.

Provider Networks, Premiums Key Factors in Health Plan Choice

When given a choice, most individuals with traditional health coverage say they chose that option because it offered a good network of providers, according to new findings by EBRI.

In contrast, among those with so-called consumer-driven health plans, most cited the lower premiums and opportunity to save money in a health account.

While close to half of all private-sector workers who have health insurance are offered a choice of health plans, most of those with a choice work for large firms, according to the report.

“Most Americans get their health insurance coverage from employment-based plans, yet most employers do not offer a choice of health plans,” said Paul Fronstin, director of EBRI’s Health Research and Education Program and author of the report. “Health plan choices are likely to expand via the expansion of insurance exchanges under the Patient Protection and Affordable Care Act, so it’s important to know how people make their decisions when they do have a choice.”

The EBRI analysis examines issues related to private health insurance exchanges (an integral component of the Patient Protection and Affordable Care Act, or PPACA), possible structures of an exchange, and funding, as well as the pros and cons of adopting them. A summary of recent surveys on employer attitudes are examined, as are other benefit program changes that might serve as historical precedents for a move to some type of defined contribution health benefits approach.

Full results of the report are published in the July EBRI Notes, “Health Plan Choice: Findings from the 2011 EBRI/MGA Consumer Engagement in Health Care Survey.”  

 The Employee Benefit Research Institute is a private, nonpartisan, nonprofit research institute based in Washington, DC, that focuses on health, savings, retirement, and economic security issues. EBRI does not lobby and does not take policy positions. The work of EBRI is made possible by funding from its members and sponsors, which includes a broad range of public, private, for-profit and nonprofit organizations.

Decision Decisions

By Paul Fronstin, EBRI

ImageMost employers find that while they would like to continue providing health benefits to employees and their dependents, longer-term cost trends are unsustainable.  Those trends, combined with the forthcoming decision by the Supreme Court of the United States (SCOTUS) on the constitutionality of the Patient Protection and Affordable Care Act (PPACA) (in whole or in part – notably the individual mandate), and uncertainty related to the future of health care delivery and financing in the United States are causing many employers to start to rethink their role as a provider of health coverage in the workplace.

While there is a possibility that the entire law could be declared unconstitutional, most of the controversy surrounding the PPACA has involved the law’s requirement that individuals either purchase insurance or pay a penalty, the so-called “individual mandate.”  There are basically four ways1 in which SCOTUS might rule on the constitutionality of this provision in the PPACA:

  1. Rule that the individual mandate is constitutional and let implementation of the law proceed;
  2. Rule that the individual mandate is unconstitutional, but that the individual mandate is severable and therefore implementation is allowed to proceed with all other parts of the PPACA;
  3. Rule that the individual mandate is unconstitutional but severable from the remainder of the law, but discards other connected parts of the PPACA, such as guaranteed issue and community rating;
  4. Rule that the individual mandate is unconstitutional, and that the individual mandate is not severable from the PPACA, therefore the entire PPACA is found to be unconstitutional.

As of this writing, only the justices know the decision, but speculation (and odds making) is occurring on a daily basis.  It is unlikely that the court would strike down the individual mandate and discard other connected parts (option 3 above), because it does not have the equivalent of “line-item” veto power of laws passed by Congress.  If the ruling finds the mandate severable from the rest of the law (option 2 above), Congress will inevitably try to fix the PPACA, but it is impossible to predict what the fix may look like given the current political climate and the potential for political gridlock regardless of the outcome of the next election.  If the court rules that the law is unconstitutional (or that the individual mandate is, and is inseparable from the rest of the law, necessitating its rejection), the status quo of the past will return, but with a potential nightmare scenario where the parts of the PPACA that have already been implemented would need to be  “unimplemented” (such as funding provided to the states to establish exchanges, or the deductibility of health care coverage offered to the newly created category of adult dependents under the PPACA that would ostensibly now be subject to taxation), potentially triggering numerous lawsuits and additional political ill will.

While health care reform discussions that ultimately led to the passage of the PPACA started out as discussions regarding system reform that would result in lower health care costs, they quickly morphed into discussions about coverage that largely ignored the overall cost of health care services and health insurance coverage.  Thus, regardless of the outcome of the Supreme Court decision, or the fall elections, health care costs are expected to continue to increase in the future.

What Will Employers Do?

