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 seeWelcome 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 (DEFortune 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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I feel for you, per my post concerning my father and IBM, with the same retroavtive “pulling” of pension benefits.

Odie1941 on May 6, 2010 at 12:04 PM

The sad thing is that people like me and your father got off easy.

In June of 2005 I got to work and the whole place was abuzz. The company had eliminated the management pension. Whoa. But they didn’t just eliminate it for new hires. Or for people with 5 years or less. No. They eliminated it for everyone who did not have 10 years of service on January 1, 2002.

So some people with 10, 12, 13 years in the company found out they were out of luck. The people who were really screwed were those that had 20-25 years. Oh, they’d get what was in there, but they lost the bump that comes with being pension eligible at 75 points (age + years).

I was lucky. I had 26 years and fell within the window for the bump. Verizon had bought out Worldcom so I took the lay off three years later and walked out with my lump sum. I didn’t want to wake up one day and discover another Enron/Worldcom debacle.

So I consider myself lucky.

Jaynie59 on May 6, 2010 at 12:26 PM

Could it be just what the federal government wanted? Force employees into the individual insurance market, increase the risk taken on by insurance companies to the point where there is no profit – insurance companies drop their individual policy offerings and in swoops the government to save the day with the public option.

henzou on May 6, 2010 at 12:28 PM

Shocker! Wow, didn’t see that coming!

dczombie on May 6, 2010 at 12:29 PM

This was so utterly predictable as the progressives’ consider the takeover of healthcare (whose employees will be folded into the SEIU, as per Andy Stern’s longtime efforts) as elemental to their end-game. An exerpt from a piece I wrote 10/25/09…

And philosophically here is why, because provision of healthcare is the central component to their end-game. The end game being, as it has always been with the Progressives since the 1890’s, an authoritarian socialistic “transformation” of American society. In the words of Lenin, who perhaps knew a little something about the subject, “medicine is the keystone in the of Socialism.”

For those of you who aren’t masons, a “keystone” is the center stone at the top of an arch, which through the use of the force of gravity being dispersed to either side, locks in the other stones securely, without this stone completion of the arch is not possible. This mastery of the arch allowed the Romans to construct the magnificent spans we see still standing across Europe today. Only the structure Lenin was talking about in this case, was not a beautiful roman archway, but rather the indispensable element upon which the rest of the Progressive’s planned authoritarian nanny-state is dependent.

Archimedes on May 6, 2010 at 12:31 PM

The cheaters are trying to milk the taxes and other plans to get more money to cover the shortage in the Medicare funds.

Next up.
Obama will try to co mingle your 401K, the company pensions and Social Security. social security is under funded. The unions drained their monies so the could support the election of Obama and what is left is private retirement. He will want to make it fair and steal your 401 and cover the SEIU shortage of 60 million dollars. He did a temporary covering of the UAW shortage by seizing two car makers.

seven on May 6, 2010 at 12:32 PM

Oops, damn typos! But you get the gist.

Archimedes on May 6, 2010 at 12:32 PM

This admin. is just a cornucopia of unintended consequences.

kirkill on May 6, 2010 at 12:37 PM

“See I told you so” is just getting less and less fulfilling as the nation crumbles.

jnelchef on May 6, 2010 at 12:38 PM

Just do away with all employer paid health insurances and let them make it up with a higher paycheck.

V-rod on May 6, 2010 at 12:41 PM

Jaynie59 on May 6, 2010 at 12:26 PM

My dad certainly didnt get lucky, and again – feel your pain.

Adding insult to injury – my father was anti-union, represented IBM as the regional ISO certified engineer for East Fishkill semi-conductor manufacturing – and traveled extensively to Germany – for new markets to open within photolithographic cameras.

i.e. he was a Big Blue man through and through, fougt unionization and even got a cover shot in Think magazine for a million dollar saving process… all for $38 a month…

Odie1941 on May 6, 2010 at 12:42 PM

Now that those documents are in the government’s hands, aren’t they now vulnerable to a FOI Act request?

Just thinking……………

Opposite Day on May 6, 2010 at 12:46 PM

Look at the bright side, though. At least we’ll get to put faces with the names of our friends here at Hot Air.

turfmann on May 6, 2010 at 12:26 PM

Do we get to treat the trolls as the POWs treated Peter Graves’s character at the end of Stalag 17?

