"Employers are reluctant to lose control over a key employee benefit," says Tracy Watts, a partner in Mercer's Washington, D.C., 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."

Still, a fifth of small employers, which includes those with 10-499 employees, say they are likely to cancel their health plans, particularly those with low-paid workers and high turnover, such as retailers. Small employers typically offer fully insured health plans, but they are susceptible to large rate increases because of their small risk pools and little purchasing power.

"You can see why the idea of dropping employee health plans would be attractive to small employers," says Beth Umland, who directed the Mercer study. "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."

In the June 2010 issue of Health Affairs, a recent study reported employer plan enrollment in Massachusetts grew during the four years when many of the reforms based on the Patient Protection and Affordable Care Act have been in place, suggesting few employers have dropped plans, regardless of the low penalties under the state's "play or pay" rule.

For the past five years, the average health benefit cost per employee has been rising by approximately 6 percent annually. PPACA will generally increase cost, but the impact will vary from employers, depending on their employee demographics, current benefit program design and operational markets. Though 17 percent of employers with 50 or more employees say the 2011 PPACA requirements will have no effect on their cost in next year, 16 percent estimate a 5 percent or more cost increase. Most frequently, PPACA will raise costs by 2 percent or less.

"The PPACA rules that set standards for plan design will typically have less of an impact on employers that already offer generous plans," Umland says. "However, rules that will increase the number of plan members, like expanding eligibility to adult children, could hit employers with generous plans the hardest since they will now be extending high-cost coverage to more individuals."

Once all individuals are required to purchase coverage and employers must automatically enroll new hires in 2014, plan membership will likely grow. On average, 19 percent of all eligible employees decline their health plan.

For most employers, the PPACA excise tax on high-cost plans worries the most employers, the survey finds. In 2018, health benefit coverage costing more than $10,200 for an individual employee or $27,500 for dependent coverage will face a 40 percent excise tax. When questioned about the excise tax, 23 percent of employers with 50 or more employees say, "We will do whatever is necessary to bring cost below the threshold amounts."

Thirty-seven percent of employers say they will try to bring the cost below the threshold amounts, but admit "it may not be possible." Three percent say they will take no special steps to lowering the cost below the threshold amounts while 37 percent predict their plans will not hit the cost threshold, which will be tied to CPI and rise every year.

Employers were asked to provide the employee-only and family premiums for their highest-cost plans in 2010 to predict the amount of employers that may trigger the excise tax when it goes into effect. Using an annual growth of 6 percent, these costs were trended forward, but this may be a conservative figure. If there are no plan design changes, 39 percent of employers with 50 or more employees can expect to trigger the excise tax in 2018.

"It's important to keep in mind that this new tax is still eight years out, and a lot could change between now and then," Watts says. "Given how often ERISA, tax, Medicare and Medicaid rules are modified, there's a good chance that the excise tax that takes effect in 2018 won't be exactly the same as the sketch we're working from today."

For dependent eligibility, despite the inevitable gain in health benefit cost as newly eligible dependents enroll, approximately two-fifths of employers with 50 or more employees will require dependents over a certain age to confirm no other employer coverage is available, which is allowed for grandfathered plans until 2014. Though the law forbids employers from requiring higher premium contributions specifically for the newly eligible dependents, 17 percent will modify premium rate tiers, making employees covering more dependents pay more. For dependent coverage, 18 percent say they are likely to raise the total share of cost.

With the shared responsibility rule, which goes into effect in 2014, all employees working at least 30 hours per week must be eligible for coverage, but 30 percent of all employers with 50 or more employees do not meet this new standard. Most large employers will open the full-time employee plan to all part-time or hourly employees working 30 or more hours per week. Less than a third of the employers that do not comply say they are likely to change their workforce strategy, resulting in fewer part-time employees who work 30 or more hours per week. Six percent say they are not likely to make changes and will pay the shared responsibility penalty.

In compliance with PPACA, employers must offer at least one health plan that's premium contribution does not exceed 9.5 percent of the employee's household income, or else be subject to penalties. Nearly two-fifths of employers with at least 50 employees say that their current health plan coverage would likely be considered unaffordable for at least some employees. Eighty-one percent say they will most likely take steps to offer affordable coverage for all while one in five say they are most likely to make no changes and pay the penalty as needed.