If employers go down the current road they are on and stay with the status quo, we will likely continue to see cost-shifting to workers and the introduction of and experimentation with carrots and sticks in order to change the health behaviors of workers and their dependents.

However, were employers to decide to move away from traditional employment-based health coverage, there are a number of alternative approaches they might consider:

1) De-link health coverage from work.  Employers might endorse a system where they have absolutely no connection to health coverage.  Some have proposed a single-payer system, and others have proposed a purely individual market; there are precedents for both.  Medicare began as the equivalent of a single-payer system for health coverage for seniors but has since evolved into a hybrid public-private partnership, as private plans are an alternative for Medicare beneficiaries.  The private-plan part of Medicare could be expanded to move away from the predominant single-payer-system aspect of Medicare to one that looks more like an individual market (such as that contemplated in the proposal put forth by Congressman Paul Ryan (R-Wisconsin)). Under a single-payer system alternative to the current employment-based system, employers would no longer provide coverage.  Instead, either the federal government or the states would provide coverage, with financing provided through some type of tax.  Alternatively, a purely individual market might look very much like the exchanges contained in the PPACA, with subsidies for low-income workers, or a voucher-type system (also as proposed by Congressman Ryan for Medicare).  Financing for either would come from some type of tax system as well.

2)  Re-define the link between health coverage and work.  Employers have been interested in the concept of “defined contribution” for years as a way to provide health coverage to workers.  While there is no one way in which to define such a concept, presumably it would work in a way in which employers are able to better control or “define” their contribution towards health coverage.  Under that scenario, public exchanges as described in the PPACA could be the vehicle through which workers would get their coverage, with employers either paying some kind of coverage charge (such as the $2,000 penalty included in the PPACA), or the employer may itself seek to make coverage arrangements through third-party private exchanges. Such a system may or may not produce short-term cost savings to employers, depending on individual specifics of how employers transition to such a system, but could provide long-term savings if employer contributions do not rise as fast as premiums would otherwise have grown, or if premium growth is flat (due to the more market-driven system). In such a system, employers would no longer be involved in decisions regarding the design of health care.  Rather, they would simply provide the funding mechanism for workers to purchase health coverage through a party separate from the employer.  Employers have shown interest in this concept in the past through position papers published by the CED  and the ERISA Industry Committee as recently as 2007.  Moving towards these private exchanges would not require a change in law, regardless of the SCOTUS decision, and would be permitted under current law unless prohibited by a future Congress.

After three+-plus years of contentious debate and the challenges associated with understanding and attempting to comply with the new law, it seems that employers are at a crossroads: try to continue with the current employment-based system of health coverage, or undertake to try to fundamentally redefine the system that the United States has essentially lived with since World War II.

It is unlikely that employers will simply take the fork when they come to it in the road.

Notes:

1. There is, of course, also the possibility that SCOTUS will remand the issue of severability back to the lower court, tying up the PPACA in court for a longer period of time, creating more uncertainty, but basically leaving things in play for the time being.

Starting Small

Are CBO Estimates on the Future of Employment-Based

Coverage Under PPACA Moving Toward the Herd Mentality?

By Paul Fronstin, EBRI

Fronstin

Trends in employment-based coverage start with small numbers.

The Congressional Budget Office (CBO) recently reported that it had revised its estimates on the net number of people with employment-based health coverage downward in 2016. In March 2011, CBO reported that about 1 million fewer people would have employment-based health coverage due to enactment of the Patient Protection and Affordable Care Act (PPACA), but in March 2012 it revised that number to about 4 million. CBO also estimates there will be about 2 million fewer estimated enrollees in insurance exchanges, which are to take effect in 2014.

The net reduction in the number of people with employment-based coverage—about 2 percent of the total health insurance market—is actually a function of total gains and losses in coverage. As the CBO notes in a footnote for its 2019 estimates, as a result of PPACA, about 14 million fewer people are expected to have employment-based coverage (about 11 million individuals will lose access to employment-based coverage, and another 3 million will decline employment-based coverage and enroll in health insurance from a different source), while about 9 million will newly enroll in employment-based coverage under PPACA.

