INDIANAPOLIS (AP) — Nearly one of every 10 midsized or big employers expects to stop offering health coverage to workers after insurance exchanges begin operating in 2014 as part of President Barack Obama's health care overhaul, according to a survey by a major benefits consultant.
Towers Watson also found in its July survey that another one in five companies are unsure about what they will do after 2014. Another big benefits consultant, Mercer, found in a June survey of large and smaller employers that 8 percent are either "likely" or "very likely" to end health benefits after the exchanges start.
The surveys, which involved more than 1,200 companies, suggest that some businesses feel they will be better off dropping health insurance coverage once the exchanges start, even though they could face fines and tax headaches. The percentage of companies that are already saying they expect to do this surprised some experts, and if they follow through, it could start a trend that chips away at employer-sponsored health coverage, a long-standing pillar of the nation's health system.
"If one employer does it, others likely will follow," said Paul Fronstin of the Employee Benefit Research Institute. "You would see this playing out over the course of years, not months."
A large majority of employers in both studies said they expect to continue offering benefits after these exchanges start. But former insurance executive Bob Laszewski said he was surprised that as many as 8 or 9 percent of companies already expect to drop coverage a couple of years before the exchanges start.
Such a move could lead to more taxes for both companies and employees, since health benefits currently are not taxed, and companies could be fined for dropping coverage. It also would give their employees a steep compensation cut if they don't receive a pay raise, too.
"Dropping coverage is going to be very difficult for these (companies) to do," said Laszewski, a consultant.
Towers Watson's Randall Abbott said the survey results should be seen as a snapshot of how companies are thinking now, not as a final decision, because there still are many unresolved variables. Companies may change their thinking once they learn more about how the exchanges will work or whether employees will accept them.
The health care overhaul also faces court challenges, and President Obama is up for re-election next year, two more variables that could shape what happens in 2014 and afterward.
The Obama administration took issue with the Towers Watson survey, pointing out that studies by the nonpartisan Congressional Budget Office and nonprofits like Urban Institute reached different conclusions.
An Urban Institute study projected that the overhaul will have little effect on employer-sponsored insurance. When lawmakers debated the legislation, the CBO projected it would only have minimal impact on employer plans. About 3 million fewer people would be covered through work, but they'd be able to get insurance elsewhere.
Health and Human Services spokesman Richard Sorian said the administration expects to see a rise in employer-sponsored health insurance, not a decline.
"History has shown that reform motivates more businesses to offer insurance," said Sorian. "Health reform in Massachusetts uses a similar structure, and the number of people with employer-sponsored insurance in Massachusetts has increased."
But according to Dick Powers, a spokesman for Massachusetts Health Connector, a state agency that administers its universal health law, the total is flat. He said the number of people with employer-sponsored coverage climbed after Massachusetts enacted reform in 2006 but has dropped back down to around pre-reform levels since the economy tanked in 2008.
The percentage of employers in the state that offer their workers health insurance has risen from 69 percent before reform to 77 percent.
Companies that decide to drop coverage likely will be those that have a low percentage of workers enrolled in their plans and high staff turnover, Abbott said. This could include retail or hospitality businesses. For those companies, benefits are not crucial to retaining workers, and their employees may find better options on the exchange.
"Health care is high-cost, fast-growing expense they would like to eliminate," Abbott said.
Last year, the average annual health insurance premium for employer-sponsored family coverage was $13,770 per worker, with companies picking up most of that tab, according to the Kaiser Family Foundation and Health Research and Educational Trust. That cost has more than doubled since 2000.
The exchanges aim to provide a marketplace for individuals, families and small businesses to buy coverage. Many consumers will be eligible for tax credits to make their premiums more affordable.
The Towers Watson survey focused on companies ranging in size from 500 employees to more than 10,000. Smaller companies may be more inclined to consider exchanges after being battered by benefits cost increases of 10 percent or more in recent years, said Dan Mendelson, CEO of the research firm Avalere Health.
Benefits consultants say most companies, especially large employers, will continue to offer coverage because they need to attract and keep workers. But that could change if a competitor drops coverage first.
Michael Turpin, a national practice leader at broker and consultant USI Insurance Services, said one of his clients plans to drop coverage as soon as any competitor does. The client, a major entertainment industry company he declined to identify, will be at a financial disadvantage if it doesn't.
"In those industries ... if somebody makes the first move, the others are going to follow like dominoes," Turpin said.
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AP reporters Ricardo Alonso-Zaldivar in Washington and Linda A. Johnson in Trenton, N.J., contributed to this report.
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