Offering health insurance to employees still will make economic sense for larger employers and those with higher-paid workforces when key parts of the health care reform law take effect in 2014, an analysis concludes.

But for smaller firms and those largely comprising lower-wage employees, dropping coverage could be financially attractive, according to the analysis by researchers at the University of Minnesota and the Center for Studying Health System Change in Washington.

Still, companies that employ the lion's share of the workforce will continue to have a financial incentive to provide coverage in 2014 and beyond, according to the research conducted for the National Institute for Health Care Reform, which was established by Chrysler Group L.L.C., General Motors Co., Ford Motor Co. and the United Auto Workers.

The findings are largely based on health care expenditure data compiled by the federal Agency for Healthcare Research and Quality.

“The findings indicate establishments employing the vast majority of workers — 81% — currently offering insurance will continue to have an economic incentive to offer coverage,” according to the analysis.

There are several reasons why there would be no financial advantage for employers and employees to drop employer-provided health coverage. Among other issues, employers with 50 or more workers would face an annual $2,000 penalty per full-time employee, or those working at least 30 hours a week, if they did not provide coverage starting in 2014.

%%BREAK%%

In addition, employees would lose a tax break. Currently, employees are not taxed on premiums their employers pay for group coverage. If employers dropped health coverage and boosted employees' salaries to compensate, employees' taxable income would increase.

With employers paying premiums that are tax-free to employees, “the employee gets a bigger bang for the buck than if the employer dropped coverage and boosted employees' taxable compensation,” said Michael Thompson, a principal with PricewaterhouseCoopers L.L.P. in New York. Overall, the economic incentive for offering coverage starting in 2014 would be just over $2,000 per employee, according to the analysis.

But for many employers in one industry category — accommodation, food service, entertainment and recreation — there would be a significant financial incentive to drop coverage, according to the analysis that found there would be a $580 per employee “disincentive” to offer coverage.

The chief reason for that disincentive is the high percentage of employees earning low wages in that industry category, which would make many eligible for federal premium subsidies that would pay most or all of the premium to buy coverage in public health insurance exchanges.

“Following reform implementation, the economic incentive to offer” health insurance coverage “remains positive for workers in many industries,” with the biggest exception being workers in accommodation, food services, entertainment and recreation “because of the greater eligibility of these workers for exchange subsidies,” according to the analysis.

Rich Stover, a principal with Buck Consultants L.L.C. in Secaucus, N.J., agreed that employees with low wages and limited health benefit plans might be better off financially getting federally subsidized coverage through a health exchange.

%%BREAK%%

In some cases, offering coverage “would not be a good economic decision,” said Tracy Watts, Mercer L.L.C.'s U.S. health care leader in Washington.

But for large employers with well-paid workforces, Mr. Stover said there would be no financial incentive to drop coverage. Under the Patient Protection and Affordable Care Act, premium subsidies are available to employees who earn up to 400% of the federal poverty level. The amount of the subsidy declines as income rises.

The key variable, Ms. Watts said, is employee income.

For employees who earn more than 400% of the federal poverty level, employer-sponsored coverage is more valuable because they would get no premium subsidy and would need additional compensation to afford the coverage, she said. In 2012, for a single person, 400% of the federal poverty level is $44,680 and $92,200 for a family of four.

For employers, the combined $2,000 annual penalty per employee for not offering coverage, loss of the tax break and necessary additional employee compensation “could far exceed their current budget for health care benefits,” Ms. Watts said.