Human Resources News & Insights

Will employers simply scrap health plans, pay penalties?

Several big companies say that continuing to offer employee health care under the new reform laws just doesn’t make financial sense. And they’re seriously considering scrapping their plans altogether.

Bad news for lawmakers that just assumed companies would keep providing health coverage even after the reform law’s mandates kicked in: New evidence shows that four major employers — Verizon, AT&T, John Deere and Caterpillar — have crunched the numbers so see whether they should “play or pay.”

Their conclusion? It’ll be cheaper — way cheaper — to pay the penalties to the government and drop their employee health insurance plan.

Huge savings

Of course nobody thought a company would pull the rug out from its employees by actually dropping coverage. But then again — nobody thought dropping coverage to pay a penalty would save a company 75%, and nearly $1.8 billion, off its healthcare bill. That’s what AT&T calculated it would save.

Caterpillar came to the same conclusion. It said it could shave 70% off its bill by doing the same thing.

These findings come from internal documents recently reviewed by Congress.

The companies didn’t intend for this information to become public. It did so as a result of demands by Rep. Henry Waxman (D-CA) that the companies turn over all of their internal documents to Congress relating to healthcare reform compliance.

A real possibility

With so much savings involved, it no longer seems unrealistic that employers would drop their health plans and essentially give employees a “raise” to buy coverage on state insurance exchanges.

None of the four companies commented in their reports as to whether they would actually drop their coverage. But it’s pretty clear they’re taking a good long look at that possibility.

Would your company consider dropping employee health coverage once the reform law’s 2014 “play or pay” mandate kicks in? Share your opinions in the Comments Box below.

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  • HR Rep

    Why consider it now? It has been FREE to drop your healthcare plan until this point. I don’t have to be an accountant to decide which is more cost-effective in that scenario. Now the cost for dropping has increased significantly and companies are considering dropping? How is that a reason to drop plans? It would be like keeping your gym membership UNTIL there is a fee for breaking the contract and deciding that new fee means you should quit because the charge is less than the memebership.

  • HR Kansas

    It would be like keeping your gym membership UNTIL there is a fee for breaking the contract and deciding that new fee means you should quit because the charge is less than the memebership


    Actually it would be like dropping your gym membership because you can get a free membership someplace else but you’ll have to pay a small parking fee instead.

    This will also help them avoid the Cadillac tax that starts in 2018, with government mandates driving up the price of health care all “good” plans will be Cadillac plans by then.

  • X AT&T Employee

    To the guy who said this is not greed. Please realize that those who suffer greed and inflict the symptoms of the illness on other are incapable of seeing their own greed. The CEO of AT&T can take a pay cut in my opinion. He makes over $20 million a year.

  • Just my thoughts on a tough topic

    I think the bigger point is – that if the big companies are seeing this as an additional cost – what does that mean to us small companies. It is nothing like the scenerio given by HR Rep – the government has now forced penalties and addtional fees and taxes on our health plans that jack up the cost of benefits – if you are a small to mid-size company who can barely afford health care now there is no way you can afford the additional cost of the 2014 plans. It comes down to paying a cheaper penalty and keeping staff and the doors open or not being able to afford to grow because you have to pay an outragous amount for your simplified benefit plan. Often it is not about greed but survival. You need to educate yourself on the whole plan before you spout off about greed and cost effectiviness.

  • Mary – Rochester NY

    2014 Healthcare changes are too far, 2 elections, away to consider at this time. I’m more conserned about the 2011 portion of the law reguarding ‘ Non-discrimnation of premium for highly compensated employees.’ How are company’s handling that??

  • martin

    This is all well thought out by the people at the Tides Foundation (communists funded by George Soros) where the actual bill was written……it conveniently forces companies to abandon their coverage as any good capitalist money making company would do so that government takes over and controls all healthcare for everyone.

    This is no surprise to anyone here is it? When Waxman made a big stink about these companies figuring it out – it was simply that – a show. This is all part of the master plan….

    But then these arrogant geniuses never read or understood the bill…..too little time…so let us suffer a decade or more under this as we debate it and the country declines.

  • Suni

    Our company is currently deciding when we’ll drop employee plans. The cost for our company has increased over a million dollars just for 2010 so far. Our company has 182 employees participating in the plan. The new reform laws are causing huge increases in our premiums. Most of the young singles and those without children have fewer illnesses in general and have already voluntarily dropped on their own (participation in our plan is optional.) This years’ open enrollment period added over a dozen older people and their spouses (of retirement age) because our plan is better than anything they could get on their own. Older people have more illness and use their insurance more frequently. Our ‘insurance’ is self-funded (the company pays the part that the employees do not). By dropping the employee plan, it will allow our company to stay in business. Keeping the plan would cause us to go bankrupt and go out of business. Oh yeah, the ‘owner’ gets to keep his plan as is (although no one is supposed to know this.)

