Democratic reforms were supposed to drive down costs and expand access, but a new study forecasts employers rolling back benefits

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The more a company knows about coming changes to the nation's health care laws, the more likely it is to consider radically restructuring the way it provides insurance to employees, according to a study by the consulting firm McKinsey and Co.

The study, which is being circulated among Republicans, predicts that as many as 30 percent of companies will stop offering health insurance benefits, reduce the level of benefits, or offer benefits only to certain employees. If this prediction holds, the number of Americans who could see changes to their health insurance would be far more than the 9 million to 10 million estimated by the Congressional Budget Office.

That means that the cost of subsidizing plans for those people -- about $19 billion a year, according to the CBO -- could more than triple. And, if the report's predictions are borne out, many Americans would lose their health insurance.

The study contradicts at least three others predicting that reform will have a negligible effect on employer-sponsored insurance. A Rand study finds the number of employees who would lose insurance to be "small," and the Urban Institute believes that the percentage "would not differ significantly."

"History has shown that reform motivates more businesses to offer insurance," said an administration health care expert who read the study at National Journal's request. "Health reform in Massachusetts uses a similar structure, with an exchange, a personal responsibility requirement, and an employer responsibility requirement. And the number of individuals with employer-sponsored insurance in Massachusetts has increased."

In first selling the plan to Congress, President Obama said that "no one" who liked their current plan would be dumped into a subsidized insurance market by their employers. But his language changed once it became clear that some employers would find it cheaper in the new system to not offer health benefits at all.

"When I say if you have your plan and you like it ... or you have a doctor and you like your doctor, that you don't have to change plans, what I'm saying is the government is not going to make you change plans under health reform," Obama said in June 2009.

With a few exceptions, beginning in 2014, companies with more than 50 employees would have to provide insurance to every worker or pay the government a fine.

If a company estimates that it would pay $3,500 a year per person for the plan, the economic incentive alone might lead them to drop coverage -- and give the employee a raise at the same time, McKinsey says.

McKinsey surveyed 1,200 companies and conducted other "proprietary research" to determine how companies, when presented with incentives in the new health care regime, would act in the future. It also surveyed thousands of employees across regions and industries.

According to the firm, most employers would try to fulfill the requirement to offer insurance, citing as reasons the company's reputation, the need to attract a talented work force, and the need to keep that work force happy. The law includes tax incentives to keep businesses from ending the benefit for employees. But McKinsey also found that about 85 percent of employees would consider remaining with a company even if they weren't offered health benefits.

"Overall, employees value cash compensation several times more than health coverage. Further, many younger employees also value career-development opportunities and work-life balance more than health benefits," McKinsey says. 60 percent of employees surveyed expect employers to offer higher wages if they drop insurance coverage, and most employers said they probably would.

Another reason why employees might tolerate the axing of their benefits is that the policies offered by the state exchanges may be better and cheaper for them.

"The subsidies will keep the cost of insurance coverage from the exchanges below what many employees now pay toward employer-sponsored coverage, especially for those whose earnings are less than 200 percent of the federal poverty level," McKinsey concludes.

Companies will find it economically beneficial to offer insurance to some employees -- and might conclude that workers with relatively less money would benefit more from participating in the health exchanges and receiving higher compensation at work.

In other words, both the employer and the employee might recognize that the most economically beneficial arrangement between the two could result from the lower costs an employee would pay for health care outside the workplace, because premiums and out-of-pocket costs would be subsidized by the government. At the same time, the employer could raise the employee's salary or increase wages by a smaller amount than the penalty it would pay for not insuring the employee -- provided that the wage increase plus the penalty does not equal the cost the employer would already bear.

Of course, if companies and employers don't pay for the health care, the cost burden shifts to the government.

McKinsey projects that many companies will take a hybrid approach.

"The discussion to date has largely focused on dropping versus keeping coverage, but for most employers the most value-creating options lie in between. Employers should evaluate the economic impact not only of expanding [employer-subsidized insurance] to every employee (compared with dropping it completely) but also of shifting toward part-time labor, allowing lower-wage employees to qualify for exchange subsidies through setting premiums above 9.5 percent of their household income, or adopting defined-contribution models," the study says. "These intermediate options will probably be the most effective way to secure a reasonable [return on investment] for benefits after 2014."

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