McKinsey fires back

June 20, 2011

If you’ve been following the controversy around the recent McKinsey & Company Quarterly, you’ll want to read this. McKinsey, in a break from its traditional policy, has released survey questions and results from its recent study of employer-sponsored insurance.

McKinsey has been pushed to this unusual step by a groundswell of Democratic unrest about the survey’s methodology. McKinsey’s response explains that “The survey was not intended as a predictive economic analysis of the impact of the Affordable Care Act. Rather, it captured the attitudes of employers and provided an understanding of the factors that could influence decision making related to employee health benefits.”

Visit Extend Health — the nation’s largest private Medicare exchange.

Extend Health CEO Bryce Williams has just posted his first entry as a Fast Company “expert blogger: “Can the Internet Change How We Buy Health Care?” We hope you’ll check out the Fast Company piece, and his own personal blog, Watch This, for more of Mr. Williams’ informed and lively take on how technology and health care reform are changing the way we buy and access health care.

Visit Extend Health — the nation’s largest private Medicare exchange.

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McKinsey & Company in Shanghai _3417

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According to a recent study released by McKinsey & Company report titled How US Health Care Reform Will Affect Employee Benefits, 30 percent of employers will “definitely or probably” drop health insurance for their employees. This is a far cry from earlier projections, such as the Congressional Budget Office’s estimate that only 7 percent of employees will have to switch from employer-sponsored insurance (ESI) to subsidized-exchange policies in 2014.

McKinsey’s survey of 1,300 employers found that the impact will be much greater than those original estimates. Here’s a summary of their key findings:

  • 30 percent of employers will “definitely or probably” stop offering ESI
  • 45 to 50 percent of employers will “definitely or probably” seek ESI alternatives
  • 50 to 60 percent of employers with “high awareness of reform” will pursue ESI alternatives
  • 30 percent of employers would still benefit economically by dropping coverage even after compensating employees with other benefits or increased salaries
  • 85 percent of employees would not quit their jobs if ESI was no longer offered

McKinsey’s findings also indicate that to remain competitive for top talent, employers that drop ESI are expected to make up for it by increasing other benefits like salaries, vacation, retirement, or health-management programs. However, McKinsey believes that employers won’t have to compensate employees for 100 percent of the lost insurance value.

Interestingly, the survey shows that employers that are considering dropping ESI are doing so because they realize ESI may not be the most efficient way to provide health coverage for their employees after 2014. But the report also points out that most employers will probably find solutions somewhere between the extremes of completely dropping ESI and continuing their current offerings:

“For employers and insurers, success after 2014 will require a better understanding of employee and employer segments, and the development of the right capabilities and partnerships to manage the transition.”

Not everyone agrees with the findings of this thought-provoking report. The Obama administration, for instance, has pointed out the McKinsey’s research is at odds with that from the Congressional Budget Office, Rand Corp., and the Urban institute. One thing is for sure: the McKinsey report is a must read if you are interested in the potential effects of health care reform on employer-sponsored health care benefits. You can download the report from McKinsey Quarterly.

Visit Extend Health — the nation’s largest private Medicare exchange.

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