Maggie Wilderotter, chief executive officer at cable, Internetand phone provider Frontier Communications Corp. says it's her“fiduciary responsibility” to study ending medical benefits longprovided by her company.

“Frontier, like a lot of companies, is likely to at leastconsider dropping health-care benefits” in 2014, she said.

As President Barack Obama presses ahead with plans to broadeninsurance coverage, many U.S. executives say his health-care lawhas them rethinking their options. Starting in 2014, the law's$2,000 fine for not offering coverage appears to be far less thanwhat most businesses pay for benefits.

In the end, though, companies will probably find compellingreasons to continue providing health coverage. Among them:Employers value coverage as a tool for recruiting and keepingworkers healthy and also fear a backlash, especially among higherearners who might have to pay far more for their insurance thanthey do now, said Tracy Watts, a partner at Washington-basedbenefits consultant Mercer Inc. Employees might spend as much as$2,000 a month more in the law's new online exchanges, shesaid.

“Some employees would end up spending a huge percentage of theirincomes for health care if companies drop coverage,” Watts said ina telephone interview. “Employers couldn't make it up inraises.”

The biggest argument against opting out is that it may simplyprove a bad deal for employers. The $2,000-per-employee penaltyimposed on companies that deny coverage isn't deductible like otherbusiness expenses. And employees told they're losing coverage arelikely to demand some of it back through cash or other perks, saidRandall Abbott, a senior consultant at Towers Watson & Co., aNew York-based human resources consultant. While health benefitsare tax-free, wages aren't, he said.

“By the time you get done, if your intent is to make up the lostwages, exiting can be more expensive than retaining your healthplan,” Abbott said.

A survey released in June by Mercer found only 6 percent ofbusinesses plan to discontinue coverage in 2014. In July, theCongressional Budget Office estimated that the legislation willresult in a loss of benefits for 2.5 percent of the 161 millionworkers expected to receive coverage through work by the end of thenext decade, or 4 million people. (At the same time, 30 millionuninsured people are expected to obtain coverage through the newhealth law.)

Future Decisions

It's still early and any changes that occur are probably a waysoff. Frontier CEO Wilderotter commented about possibly droppinghealth-care benefits in response to a question from an employee ata meeting Nov. 6 about the company's third-quarter performance. Thetelecommunications company hasn't yet analyzed the pros and cons ofdropping health care and “nothing will change in 2013,” she toldemployees at the meeting Frontier's Stamford, Connecticutheadquarters. The company employs about 15,000.

Doing away with health benefits can sound appealing to somecompanies at first glance. The average family policy is expected tocost $12,000 by 2014, with employers typically picking up 80percent of the bill, or $9,600, according to Towers Watson. That'salmost five times more than the $2,000 per worker fine, whichapplies to any company that employs 50 or more workers.

Ending benefits would free companies of the hassle of runninginsurance plans and negotiating rates with carriers and hospitals,not to mention the burden of ever-rising medical costs.

“Most people who went into business didn't get into it to run ahealth plan,” said Douglas Holtz-Eakin, an economist who advisedU.S. Senator John McCain and former President George W. Bush. “Ithink they'd be very happy to get out of it.”

At Dallas-based AT&T, the nation's largest phone company,CEO Randall Stephenson said he expects large employers to graduallyshift away from providing benefits. While the CEO said he has noplans to do so for his 241,000 workers, “economic gravity will takeover” for most businesses “and companies will stop providingcoverage.”

Restaurants are looking at similar steps. Landry's Inc., ownerof McCormick & Schmick's, and Carl's Jr.-parent CKE Inc. planto shift jobs from full-time to part-time to avoid the health law'srequirements for offering coverage. Jamie Richardson, a vicepresident at hamburger-chain White Castle System Inc., said he'd be“shocked” if competitors weren't studying the idea, although hesays his company isn't.

The insurance exchanges to be created by the health law weredesigned with low- and moderate-income buyers in mind. They offersubsidies on a sliding scale to anyone making as much as four timesthe U.S. poverty level — about $44,000 for a single person and$92,000 for a family of four this year.

Paying More

For a low-wage fast-food worker, the exchange approach mightoffer a better deal, said Abbott of Towers Watson. Those who maketoo much for subsidies — from office workers to senior managers —would end up paying more, said Mercer's Watts. A typical family mayspend $2,000 a month on the exchange compared with the $300 to $400a month they average now for their share of premiums in a companyplan, Mercer estimates.

Dropping benefits may make most sense in low-wage, high-turnoverindustries like retail, restaurants and hotels, where there'd beless pressure to make up for the lost benefits, Abbott said. Eventhere, the Mercer survey found only 9 percent of retail andhospitality employers likely to terminate plans.

At family-owned White Castle, Richardson said the law may raisethe company's $30 million in annual health insurance costs by 25percent in 2014. The Columbus, Ohio-based chain is ponderingchanges to its health plans to defray some of the increase. Not onthe table, at least so far, is an end to benefits, Richardsonsaid.

“For us, it's such a strong cultural value, providing what ourfounder called 'freedom from anxiety,'” Richardson said in atelephone interview. “I don't see us making that our first choice.I think it may be the last choice.”

White Castle and its 10,000 workers may have more flexibilitythan publicly traded companies, Richardson said. While he knew ofno competitors in the restaurant business who have talked of endingbenefits, “I'd be shocked if they weren't considering it,” hesaid.

At the National Business Group on Health, a Washington-basedtrade group representing large employers including Wal-Mart StoresInc., International Business Machines Corp. and Target Corp., nomembers are planning to drop insurance “as far as we can tell,”said Steven Wojcik, vice president for public policy.

Foot Locker Inc. Chief Executive Officer Ken Hicks said the NewYork-based sports-shoe retailer plans to keep its health plan eventhough he expects the Affordable Care Act will raise costs. He saidhe doubts the government can do as good a job keeping premiums downas he can.

“There's more to business than just saving money,” Hicks said ina phone interview. “We think it's the best thing for our associatesto be able to offer them a good program that they're used to. Wewill try as long as we can to do that.”

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