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The Obamacare Shift

A colleague pointed this out to me recently, and I think he has it right: While more people will have health insurance as a result of the federal health care reform act, a side effect will be to reduce the number of people insured through the employer-based insurance plans that have characterized the US health care system. These people will either be insured as individuals through the state exchanges that are to be established or, if eligible, through Medicaid. There are three aspects of economic hydraulics that are likely to lead to this result.

First, the penalty to be assessed against employers for not offering coverage — $2000 per year — is dramatically below the cost of providing insurance. If you are an employers and can save, say, $5,000 by paying $2,000, why wouldn’t you do that? And the $2000 is not even indexed to inflation, while the annual charge for an employer-sponsored plan is likely to go up over time. Hence the differential will grow every year.

In the past, the provision of a health care benefit was viewed as competitive factor in hiring and retaining a firm’s work force. But for the vast majority of businesses, that may be a less important factor than saving a few thousand dollars per employee and being able to offer a portion of those savings in higher wages and/or improving the profitability of the firm. Sure, some businesses might still want to attract workers by having their own semi-customized insurance benefit, but the power of that is likely to diminish over time.

A second factor is that the so-called “Cadillac” tax will make employer-sponsored health care even more expensive if you have a plan with generous benefits. Health coverage in excess of $10,200 for individual plans and $27,500 for family plans will be hit with a 40 percent excise tax on the amount in excess of the floor. The tax is indexed for inflation plus 1 percent.

Finally, to help avoid the excise tax, employers are going to “dumb down” plan designs by raising deductibles and co-pays. As they do so, the substantive difference between their own plans and the ones that will be offered through state exchanges or Medicaid will diminish. Even if you have a residual concern that your workers may want an employer-based plan, their desire might be diminished as you make your plan less attractive, so you lose little in competitiveness by referring them to the non-employer based plans.

There are those who believe that there was an ideological basis for this construct, that the Administration and a majority of Congress wanted people to move away from employer-based health insurance as part of an eventual movement to a federally chartered single-payer regime. Others say that it is just an natural extension of a bill that created important protections — benefit mandates, a floor for medical loss ratios, guaranteed issue, restrictions on medical underwriting — all of which act to increase the cost of insurance products.

Whatever the reason, we should expect that the world of employer-based health insurance that was created in the 1940s in the United States will rather rapidly move away from that system to one in which government-controlled insurance exchanges and direct government pay (Medicare and Medicaid) will rule. On the latter point, I have have now heard a couple of people estimate that the percentage of the US population covered by government payers can be expected to rise from the current mid-30s% to about 50% over the coming five years or so, abetted by the factors mentioned above but also by expanded income eligibility for Medicaid.

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18 replies »

  1. what did they do in 1964? What do the 50 million uninsured do, they aren’t dieing in the streets.

  2. ” without Medicare more “poor elderly” would just drop dead so you’d have less “poor elderly”.

    You are a slave to welfare aren’t you? You just accept it as scripture that people could not survive without big government. People are encapable of caring for themselves. Prior to Medicare elderly weren’t droping dead in the streets. If we eliminated Medicare tomorrow they wouldn’t be dropping dead either.

  3. “Medicare was passed to prevent grandma from losing the shirt off her back, not only did it fail to do that but the percentage of poor eldery went up almost 50%.”

    “During the past 40 years, one of the seldom trumpeted successes in the United States has been the enormous reduction in senior poverty. Social Security, Medicare and Medicaid have provided income and health supports that reduced poverty among people age 65 and older from well over 30% to less than 10% — the lowest poverty rate of any population group in the country.”
    http://money.msn.com/saving-money-tips/post.aspx?post=246dbaed-249c-4064-9995-aa33fb17881c

    “Social Security Lifts 13 Million Seniors Above the Poverty Line
    A State-by-State Analysis”
    http://www.cbpp.org/cms/?fa=view&id=1111

  4. “…the percentage of poor eldery went up almost 50%”

    Anything pointing out that the percentage of poor elderly went up because of Medicare? Other than that without Medicare more “poor elderly” would just drop dead so you’d have less “poor elderly”.

  5. If you do not think current state restrictions per formularies and price fixing on services is not already intrusive and disruptive in patient care matters, just wait until the fed becomes the centralized player and sets limits first and foremost about costs alone. It is just incredulous to read the defenders and apologists of this health care legislation try to minimize or dismiss the arguments against the legislation. You have to wonder why people say this plan is only good, that there are no detriments or concerning consequences to focus on.

    This is what con artists say in fleecing people. And exhibit A: the real meat of this legislation starts in 2014. Who writes legislation that takes years to be implemented? People who are looking to escape before the truth is revealed.

