The McKinsey Report on health care reform

Why is everyone talking about the recent McKinsey report on how the new health care reform law will affect employers and employees? Because in 2014 many companies will drop their health insurance plans, leaving their employees to find coverage on the state exchanges. For example, the Congressional Budget Office (CBO) estimated that once reform takes effect in 2014 around 7% of employees will lose their insurance. However, after surveying over 1,300 employers, McKinsey’s research found that number to be very low and instead determined that about 30% of employers will drop the health insurance they offer their employees.

The reasons for this have to do with achieving economic efficiency. For those companies who employ over 50 employees, the new law requires them to offer health insurance to all full-time workers or pay a $2,000 fine per full-time employee. The issue is that in many cases, employers are currently paying well over $2,000/employee for their health coverage and welcome this provision of the law as it will serve as a way to reduce their costs. In fact, as evidenced in McKinsey’s research, many employees welcome the opportunity to receive a higher salary, forgo their health benefits, and instead receive their insurance through the state exchanges. This of course assumes employers will compensate their employees to do so. The problem is, what will the level of care look like for these employees, and what will the true cost be?

The overall issue is employers will make changes to their health insurance benefits. I agree with the McKinsey report and believe there are two likely scenarios of how companies will do this. One will be to decrease the number of full-time workers (as discussed above) and the other is to restructure their company into two separate entities. One would include higher-level employees such as managers and executives who would continue to have employer-sponsored health insurance while the other would consist of lower-salaried workers who would not receive any health coverage.

Regardless of what happens, in order to bring costs down and give people the kind of care they need and deserve we need to focus on a more value-based system. Looking at almost every other sector in our economy, such as telecom and hi-tech, when done correctly, streamlining economic efficiencies will reduce costs and improve the goods and services people receive. We must replicate those efforts into the health care sector so all parties involved, especially patients, can be better off.


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