While employers are encouraged to offer coverage under the new health care reform rules, they can choose not to and (starting in 2014) pay a penalty that may be less than what they currently spend on health benefits.

- Just 6% of large employers (at least 500 employees) say they are likely to drop their health plans after the insurance exchanges come online in 2014.

- More small employers say they’re likely to drop (20% of those with 10-499 employees), but if Massachusetts’ three-year experience with exchanges is a guide, few will actually do so

- Cost impact of PPACA in 2011 is estimated at 1-2% overall, but it ranges from no impact to 5% or more for individual employers

In a survey released by consulting firm Mercer, employers were asked how likely they are to get out of the business of providing health care once state-run insurance exchanges become operational in 2014 and make it easier for individuals to buy coverage. For the great majority, the answer was “not likely.”

Survey responses vary by employer size. Large employers remain committed to their role of health plan sponsor. Just 6% of all employers with 500 or more employees – and just 3% of those with 10,000 or more – say they are likely to terminate their health plans and have employees seek coverage in the individual market after 2014.

Employers have never been required to offer coverage. They do so to promote a healthy, productive workforce and to attract and retain employees, who place a high value on health coverage because it can be expensive to purchase as an individual and, especially for those with health problems, difficult to obtain.

“Employers are reluctant to lose control over a key employee benefit,” said Tracy Watts, a Partner in Mercer’s Washington, DC, office. “But beyond that, once you consider the penalty, the loss of tax savings and grossing up employee income so they can purchase comparable coverage through an exchange, for many employers dropping coverage may not equate to savings.”

On the other hand, a fifth of small employers (those with 10–499 employees) say they are likely to terminate their health plans, especially those with low-paid workers and high turnover, like retailers. These small employers generally offer fully insured health plans and, with small risk pools and little purchasing power, are vulnerable to large rate increases.

“You can see why the idea of dropping employee health plans would be attractive to small employers,” said Beth Umland, who directed the study for Mercer. “On the other hand, when you look at the experience in Massachusetts, where insurance exchanges have been operating under state-based health reform for over three years, it hasn’t happened.”