McKinsey Survey: 30% of employers will stop offering health insurance in 2014

According to a survey by McKinsey Quarterly, approximately 30% of employers who provide health insurance to their employees will drop coverage after 2014, instead opting to pay a penalty and/or increase wages.

McKinsey explains that many employers will offer increased compensation to their employees if their health care plans are dropped; however, such thinking underestimates the ways in which employees undervalue their compensation packages.  On the average, employers spend 43 cents on benefits per dollar of payroll; however, employees only value about half of that. (Here is a comprehensive list of the non-payroll costs that employers pay.)   Should employers cut back on health insurance, their employees may demand a higher salary – but not high enough to cover their costs.

As conservatives, we often point out that employer-provided health insurance, matched FICA taxes, and unemployment insurance mask the true cost of those benefits. If employers dump their employees onto state exchanges, they can likely get away with offering less money in an increased salary than they had been paying out in employer-sponsored health insurance.  Employees who know the value of their benefits and make their salary requests accordingly may find themselves priced out of the market. It’s not a very employee-friendly result, but is a very likely one.