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Companies Weigh the Option of Dropping Health Care Coverage

Some large companies have already analyzed the potential cost-savings they could realize if they drop employer-sponsored health care for their workers and pay the penalties the new health care reform legislation imposes on companies that fail to provide affordable coverage after 2014.

Fortune magazine reports that it reviewed internal documents that Congress requested from AT&T, Deere, Caterpillar and Verizon in which the companies weigh the future costs of providing health care against paying the employer penalty.

In one example cited by Fortune, Kenneth Huhn, vice president of labor relations at Deere, wrote in an internal email that his company should look at the alternatives to providing health benefits, which "would amount to denying coverage and just paying the penalty." A Caterpillar document said the company should give "serious consideration" to the penalty option.

Should a substantial number of employers drop health coverage and instead send their employees to the state-run exchanges designed to provide coverage for people with no employer-based option, the costs to the government would skyrocket. That's because the exchange plan calls for government subsidies for low- and middle-income people. In factoring the costs of the program, the government counted on employers remaining a major source of health insurance coverage.

"The Congressional Budget Office, in its crucial cost estimates of the bill, projected that company plans will cover more employees ten years from now than today. The reason the bill doesn't add to the deficit, the CBO states, is that fewer than 25 million Americans will be collecting the subsidies the bill mandates in 2020," Fortune said.

Fortune estimates that if half of people covered by company plans lose that coverage, federal health care costs will rise by $160 billion a year in 2016, in addition to the $93 billion in subsidies already forecast by the CBO.

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Mary Swanton

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