Shocker: Major corporations may dump health insurance, pay penalties instead
posted at 11:37 am on May 6, 2010 by Ed Morrissey
Well, well, well. Remember when Barack Obama said that under ObamaCare, people would keep their existing health plans and doctors? Remember when any suggestion that companies would find it a lot less expensive to dump employer-based health care and pay the penalties instead were cast as “myths” and “scare tactics,” even though the math was extremely easy to see? Welcome to Hope and Change:
The great mystery surrounding the historic health care bill is how the corporations that provide coverage for most Americans — coverage they know and prize — will react to the new law’s radically different regime of subsidies, penalties, and taxes. Now, we’re getting a remarkable inside look at the options AT&T, Deere, and other big companies are weighing to deal with the new legislation.
Internal documents recently reviewed by Fortune, originally requested by Congress, show what the bill’s critics predicted, and what its champions dreaded: many large companies are examining a course that was heretofore unthinkable, dumping the health care coverage they provide to their workers in exchange for paying penalty fees to the government.
Remember Henry Waxman’s threat to subpoena CEOs over their writedowns on the tax credit that disappeared in ObamaCare? Fortune now reveals why those hearings got canceled:
Waxman didn’t simply request documents related to the write down issue. He wanted every document the companies created that discussed what the bill would do to their most uncontrollable expense: healthcare costs.
The request yielded 1,100 pages of documents from four major employers: AT&T, Verizon, Caterpillar and Deere (DE, Fortune 500). No sooner did the Democrats on the Energy Committee read them than they abruptly cancelled the hearings. On April 14, the Committee’s majority staff issued a memo stating that the write downs were “proper and in accordance with SEC rules.” The committee also stated that the memos took a generally sunny view of the new legislation. The documents, said the Democrats’ memo, show that “the overall impact of health reform on large employers could be beneficial.”
Nowhere in the five-page report did the majority staff mention that not one, but all four companies, were weighing the costs and benefits of dropping their coverage.
It’s not just the calculus of mandates and penalties that has employers considering the option of dumping health care and paying more in salaries instead. The mandate to keep “children” on plans until the age of 26 has employers seeing a steep cost curve. For Caterpillar alone, the 26-year-old mandate will cost over $20 million a year. Under those conditions, the penalties look pretty good. Add on the “Cadillac tax” on some health plans and the expected jump in medical costs from providers dealing with their own set of mandates, and health insurance looks like a very bad risk.
What will it cost the government to provide subsidies for tens of millions of Americans who used to get health insurance through their employers? No one really knows for sure, but Fortune takes a stab at it:
What does it mean for health care reform if the employer-sponsored regime collapses? By Fortune’s reckoning, each person who’s dropped would cost the government an average of around $2,100 after deducting the extra taxes collected on their additional pay. So if 50% of people covered by company plans get dumped, federal health care costs will rise by $160 billion a year in 2016, in addition to the $93 billion in subsidies already forecast by the CBO. Of course, as we’ve seen throughout the health care reform process, it’s impossible to know for certain what the unintended consequences of these actions will be.
But some of us predicted that the numbers used by Democrats pushing ObamaCare bore little connection to reality — and that it would incentivize employers to destroy the net of employer-based health insurance. It looks like that day is fast approaching, and that’s no myth. It’s a reality that Henry Waxman tried hard to hide from the American public.
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