The Herd Mentality

A report from Avalere assessed the validity of differing estimates of the effect of PPACA on employment-based coverage. Its analysis concluded that the employment-based market will be fairly stable after 2014, when key PPACA coverage provisions go into effect. However, the most important statement in the report may be the following:

“While near-term changes in aggregate ESI [employer-sponsored insurance] rates are unlikely, longer-term erosion—over 10 to 20 years—is possible under certain circumstances. … if a few [emphasis added] large employers drop coverage after 2014, others could follow in a “me too” effect. Both of these scenarios are difficult to model, but should be considered.”

Various surveys suggest that a significant number of employers will follow the market:

  • In a June 2010 survey, Fidelity found that 26 percent of small employers and 36 percent of large employers would seriously consider eliminating health care if other employers did.
  • In September 2010, HR Policy Association reported that 80 percent of chief human resource officers surveyed said that other companies moving away from health coverage would influence their decision to offer coverage.
  • A June 2011 survey of very large self-insured employers by the Benfield Group found that 21 percent were highly likely and 49 percent somewhat likely to drop coverage if their industry competitors stopped offering health benefits.

The trend in sentiment in these surveys may be reflected in a recent Towers Watson/National Business Group on Health Employer Survey that found that between 2007 and 2011, the percentage of employers reporting that they were highly confident that they would be offering health benefits a decade later fell from 70 percent to 23 percent.

The CBO seems to capture such a dynamic in its sensitivity analysis. CBO indicates that variation of estimates in employment-based coverage ranges from a net loss of 20 million to a net gain of 3 million by 2019. In fact, a number of surveys have also found that a small number of employers plan to drop coverage in 2014 or thereafter (see “Understanding Employer Surveys That Address the Future of Employment-Based Health Coverage,” online here.

As noted earlier, the most important take-away from this may be a reminder that trends in employment-based coverage start with small numbers. The movement away from defined benefit pension plans to defined contribution (401(k)-type) retirement plans did not happen overnight: It began with a mere 1 percentage point drop, between 1980–1981.  Neither did the movement to managed care, to consumer-driven health benefits, nor the movement away from providing retiree health benefits.

These changes took years, some would say decades, to play out. There is no reason to believe that 2014 will look much different from 2013 or 2011 in terms of whether or not employers offer health coverage.

What may be more important is the percentage of employers offering health coverage in 2020, or 2025.

More Part-time Workers Lack Health Coverage

In the wake of the economic recession, the number of part-time workers who lack health insurance is increasing, according to new research from EBRI.

Full-time workers are far more likely than part-time workers to be offered a health insurance benefit from their employers, which in turn affects how many are actually enrolled. In 2010, 60.1 percent of full-time workers had coverage from their own job, while 16.8 percent of part-time workers had such coverage.

Paul Fronstin, director of EBRI’s Health Research and Education Program and author of the report, said the data provide an important baseline to measure changes once a key provision of the Patient Protection and Affordable Care Act (PPACA) takes effect in 2014. The law will require that employers with 50 or more full-time workers failing to provide health coverage to full-time workers in 2014 will be required to pay a penalty. While many employers already offer health coverage, there are other provisions of PPACA that are expected to increase the cost of coverage.

“Because of PPACA, there is concern that employers may respond by cutting back on health coverage for part-time workers or by increasing the proportion of part-time workers employed,” Fronstin said. “Since the recession, we have seen the share of part-time workers going up and at the same time there has been a slight drop in part-time workers with coverage from their own employer.”

The EBRI report notes that penalties for failing to provide health coverage under PPACA will apply only to employers with 50 or more full-time workers. But most of these employers already offer coverage: In 2011, 93 percent of employers with 50‒199 workers offered coverage and 99 percent of employers with 200 or more workers offered it.

The full EBRI report is published in the March EBRI Notes, “Trends in Health Coverage for Part-Time Workers,” online here.

“Essential” Information

By Nevin Adams, EBRI

Nevin Adams, EBRI

About a month ago, the Department of Health and Human Services (HHS) released a bulletin outlining proposed policies that it said would “give states more flexibility and freedom to implement the Affordable Care Act.”

