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Cheap Health Insurance May Disappear As Companies Consider Dropping Benefits

The results of an insurance industry survey conducted by the consulting firm Tower Watson has revealed disturbing changes in the wind for 2014 when federal insurance exchanges will begin to operate under the Affordable Care Act. One in ten of the companies contacted for the survey said they would discontinue offering health insurance as an employee benefit, with an additional 20 percent undecided.

Cheap Insurance as a Job Benefit Has Been a Staple

Since job-related benefits are the number one source of cheap health insurance for most Americans, this news on top of lingering anxiety about the wisdom of the entire health care reform package, will surely raise existing fears that inexpensive insurance will disappear for many of us within three years. Some experts predict that 8 to 9 percent of large companies will discontinue employee health benefits before 2014, perhaps starting to phase out programs as early as next year.

In a written statement accompanying the survey report, Ron Fontanetta of Tower Watson said, “With so much still unknown regarding both the short- and long-term impact of health care reform, most employers will not make wholesale changes to employer-sponsored health plans in 2012. However, a small group of employers is driving more fundamental change in 2012.”

Companies See Dropping Insurance Benefits as Cost Effective

The concept underlying the federal exchanges is the creation of a marketplace where consumers can pay for government-subsidized cheap insurance with rates tied to their income levels. Although most employers will continue to bundle health coverage in their benefits packages, some are, apparently, starting to feel that paying fines and additional taxes is a more cost-effective approach.

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Although Tower Watson was quick to point out that the study findings are not definitive and that companies simply can change their minds, 2012 will be a defining year. With health care reform being challenged in the courts, both insurers and large companies are taking defensive actions to protect their profit margins against legal changes.

Administration Rejects Study Findings

Not surprisingly, the Obama Administration disputes the findings of the Tower Watson survey, citing different findings by the Congressional Budget Office and non-profits like the Urban Institute. In fact, Health and Human Services spokesman Richard Sorian was quoted in a story for CBS News insisting the exact opposite was true regarding job-related insurance benefits.

“History has shown that reform motivates more businesses to offer insurance,” he said. “Health reform in Massachusetts uses a similar structure, and the number of people with employer-sponsored insurance in Massachusetts has increased.” That is not, however, technically accurate. The state health care agency Massachusetts Health Connecter says the total is flat.

Although no one may be able to accurately predict what companies will do over the next two years, it seems certain that cheap insurance may actually get expensive before it gets cheap. In 2010, the average annual premium for family coverage through an employer as $13,770. It’s certain that if companies can see a way to divest themselves of that expense and incur only minimum legal penalties, they will. With more than 50 million Americans living with no insurance (7 million of those being children) it seems that in the short-term, at least, health care reform is making the search for inexpensive health insurance harder, not easier.

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