  • Jennifer

    I don’t think most employers want to drop the health insurance but when you take into account the increased administrative/compliance burden on employers, they are better off paying the fee. Just count the number of employees regularly working over 30 hours/wk, subtract the first 30, and multiply by $2,000. I ran the numbers for our company and it would be about $5 million per year cheaper to do this. The savings could be spent either giving employees a raise or offering supplemental medical insurance to our employees to supplement the benefits offered through the exchanges. Much simpler for employers.

  • Bob

    Thank You, Martin.
    It is the greed in our government that is killing us…bit by bit and piece by piece they are taking away all of our freedoms. They won’t stop until they have total control and we become mindless workers kept alive just to fatten their paychecks.
    Socialistic control is where we are headed…unless there are enough ‘REAL’ Americans to get out there and vote and change the BS dictatorship we are now living with.
    Yes, we do need healthcare reform, but not this way!

  • Carl

    Shortly after the bill passed, in responding to her constituents who complained it wasn’t a single payer plan, Nancy Pelosi said, “This is just the first step…” Think about it…the penalty is cheaper than the now available government insurance. Employers will of course drop coverage since now their employees are guarenteed to be picked up by the government option and there is more government red tape to deal with. Over time more companies drop insurance. Pretty soon private insurers are out of business and the only one left is the government insurance.

    This isn’t rocket science to figure out why they passed a bad bill that they knew would raise prices.

  • Jennifer

    I agree with Carl but if the fees stay low, I think employers may offer employees paid supplemental medical health insurance that is not mandated or regulated by the government and not subject to COBRA. This is how the private insurance companies will stay in business, employees will stay happy, and employers will evade the burdens of regulatory compliance.

  • Tom

    I am a corp. exec in charge of healthcare for 300 employees of whom 200 elect healthcare coverage and they pay aobut 40% of the cost. The 2011 cost for the same coverage was quote at a 40% increase and very few carriers even quoted, some dropping out of the business. Obama care was about half the increase and half was just higher costs and usage. We had no choice but to denigrate the plan design and take a less generous set of benefits which we split the cost increase with employees with the company absorbing an increase in high single digits. We are reaching a point where the employee is going to have to take ownership of their own healthcare as employers will no longer be available to offer it. We are liekly going to mandate a wellness program where less healthy employees (smokers, overweight) will end up with a higher deductible forcing them to changed their behavior or to pay for it if they won’t. Tough but necessary medicine.

    One of the earlier posters noted that this was part of the democrats in govt. plan to take over healthcare and that would be a travesty but its been well known by smart people that this was going to happen. The obamacare legislation is going to screw up healthcare for the 70% of the population that has adequate coverage to cover a small percentage who don’t.

  • Joe

    Apparently some of the people on here don’t understand the game that’s being played or the rules. A $2000 fine is only $166.67 per month per employee. If your plan @ 50% is costing you more than $166.67 a month then it may make sense to dump the plan. Nobody has said WILL THE $2000 FINE BE DEDUCTIBLE? (This fine only applies if you have over 50 employees and opt to not sponsor a plan, ….that is just the basic rule, it’s a bit more complicated than that).

    In the end this whole “exchange” idea and no pre-ex on individual will wipe out the industry and the government will say see, we told you so, (when they caused it), and they’ll say now we have to take it over all the way and go single payer. (Medicare for all)

    Nobody on here has said, wait a minute, how is it that Medicare hasn’t had a rate increase in years to speak of yet it covers the sickest group of people! Another scam perpetrated on us,……Medicare is broke, doesn’t charge enough, and doesn’t pay enough. Medicaid charges NOTHING, indigents pay NOTHING, hmmm,…….it’s called COST SHIFTING and group insurance has had to make up for these other patients. Oh, what happens when group insurance is wiped out? No more way to subsidize anymore,……’s called 60% income taxes and rationing.

  • Joe

    The other side of the coin after the employers drop their insurance is that individual insurance under the “exhanges” will double from today’s rates. Prior to HIPAA individual and small group rates were about the same. After HIPAA small group rates doubled over individually underwritten plans. The “dumped” employees will be in for a surprise when they see the cost of of insurance. I think many of them will opt to not buy any and pay the fine instead. If it’s guaranteed issue they can waltz on in and buy a policy on there way to the emergency room. Maybe insurance kiosks will be set up in the emergency room. 24 hour policies so they can get treated and then drop it. LOL. The insurance industry can never survive this.
    I don’t see how the government can afford to subsidize half of America’s health insurance either. What are we now,….14 + trillion in debt about to go to 16+ trillion in debt. It’s insanity. Full steam ahead and meet me on deck, there are some chairs that need rearranging.