By Elise Viebeck - 11/21/13 06:00 AM EST
Millions of people are expected to lose their employer-based healthcare coverage over the next decade, according to business surveys and estimates by the Congressional Budget Office (CBO).
By 2016, the CBO has projected that 6 million fewer people will receive employer-based health insurance compared with this year. The estimate includes those who could obtain coverage through their work but choose not to.
“We had rising costs before the [Affordable Care Act], and we had employers dropping coverage before the ACA. … But in politics, these things are fair game,” said Dan Mendelson, president of the consulting firm Avalere Health.
While the White House is currently focused on the wave of plans canceled in the individual market, the move away from employer-based health insurance could pose an even bigger political problem in the years after ObamaCare is fully enacted.
The shift started in the late 1980s, as companies sought to reduce their costs by cutting health benefits. The push for a new healthcare law was, in some ways, a response to this long-term pattern.
While employers have reason to offer employees healthcare to attract and keep the best and brightest, the creation of the new healthcare exchanges for the uninsured also gives them an excuse to drop coverage.
Shipping company UPS blamed Obama-Care in August when announcing that it would stop offering health insurance to 15,000 employee spouses whose jobs already offer medical benefits.
The next month, both Home Depot and Trader Joe’s said they would stop providing coverage for some part-time employees.
Both said they would recommend that workers seek insurance on ObamaCare’s new exchanges.
“The law provides [lower-income] people a pretty good deal for insurance … a deal that can’t be matched by us,” Trader Joe’s said, explaining its decision.
“However, an individual employee is only able to receive the tax credit from the exchanges under the act if we do not offer them insurance under our company plan.”
The anecdotes echo the results of a recent survey of 400 mid-size firms by the Chamber of Commerce and the International Franchise Association, which found that 28 percent planned to drop their healthcare coverage because of ObamaCare.
Penalties under the employer mandate, which after a one-year delay, is scheduled to take effect in 2015, are supposed to act as a disincentive to drop insurance.
Larger firms are required to offer health plans to employees working more than 30 hours per week or pay hefty fines starting in 2015.
But Neil Trautwein, vice president and employee benefits policy counsel at the National Retail Federation, said some companies would choose to pay the penalty.
“It will definitively be less expensive to pay penalties than to provide coverage,” he said. “That said, the decision is a little more complex than dollars and cents. … The same impulse that drove us to offer coverage in the first place in order to attract good workers is still there.”
Some employers are also expected to pare back highly generous benefit packages — which are now the target of a special “Cadillac” tax — as a means of managing costs.
And other companies are likely to cut employee hours below the minimum to avoid having to offer health insurance.
Ironically, experts said, the problematic launch of ObamaCare’s insurance marketplaces has likely discouraged employers from dropping their health insurance in the short term.
Trautwein said the exchanges’ “checkered rollout” is depriving employers of a clear alternative to offering their own coverage.
“The perception that employers are dumping employees into the exchanges is not borne out by current evidence,” he said.
Yet Republicans have jumped on reports of companies like UPS and Trader Joe’s changing their insurance plans, highlighting the risk going forward for the administration and ObamaCare supporters.
Republican National Committee spokeswoman Kirsten Kukowski vowed that the issue would come back to haunt Democrats in the midterm elections.
“Rising healthcare costs, Americans losing their healthcare plans and their doctors and employers cutting hours and benefits are all things Democrats are going to have to answer for in 2014,” Kukowski said in a statement.
“President Obama and the Democrats knew there were consequences with ObamaCare and they lied to Americans to pass a trainwreck of a law.”
Democrats see the issue in a different light, arguing the law is lowering overall healthcare costs, the exchanges are vital for consumers on the individual market and employers are using the Affordable Care Act as a scapegoat when they drop coverage.
The White House released a report Wednesday showing that healthcare spending has grown at the slowest rate on record since the law’s passage in 2010, lowering employers’ benefit costs and increasing the likelihood of new hires.
“Available estimates suggest these gains could be substantial, although the magnitude is uncertain,” the report stated.
The law’s effect on worker hours is also hotly debated.
The Chamber survey found that roughly one-third of franchise businesses have already reduced employee hours citing the healthcare law, and 27 percent have replaced full-time employees with part-time workers.
Mendelson said that, instead of leading employers to drop coverage, the new exchanges are more likely to prompt firms to shift new healthcare costs to their workers. Plans with high deductibles or narrow provider networks are two examples.
“Employers are looking for ways to maintain coverage and keep their costs under control. In our research, it looks like the exchanges are likely to accelerate this trend,” Mendelson said.