It did that by proposing to allow individual states to select a single benchmark to serve as the standard for qualified health plans inside the health exchange operating in their state—and for the plans offered in the individual and small-group markets in their state. The Patient Protection and Affordable Care Act (PPACA) requires that health insurance plans offered in the individual and small group markets, both inside and outside the “Affordable Insurance Exchanges” (Exchanges), offer a comprehensive package of items and services, known as “essential health benefits.”(1) This benchmark would set the standard of the items and services included in the essential health benefits package called for in PPACA.(2)

Acknowledging that “[t]There is not yet a national standard for plan reporting of benefits,” HHS also noted that PPACA does not provide a definition of “typical,” and it therefore gathered benefit information on large employer plans (which account for the majority of employer plan enrollees), small-employer products (which account for the majority of employer plans), and plans offered to public employees.(3)

However, in releasing its proposal, HHS noted that “[n]ot every benchmark plan includes coverage of all 10 categories of benefits identified in the Affordable Care Act” and that “the most commonly non-covered categories of benefits among typical employer plans are habilitative services, pediatric oral services, and pediatric vision services.”

However, HHS did at least suggest some boundaries, noting that states “would choose one of the following health insurance plans as a benchmark”:

• One of the three largest small group plans in the state;(4)

• One of the three largest state employee health plans;

• One of the three largest federal employee health plan options;

• The largest HMO plan offered in the state’s commercial market.

HHS is soliciting public input on this proposal – though comments are due by January 31, 2012. You can send comments to EssentialHealthBenefits@cms.hhs.gov

The essential health benefits bulletin is online here.

A fact sheet on the essential health benefits bulletin is online here.

The Institute of Medicine’s report on Essential Health Benefits is online here.

Note: The HHS bulletin addressed only the services and items covered by a health plan, not the cost sharing, such as deductibles, copayments, and coinsurance. HHS noted that the cost-sharing features will be addressed in future bulletins and cost-sharing rules will determine the actuarial value of the plan.

See also Paul Fronstin and Murray N. Ross, “Addressing Health Care Market Reform Through an Insurance Exchange: Essential Policy Components, the Public Plan Option, and Other Issues to Consider,” EBRI Issue Brief, no. 330, June 2009.

Endnotes

(1) Beginning January 1, 2014, qualified health plans sold in health insurance exchanges must cover all essential benefits. In addition, new plans sold in the individual and small group markets must cover essential benefits, regardless of whether plans are sold inside or outside of state health insurance exchanges.

(2) The following benefit classes are identified as essential benefit classes: ambulatory patient services; emergency services; hospitalization; maternity and newborn care; mental health and substance use disorder services, including behavioral health treatment; prescription drugs; rehabilitative and habilitative services and devices; laboratory services; preventive and wellness services and chronic disease management; pediatric services, including oral and vision care.

(3) HHS noted that it has considered a report on employer plans submitted by the Department of Labor (DOL), recommendations on the process for defining and updating EHB from the Institute of Medicine (IOM), and input from the public and other interested stakeholders during a series of public listening sessions. In 2010, Paul Fronstin, director of EBR’s Health Research & Education Program, was appointed to the Institute of Medicine (IOM) Committee on Determination of Essential Health Benefits. For more information on the essential benefits proposal, you can contact him at fronstin@ebri.org

(4) An “Illustrative List of the Largest Three Small Group Products by State” was just published by HHS, online here.

How Repealing PPACA Would Affect Needed Savings for Health Care

The August 2011 EBRI Notes contains an aricle on “The Impact of Repealing PPACA on Savings Needed for Health Expenses for Persons Eligible for Medicare.”

New modeling by EBRI finds that Medicare beneficiaries with high levels of prescription drug use would have to save 30-40 percent more than they currently are to pay for higher drug costs if President Obama’s health reform law is repealed.

Medicare beneficiaries with median prescription drug costs would not see any change in their savings targets, EBRI’s analysis finds.

EBRI takes no position on whether or not the law should be repealed; rather, its analysis is designed to measure which groups would be affected and provide estimates of additional savings needed by those who would be affected if it was

The Notes press release is online here.

The full report is online here.

Understanding Employer Surveys That Address the Future of Employment-Based Health Coverage

Paul Fronstin, EBRI

Fronstin

The June 2011 release of a report by McKinsey created a firestorm over the impact that PPACA may have on whether employers offer coverage in the future.  McKinsey reported that “30 percent of employers will definitely or probably stop offering ESI [employer-sponsored insurance] in the years after 2014.”

