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Pay the fine or provide healthcare?Pay the fine or provide healthcare?

That's the question that McKinsey & Company, a global consulting firm, asked 1329 private sector employers. Well, it wasn't exactly asked like that, but essentially that was the question. The results were quite revealing. Overall, 30% of the employers queried will definitely or probably stop offering employer-sponsored insurance (ESI) in the years after 2014, when many of the rules of the Affordable Care Act will take effect.

Clare Goldsberry

June 28, 2011

2 Min Read
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The reason for this is that it will be cheaper for most employers to pay the $2000 annual fine per employee for not providing health insurance than to provide healthcare benefits to employees.

McKinsey stated, "Our research suggests that when employers become more aware of the new economic and social incentives embedded in the law and of the option to restructure benefits beyond dropping or keeping them, many will make dramatic changes."

The Congressional Budget Office estimated that only about 7% of employees currently covered by ESI will switch to subsidized-exchange policies in 2014. "However," stated the McKinsey report, "our early-2011 survey of more than 1300 employers across industries, geographies, and employer sizes, as well as other proprietary research found that reform will provoke a much greater response."

McKinsey also found that among employers with a high awareness of reform, the proportion of employers who will drop their ESI increases to "more than 50%, and upward of 60% will pursue some alternative to traditional ESI."

The survey also found that "at least 30% of employers would gain economically from dropping coverage even if they completely compensated employees for the change through other benefit offerings or higher salaries."

Some of the new requirements on ESI will be incremental, such as annual and lifetime limits on care must be eliminated and coverage must be offered to dependents through age 26. Plans with premiums above certain levels will be subject to a so-called "Cadillac" tax.

"Other requirements are game changing and could prompt employers to completely reconsider what benefits they offer to employees," said the McKinsey report. "Reform required all employers with more than 50 employees to offer health benefits to every full-timer or to pay a penalty of $2000 per worker (less the first 30). These requirements will increase medical costs for many companies. It's important to note that the penalty for not offering coverage is set significantly below these [higher] costs." 

What will plastics processors do? What will you do? Will it be cheaper for you to pay the $2000 fine than to continue to offer ESI? Do you believe the penalty was set this low to encourage employers to drop their ESI, thus putting more people into the government-run system? Ultimately, do you believe this will reduce health care costs?

About the Author

Clare Goldsberry

Until she retired in September 2021, Clare Goldsberry reported on the plastics industry for more than 30 years. In addition to the 10,000+ articles she has written, by her own estimation, she is the author of several books, including The Business of Injection Molding: How to succeed as a custom molder and Purchasing Injection Molds: A buyers guide. Goldsberry is a member of the Plastics Pioneers Association. She reflected on her long career in "Time to Say Good-Bye."

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