Health care

1 in 10 companies will drop health coverage

20 percent are unsure how they’ll respond to insurance exchanges.

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By Tom Murphy, Associated Press 12:24 AM Thursday, August 25, 2011

INDIANAPOLIS — Nearly one of every 10 midsized or big employers expects to stop offering health coverage to workers once federal insurance exchanges start in 2014, according to a new survey from a large benefits consultant.

Towers Watson also found in a survey completed last month that an additional 20 percent of the companies are unsure about what they will do.

Another big benefits consultant, Mercer, found in a June survey of employers that 8 percent are either “likely” or “very likely” to end health benefits once the exchanges start.

Employer-sponsored health insurance has long been the backbone of the U.S. health insurance system. But the studies suggest that some employers, especially those paying low wages, feel they will be better off paying fines.

The employers said they’d rather pay the taxes than continue to provide benefits that eat up a growing portion of their budget.

The exchanges, which were devised under the health care overhaul, may offer an alternative for their workers. These exchanges aim to provide a marketplace for people to buy insurance that can be subsidized by the government based on income levels.

A large majority of employers in both studies said they expect to continue offering benefits once the exchanges start. But former insurance executive Bob Laszewski said he was surprised that as many as 8 or 9 percent of companies already expect to drop coverage a couple of years before the exchanges start.

Such a move comes with potential payroll-tax headaches and could subject firms to fines. It also would give their employees a steep compensation cut if their pay isn’t raised in exchange for ending coverage. “Dropping coverage is going to be very difficult for these (companies) to do,” said Laszewski, a consultant who was not involved with the studies.

Towers Watson’s Randall Abbott said the survey results should be seen as a snapshot of how companies are thinking now. They can’t be viewed as a final decision because there are still many unresolved variables.

No one knows what the exchanges will be like or whether consumers will accept them, and companies may change their thinking once they learn more about the overhaul.

The health care overhaul also faces court challenges, and President Obama is up for re-election next year, two more variables that could shape what happens.

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