Republicans responded by calling into question initial projections that very few people would lose employment-based coverage. Karl Rove, for example, reflects the sentiments of Republicans when he recently wrote in the Wall Street Journal (subscription required): “We are now, to our horror, finding out how harmful this measure is.”  The administration referred to the report as an “outlier” and described it as “raising more questions than answers.” Congressional Democrats pressured McKinsey into releasing more information on the methodology, which it eventually did.

What Did McKinsey Really Find?

While the original headline referred to the 30 percent estimate, much more detailed results were eventually released:

As seen in the table above, McKinsey found that only 9.2 percent of employers reported that they definitely would eliminate coverage.  Among employers with 500 or more workers, only 5.1 percent reported that they would definitely drop coverage.

An important question is how to interpret the 20.5 percent of employers who report that they probably would drop coverage.  If focusing only on the percentage of employers reporting that they definitely would drop coverage, the McKinsey estimates are more in line with other surveys. For instance:

• April 2010, Workforce Management Magazine found that 5.2 percent of employers somewhat disagreed and 3.5 percent strongly disagreed with the following statement: “We Will Continue to Offer Our Own Health Care Coverage Because It’s a Crucial Part of Our Recruiting and Retention Efforts.”
• May 2010, IFEBP found that 2.4 percent disagreed and 1 percent strongly disagreed with the following statement: “My Organization Will Continue to Offer Health Care Benefits Because They Are Critical to Employee Recruitment and Retention.”
• May 2010, Towers Watson found that 3 percent of organizations will likely “pay” [to stop offering health benefits] and not “play.”
• June 2010, Fidelity found that 20 percent of employers were seriously considering eliminating health care.
• September 2010, HR Policy Association found that 19 percent of companies surveyed were not likely to be providing health coverage in 2020. Perhaps more honestly, 47 percent reported that were not sure.
• March 2011, HR Policy Association found that 6 percent of employers were giving serious consideration to discontinuing providing health care benefits over the next 10 years.
• May 2011, IFEBP found that 2.7 percent of employers are considering terminating health care programs for active employees as a result of reform. Another 0.7 percent plan to “pay” and not “play.”
• June 2011, Lockton found that 18.8 percent of employers will consider terminating group health plan and pay penalties when the “pay-or-play” mandate takes effect in 2014.
• April–May 2011, the NFIB found that 26 percent of small employers currently offering health benefits are very likely to explore dropping their health insurance plans and another 31 percent are somewhat likely to do so if workers dropped employment-based coverage for insurance in the exchange. The survey also found that a key factor in a small employer’s decision to drop a current health insurance plan will be the proportion of employees who leave their health plan for an exchange. Forty-three percent report that a majority of employees would have to leave before they would drop their plan and 35 percent claim it would require all of them.
• June 2011, Mercer found that 2 percent of employers were very likely to terminate coverage and 6 percent were somewhat likely to terminate coverage after health insurance exchanges are operational.

It’s the Dynamics, Stupid
What is more important—the percentage of employers no longer offering health coverage in 2014, 2020, or 2025?  A recent report from Avalere assessed the validity of differing estimates of the effect of PPACA on employment-based coverage.  Its analysis concluded that the employment-based market will be fairly stable after 2014, when key PPACA coverage provisions go into effect.  However, the most important statement in the report may be the following:

“While near-term changes in aggregate ESI rates are unlikely, longer-term erosion—over 10 to 20 years—is possible under certain circumstances. … if a few [emphasis added] large employers drop coverage after 2014, others could follow in a “me too” effect. Both of these scenarios are difficult to model, but should be considered.”

As noted above, the fact is a number of surveys have found a small number of employers plan on dropping coverage in 2014 or thereafter.

The most important take-away may be the fact that none of the surveys found the percentage of employers that are likely, considering, not likely, agreeing, or disagreeing with the various questions to be zero.  Whether it be the small number that plan on paying instead of playing, the small number giving serious consideration to dropping coverage, or the small number that disagree that they will continue to provide coverage, trends in employment-based coverage start with small numbers. The movement away from defined benefit pension plans to defined contribution (401(k)-type) retirement plans did not happen overnight.  Neither did the movement to managed care or consumer-driven health benefits.