  6. Jill, if your group is so healthy why don’t you self fund and retain that excess premium?

    ” While more people will have health insurance as a result of the federal health care reform act,”

    Just becuase that is mentioned as the reason for the bill history shows it is less then likly to happen. Medicare was passed to prevent grandma from losing the shirt off her back, not only did it fail to do that but the percentage of poor eldery went up almost 50%.

    COBRA was suppose to help people stay insured between jobs, obviously an epic fail. HIPAA and benefit mandates where suppose to increase access and quality of healthplans and instead just priced more people out of the market. i.e. not only do they still not have coverage for fertility treatment now they can’t afford insurance at all.

    A more likly outcome would be more uninsured and considerably higher cost.

  7. “Less money, more covered people, not enough care givers now, less money for existing caregivers tomorrow:…”

    So far, so good. The sooner beneficiaries understand costs the quicker they will become realistic about what is affordable. I don’t see a train wreck, however.

    Thanks to employer subsidies and tax-advantaged insurance plans, individuals don’t have a clue how much medical care actually costs. Hell, I know I sure don’t. I look at EOB’s and bills and see wildly different numbers for who pays what, and all I care about is how much will eventually get billed to me. Billing is a tug-o-war between providers, TPA’s, beneficiaries and sponsors. The system seems to be throw a bunch of sh*t against the wall and see what sticks.

    As a beneficiary my mindset is “Let’s see… how much can I get included (whether or not I need it) and how little can I get by with for this or that procedure.?”

    That’s no way to run a railroad. The sooner ticket prices are clarified and a safety net is in place (public or private, it makes no difference) for catastrophic problems, the sooner those who need health care will see it in realistic terms.
    That’s what I call avoiding a train wreck.

    The system is the same the world over, even in socialist countries. Those with the most money always get taken care of because they can afford as much as they need AND want. The problem lies with those of us who cannot afford even baseline care. What we need is predictable, affordable care with a reasonable safety net which will be whatever the system can provide.

    The train wreck is what we now have. What we are looking for is recovery.

  8. Less money, more covered people, not enough care givers now, less money for existing caregivers tomorrow: does anyone see a train wreck coming?

  9. The only things we can say with any degree of certainty is that health care coverage will be expanded, the government sponsored programs will cover more individuals than any increase in private sector coverage and it will cost more per person. As a result, taxes will have to increase proportionately for each individual covered by government sponsored coverage, either through direct taxation of individuals and corporation or through penalties.

    I posted a blog on the cost of care for each program in 2008; http://www.1docsopinion.com/2008/01/27. Even with updated figures, it still holds true.

  10. Wow, I did not realize the employer penalty was only $2,000 per year (and not even tied to inflation!). You are right, with such a small penalty there is no incentive whatsoever for them to shell out much more money to get good insurance for their employees. What a reversal of what has once given us the best health care in the world. Obamacare will do just the opposit of what it claims to do.

  11. I don’t know much, Paul. However, any employer paying $850.00 per month per employee for coverage is getting ripped off. Who are these people? Is this some kind of union thing? The insurance company guilty of gouging these people should be penalized. I’m the benefits administrator for a company that employs 115. Our premiums are less than $500 monthly per employee. The company we are insured with has been making tons of money off of us for years. Their executives have been well compensated. They generally spend about half of our premiums paid in on care we utilize. If they ever doubled our premiums, we’d be taking out full page advertisements about it and calling our congessmen. I’d like to know where these Cadillac plans are. One thing I do know: Many of our elected officials in this country are staffing their offices with former lobbyists for big insurance. The single-payor fear mongering will never stop. Have you read “Deadly Spin?”

  12. There are those who believe that there was an ideological basis for this construct, that the Administration and a majority of Congress wanted people to move away from employer-based health insurance as part of an eventual movement to a federally chartered single-payer regime. Others say that it is just an natural extension of a bill that created important protections — benefit mandates, a floor for medical loss ratios, guaranteed issue, restrictions on medical underwriting — all of which act to increase the cost of insurance products.

    Just so. Either way any and all “insurance” costs are by definition above and added to any actual costs for the delivery of health care. Insurance is in the business of risk management, not health care. The insurance mission is economic, not medical.

    Moreover, coupling employment with health care expenses is a nutty idea. What is more irrational than facing HIGHER premiums at the very time one loses earned income? Thanks a lot, COBRA. Separating health care expenses from employment was once a conservative idea but it never got any support.
    http://www.aei.org/outlook/21921

    I don’t think single payer is the solution or goal, but a better managed private sector with appropriate safety net provisions is no longer optional.

  13. Two clarifications: 1) the $2000-per-employee penalty will be indexed for inflation as of 2014, and 2) large employers (i.e., those over 50 employees, because that’s the only kind of employer to whom the penalty relates) can exclude the first thirty employees when determining their penalty.

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