EBRI: Tax changes, health exchanges could persuade employers to drop coverage

Analysis released Thursday from the Employee Benefit Research Institute indicates employers could stop offering health insurance if they believe employees no longer value the benefit.

EBRI bases this prediction on whether the tax treatment for employment-based health insurance is eliminated or significantly cut back as part of the federal debt-reduction effort, a change that was proposed in December 2010.

President Obama's bipartisan National Commission on Fiscal Responsibility and Reform called for reducing the preferential tax treatment of employment-based health benefits as it applies to workers, first by capping, then freezing, phasing down, and ultimately eliminating them.

If this change were to take place, according to EBRI, workers would face an increase in taxes on a benefit that currently isn't taxed, and they may begin to question the value of keeping their workplace coverage. Lowest income workers, especially, would find state-run health insurance exchanges (which are set to be operational in 2014) more advantageous than employment-based health benefits.

And, EBRI explains, if enough workers don't prefer their employer's health benefits, the likelihood grows that many employers will stop offering health benefits at all.

“Even if only a fraction workers preferred an insurance exchange over employment-based coverage, it would send a clear message to employers that millions of workers will no longer value the benefit,” says Paul Fronstin, director of EBRI’s Health Research and Education Program.

The tax preference associated with employment-based health coverage is the largest tax expenditure in the U.S. budget, according to EBRI. It accounts for $1.1 trillion in foregone tax revenue between 2012 and 2016.

The commission's proposed changes would achieve $4 trillion in deficit reduction by 2020.

Employment-based health coverage is the most common source of health coverage in the United States, according to EBRI. In 2009, 59 percent of nonelderly individuals were covered by an employment-based health benefits plan, with 68.2 percent of workers covered, 34.6 percent of nonworking adults covered and 55.8 percent of children covered.