These are all examples of changes to benefits that may not be indicative of what might happen as a result of PPACA; but  the movement away from providing retiree health benefits (an elimination of a benefit) also did not happen overnight.  These changes took years, some would say decades, to play out and there is no reason to believe that 2014 will look much different from 2013 or 2011 in terms of whether or not employers offer health coverage.  But, as Avalere concluded, it only takes a few employers to trigger a change, and the sentiment in the surveys certainly supports that:

• June 2010, Fidelity found that 26 percent of small employers and 36 percent of large employers would seriously consider eliminating health care if other employers did.
• September 2010, HR Policy Association found that 80 percent reported that other companies moving away from health coverage would influence their decision to offer coverage.
• June 2011, the Benfield Group found that 21 percent were highly likely and 49 percent somewhat likely to drop coverage if their industry competitors stopped offering health benefits.

Are Surveys of Employer Opinions on Future Behavior Valid?
It is very difficult to address employer behavior through a survey.  Past surveys of employers have not accurately predicted behavior.  For example, in March 2004, a web-based survey of 991 mostly large employers found that 19 percent were very likely and 54 percent were somewhat likely to offer a health savings account (HSAs) by 2006.  In reality, only 11 percent of large employers offered either an HSA or a health reimbursement arrangement  (HRA) by 2006, with 37 percent of jumbo employers offering them and 6 percent of employers with 500-999 workers offering them, according to Mercer.  By 2010, only 23 percent of large employers offered either type of plan, still far below the survey findings from 2004.

There are many issues that employers will consider when weighing the pros and cons of dropping coverage.  Some are as follows:

• Is there a concern about recruitment and retention?
• Is there a concern about the impact on worker health and productivity?
• Will the health plans offered in the exchange be an acceptable substitute for employment-based plans?
• Will dropping coverage really save money?
• What are other employers doing?

There is no reason to believe that any survey conducted today can be used to determine the percentage of employers that might be dropping coverage three or more years from now as a result of a major component of health reform—insurance exchanges combined with insurance market reforms—that is still years away from being up and running.

Employer and Worker Reactions to Health Care Reform

The January 2011 EBRI Notes  examines how employers might respond to health reform and employees’ expectations of changes to health coverage.

January 2011 EBRI Notes

As the Notes article details, both employers and workers say they are not very knowledgeable about health reform, but that employers say they are likely to pass along any health benefit cost increases to workers—and, mostly, workers are expecting such cost increases.

The findings are from the 2010 EBRI/MGA Consumer Engagement in Health Care Survey and the Society for Human Resource Management’s 2010 SHRM Organizations’ Response to Health Care Reform Poll.

Concerning the future of coverage, employers are evenly split as to whether they will change health coverage as a result of health reform while workers are split between thinking their benefits will remain the same or erode.  While few workers expect employers to drop coverage after 2014, and very few employers plan to drop coverage, employers are evenly split between having decided to continue to offer coverage and being undecided about the future of employment-based health coverage.

The full report is online here.  The press release is online here.

The Early Retiree Reinsurance Program: $5 Billion Will Last About Two Years

An advance release of EBRI’s July 2010 Notes is online here, and finds that a $5 billion temporary reinsurance program designed to help employers maintain health benefits for early retirees likely will be exhausted within two years—well before the 2014 termination date for the program.

Key points of the analsysis:

PPACA’S EARLY RETIREE REINSURANCE PROGRAM: The Patient Protection and Affordable Care Act (PPACA) of 2010 created a temporary reinsurance program for sponsors of employment-based health plans that provide retiree health benefits to retirees who are over age 55 and not yet eligible for the Medicare program. The program provides an 80 percent subsidy for retiree claims of between $15,000 and $90,000. Congress appropriated $5 billion for the program, which is effective June 1, 2010, and the subsidy will be available through the earlier of Jan. 1, 2014, or the date when the funds are exhausted.

EMPLOYER INCENTIVE: One goal of the program is to provide an incentive for employers to maintain retiree health benefits and assist retirees with their costs for health coverage. Under the early retiree reinsurance program, plan sponsors must be able to show that the subsidies were not used to reduce their level of support for the plan. Subsidies can be used to reduce retiree costs, and sponsors must also show that the subsidies were used to generate savings or had the potential to generate savings.

EXHAUSTION LIKELY WITHIN TWO YEARS: An important question is whether the $5 billion will be exhausted before 2014. This article finds that if the subsidy were drawn down for all early retirees and their dependents, $2.5 billion of the $5 billion available would be exhausted in the first year of the program. The $5 billion would last no more than two years and would not be available in 2012 or 2013.