McKinsey survey says 30% of employers will drop health benefits

June 13, 2011

McKinsey & Company in Shanghai _3417

Image by !/_PeacePlusOne via Flickr

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.

Enhanced by Zemanta

7 Responses to “McKinsey survey says 30% of employers will drop health benefits”

  1. John Nail said

    The McKinsey study is seriously flawed and is now being called out by the Senate Finance Committee:
    http://tpmdc.talkingpointsmemo.com/2011/06/max-baucus-issues-public-call-to-mckinsey-to-come-clean-about-controversial-hcr-survey.php

    Also IFEBP’s study didn’t support these conclusions:
    http://www.plansponsor.com/Despite_Anticipated_Costs_Most_Employers_to_Keep_Health_Care_Benefits.aspx

    Nor did the Urban Institute study co authored by the head of McKinsey’s healthcare practice. A bit odd huh?:
    http://www.urban.org/uploadedpdf/412295-Employer-Sponsored-Insurance.pdf

    Also the MA experience is indeed relevant as it is the only one to compare to other than UT which also has declined a point or 2 since their limited exchange went into effect. Here is a total review of MA by the BCBS of MA that is quite interesting:
    https://c.na7.content.force.com/servlet/servlet.FileDownload?file=015A0000001ZOSL

    • cholla45 said

      We’ve been watching the controversy with interest and appreciate the links to opposing points of view. You’ll note that post also has a link to a story questioning the study’s methodology. Thanks for your comment and the information.

      Chris Holland

  2. The McKinsey study is seriously flawed and is now being called out by the Senate Finance Committee:Thanks for your comment and the information.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.nice post.

  3. We’ve been watching the controversy with interest and appreciate the links to opposing points of view.This is the McKinsey survey says 30% of employers will drop health benefits.

  4. 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.

    • cholla45 said

      If HCR works as it should, employees won’t need to be compensated for 100% of the lost insurance value because they’ll be able to purchase equivalent coverage at a lower cost on the exchanges. That is a big if, but we have seen it work over and over again in the Medicare market, where employers give their retirees a subsidy that is 85% or even less of what the employer was spending per retiree for a group plan – and retirees are able to buy health care and prescription drug coverage that meets their specific requirements with that subsidy. Retirees may even spend less each year on premiums than they did before the transition to an individual account.

  5. […] McKinsey survey says 30% of employers will drop health benefits (extendhealth.wordpress.com) […]

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: