Obamacare reforms scheduled for 2014 may have negative financial impact for pathology groups and clinical laboratories

It was not welcome news to many healthcare policymakers when McKinsey & Company released the findings of a survey that indicated that as many as 30% of employers were likely to cease offering health insurance coverage to employees when certain mandates of the Affordable Care Act (ACA) take effect in 2014. Criticism of the McKinsey study was swift, and newspapers and television news outlets gave wide coverage to these criticisms.

For pathologists and clinical laboratory managers, this dust-up over the findings of the McKinsey survey of major employers provides a clue as to the more rancorous debates that are yet to come as, year by year, different mandates of the Obamacare law take effect. The details of McKinsey’s survey about how employers are likely to handle employee health insurance coverage are an example of such debates.

McKinsey’s researchers found that, once employers became aware of the economic incentives in the health reform law, about 30% of them were likely to stop offering health insurance plans to employees. The authors of the McKinsey study noted that when the law’s relevant provisions take effect after 2014, these companies will likely drop employer-sponsored insurance (ESI) coverage and gain economically, even if they fully compensate the employees for the change through other benefit offerings or higher salaries. The report is titled: “How US health care reform will affect employee benefits.”

When the report was published in June, McKinsey drew criticism from a variety of experts that included Democratic members of Congress and The White House. These critics were prominently featured in an article titled, “Health Law in a Swirl of Forecasts,” published in The New York Times.

For this study, McKinsey surveyed 1,329 employers earlier this year and conducted other proprietary research. The employers surveyed represented different industries, different regions of the United States, and different employer sizes. The researchers found that this particular reform in the ACA legislation will provoke a much greater response from employers than has been estimated previously. McKinsey researchers said that, among employers with a high awareness of the reform law, 50% to 60% will pursue an alternative to traditional ESI.

“Employers should recognize that, as the ESI market changes after 2014, the system will react dynamically,” McKinsey said. “If many companies drop health insurance coverage, the government could increase the employer penalty or raise taxes. Employers will need to be aware of actions by participants at any point along the healthcare value chain and prepare to adapt quickly.”

The Congressional Budget Office (CBO) has estimated that only about 7% of employees currently covered by employer-sponsored insurance (ESI) will switch coverage in 2014, McKinsey said. In a separate study, researchers for the RAND Corporation of Santa Monica, California, estimated that the law would result in a large net increase in employer-sponsored insurance offers. “We predict that the number of workers offered coverage will increase from 115.1 million (84.6% of the approximately 136.0 million U.S. workers) to 128.7 million (94.6%) after the reform,” the researchers said in an article published in the New England Journal of Medicine.

One factor that makes it difficult to predict how employers will respond to implementation of these particular sections of the Obamacare legislation is the penalties and tax advantages of different levels of coverage, The Los Angeles Times reported. “Companies with more than 50 workers, for example, will have to offer health benefits to every full-timer or pay a penalty. And they won’t be able to offer better health benefits to highly paid executives than to hourly employees,” the newspaper said.

Nancy-Ann DeParle, Deputy Chief of Staff for Policy in the Obama administration

Nancy-Ann DeParle, Deputy Chief of Staff for Policy in the Obama administration. (Photo: http://en.wikipedia.org)

Nancy-Ann DeParle, Deputy Chief of Staff for Policy in the Obama administration, called the McKinsey research “flawed.” She cited forecasts by the Congressional Budget Office and other experts whose estimates were much smaller in terms of whether employees would lose some or all of their coverage.

McKinsey responded to critics by reporting on the methodology of the survey. It said, “The survey was not intended as a predictive economic analysis of the impact of the Affordable Care Act. Rather, it captured the attitudes of employers and provided an understanding of the factors that could influence decision making related to employee health benefits.”

McKinsey also said the survey results were not comparable to the healthcare research and analysis conducted by others, such as the Congressional Budget Office, RAND, and the Urban Institute. “Each of those studies employed economic modeling, not opinion surveys, and focused on the impact of healthcare reform on individuals, not employer attitudes,” McKinsey said. “We stand by the integrity and methodology of the survey.”

If it were to come true that 30% of the nation’s employers would respond to the specific economic incentives and penalties in the Accountable Care Act by dropping health insurance plans, then this could shift the market for medical laboratory testing services because it changes who pays for those tests. Employer-funded health insurance plans tend to reimburse more for clinical laboratory tests than the federal Medicare and Medicaid programs, for example.

Thus, were the market share of patients insured by employers to shrink, it would have a negative financial impact for most clinical laboratories and anatomic pathology groups in the United States.

Related Material:

How US Health Care Reform Will Affect Employee Benefits

Many U.S. Employers to Drop Health Benefits: McKinsey

One in Three Employers May Drop Health Benefits, Report Says

The Effects of the Affordable Care Act on Workers’ Health Insurance Coverage

Health Law in A Swirl of Forecasts