Health care reform costs may prompt more employers to drop coverage

Feb 07, 2012

Aug 31, 2011

The outlook for employer-paid health care coverage is grim according to three new reports. All pointed to a growing likelihood – as health care coverage becomes more expensive, many businesses will be unable to provide continued coverage for their employees.

A report from the McKinsey Group suggests that employers may make dramatic changes to their current practices, with 30% likely to stop offering health care coverage after 2014.

Health care coverage for a family of four is expected to rise 7.3% in expenses this year, according to the Millman report.

PricewaterhouseCoopers provided a dismal forecast for health care costs, as they predicted medical costs to rise 8.5% in 2012, up from 8% in 2011. PwC said “some employers are becoming less confident in their ability to offer health benefits on a long term basis.”

PwC also reported that:

  • 84% of employers are likely to makes changes to offset the costs associated with health care reform
  • 86% are likely to re-evaluate their overall benefits strategy
  • 50% are considering significantly changing or eliminating company subsidies for dependent medical coverage

Robert Klonk, president of Oswald Companies, said, “Some employers are thinking of discontinuing coverage, increasing salaries and just paying the penalties associated with health care reform.”

“The government doesn’t want employers to drop coverage. They are going to raise the penalty – and raise it pretty dramatically,” Klonk said. “We do expect to see that happen once more middle-market employers start to drop their plans.”