It’s a fact: The health care reform law’s individual mandate penalty would cost companies far less than providing health insurance for employees. But cost can’t be the only factor companies use to decide whether to drop coverage when the mandate takes effect in 2014.

Companies have until January to make a decision: offer healthcare coverage to employees even though it’s expensive or pay the law’s individual mandate penalty which is $2,000 per employee. In other words, pay or play.

Compare that to the average premium cost of $5,000 per individual and $15,000 per family and dropping coverage seems like the most cost effective option.

But is it a good idea to drop coverage?

However, health insurance is a basic benefit that candidates use to evaluate job opportunities. If a company doesn’t offer health insurance to its employees, where does that leave HR when it comes to recruiting and retaining top-notch workers?

It leaves them at a serious disadvantage. HR pros will have to answer:

  • Why the company is dropping coverage and sending employees to state health exchanges
  • What exactly employees need to do to get coverage elsewhere, and
  • What the company is doing to help employees afford coverage on their own

Drop coverage, boost pay?

The question of whether to adjust salaries after dropping coverage is a tricky one. Industry research shows that employees feel as though comprehensive benefits, including healthcare, are as important as the amount of their paycheck.

If the company decides to bank the money it saves from dropping coverage instead of boosting salaries to make up the compensation gap, HR will have to show employees and recruits how much better employees have it there than if they worked at a company that doesn’t offer healthcare coverage.

A recent survey indicates companies do indeed worry that dropping coverage will hurt their ability to recruit top talent. HighRoads, an HR/benefits service provider, polled 70 employers, 30% of which were from the healthcare/hospital industry. Nearly two-thirds (65%) said they’d ditch their healthcare plans if most of the companies in their industry did the same. And 84% said they wouldn’t eliminate health insurance if only a few companies in their industry dropped coverage.

So if the company drops coverage, and doesn’t increase base pay rates, it’s likely that employees will see the move as a pay cut – and recruits will think the company’s cheap. Consequently, companies that go this route may have no choice but to roll over some of the cost savings into boosting salaries in order to compete for the best talent.

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