Human Capital & Careers

Stories of Demise of Health Coverage Are Exaggerated

Deloitte research shows that 9% of employers expect to eliminate health benefits within three years. But that result isn’t nearly as sensational as...
David McCannJuly 26, 2012

About 1 in 11 employers plans to drop employee health-care coverage within three years as the health-care exchanges described in the Affordable Care Act (ACA) become operational, Deloitte said on Wednesday after surveying 560 employers. But that result, which made headlines nationwide, tells only a small part of the story.

If 9% of employers already have that course of action in mind, reason would suggest that many more than that will nix health benefits if it turns out the exchanges ably provide access to adequate-quality care at affordable prices. After all, employers that took such action would be penalized just $2,000 per employee, a fraction of what they’re paying now for their employee health plans.

But even a cursory look at Deloitte’s numbers reveals that, as with so many things corporate, the truth depends heavily on company size. Among 269 responding companies with 1,000 or more employees, just 3 said they will drop coverage. Meanwhile, among 108 participants with 50100 workers, 13% are aiming to wield the ax. The figure was 5% for those with 101999 staffers.

And those results are actually no surprise at all, despite all the reports highlighting the overall impending 9% attrition in benefit plans (actually, virtually all of them rounded up the figure Deloitte reported to 10%). Experts have been saying for some time that smaller companies are far more likely to consider the exchanges as an alternative. “Health care is a larger percentage of their spend,” says Amy Gordon, a partner specializing in health-care law at McDermott Will & Emery. “And to them, each dollar is more important, because it is a larger share of their overall revenue.”

And since most of the companies that plan to take the step are small, they employ a disproportionately small percentage of workers. As Deloitte pointed out in its study, “9% of companies representing 3% of the workforce anticipate dropping coverage in the next three years, versus 81% of companies representing 84% of the workforce that plan to continue.” The other 10% of companies, representing the remaining 13% of workers, were not sure.

A Google search for “Deloitte employers stop health coverage July 25 2012” found articles on the study in 20 different publications in just the first two pages of search results. None addressed the survey’s company-size breakdown, though most were obvious pickups from, or rewritten versions of, original articles in The Wall Street Journal and The Washington Times.

Regardless of the degree to which the findings are taken out of context, the Deloitte study is bound to get less attention than a June 2011 study by the management-consulting firm McKinsey & Co. on the same topic that was widely criticized by news organizations, congressional Democrats, and the White House.

That report said 30% of employers would eliminate health-care benefits in the next few years. It immediately raised eyebrows because its findings were so far afield from those of other research efforts. Under pressure, McKinsey revealed the wording of the questions posed and information provided to participants. In one question, for example, employers were told, “Assume exchanges become an easy, affordable way for individuals to obtain health insurance.” 

Meanwhile, here are some other findings from the Deloitte study, which was broadly about employers’ opinions of the U.S. health-care system and plans for employee benefits:

  • Among 63 respondents who were CFOs, 61% gave the health-care system a grade of C or worse.
  • Among all respondents, only 6% graded the current costs of care better than a C.
  • CFOs and CEOs tended to blame hospital costs and unhealthy behaviors the most for the high costs, while human-resources professionals pointed to prescription drugs and system inefficiencies as roughly equal to those factors.
  • 52% of CFO respondents said they have an excellent or good understanding of the ACA; just 4% had limited or no understanding.
  • 64% of the CFOs said the ACA is “a step in the wrong direction.”
  • Roughly two-thirds of employers said they plan to increase employee cost-sharing (i.e., deductibles and co-payments), employee premium contributions, and wellness and preventive health programs in the next three to five years.