BuckeyeSam on May 6, 2010 at 12:50 PM

As these policies hit closer to home, the tipping point gets closer too. Either Obama gets his way and America IS fundamentally transformed…or Americans stand up and say NO MORE.

How much more can Americans take? Honestly. How much more.

Grace_is_sufficient on May 6, 2010 at 12:55 PM


Energy, etc.



Anyone have any questions?

We’re wide awake to the Destroyer in the White House.

STEP 2……RON BLOOM (Manufacturing Czar) QUOTE BELOW

Generally speaking we get the joke. We know that the free market is nonsense. We know that the whole point is to game the system, to beat the market, or at least find someone who will pay you a lot of money because they’re convinced that there is a free lunch. We know this is largely about power, that it’s an adults only, no limit game. We kind of agree with Mao that political power comes largely from the barrel of a gun. And we get it that if you want a friend, you should get a dog.

PappyD61 on May 6, 2010 at 12:58 PM

Look for the Democrats to deal with this in some tyrannical, retroactive manner to punish the insolent companies “mocking” them.

scotash on May 6, 2010 at 1:00 PM

And the many thousands of retirees and present employees of these companies all know how to ‘push the lever’, mark the ballot, and deal with the errant chad or two. Have no doubt Democrats, no doubt at all that they will!

jeanie on May 6, 2010 at 1:02 PM

Grace_is_sufficient on May 6, 2010 at 12:55 PM

Oh, the tipping point is on the way. November is the first stop – then systematically dismantle what he’s done. It won’t be easy but it has to happen if we are to recover economically. The economy will be the thing (among others) that I think will sink him in 2011/12 because it’s not coming back anytime soon.

Few realize the damage that’s been wrought in a relatively short period of time or how truly catastrophic his policies will be once fully in place. 10% UE will be the new norm alright, if we’re lucky. The only way out is to bounce him in 2012.

volnation on May 6, 2010 at 1:02 PM

What makes anyone here think everyone will get a higher paycheck when the benefits are cut? There is no way they are going to give everyone the amount of money ordinary health benefits cost even today. Thats a 600 – 700 dollar a month raise.


But the insurance will still cost the 600-700 a month plus whatever the mandates add. Guess who makes up the difference?????


sonofdy on May 6, 2010 at 1:03 PM

This seems like a good thing. The whole idea of employer based health care is a side effect of bad government policy. It is likely one of the larger causes of the spiraling cost of health care. It completely divorces the person getting care from the costs of getting the care, they never see the money, they have no control over the money, and thus they have only an incentive to actually use and probably over utilize the health care. It is not portable, which means workers remain at jobs where they may not be most efficient or happy. One of my friends from work used to badger his wife to work at a company she did not like, just so they would have health insurance.

astonerii on May 6, 2010 at 1:05 PM

And they said George Bush was Evil

Kini on May 6, 2010 at 1:05 PM

A fifth grade math student could have predicted this could happen. So don’t tell me all those smarty pant politicians in DC couldn’t have envisioned this. It had to be part of a sinister plan. That’s about as much as I trust this administration/congress.

scalleywag on May 6, 2010 at 1:07 PM

We should have explained how damaging their plan was in simpler terms to they could understand.

scalleywag on May 6, 2010 at 1:08 PM

seven on May 6, 2010 at 12:32 PM

Yep. When Pelosi mentioned it I knew it was likely already an entrenched tactic. With California reporting their public pensions are underfunded to the tune $550 billion instead of the $140 billion they had been claiming prior to April 2010 you have to know that universal health care is just about the only bone to throw at the people that poured all of the resources they had into electing an guy that would bring it them.

Give the guy credit, he said he was going to redistribute wealth and dang if he’s not following through. November can’t come quick enough and that rough ride for the lame duck congress will be smoothed by the election of Scott Brown. We are hanging on by a thread.

DanMan on May 6, 2010 at 1:09 PM

Just do away with all employer paid health insurances and let them make it up with a higher paycheck.
V-rod on May 6, 2010 at 12:41 PM


logis on May 6, 2010 at 1:12 PM

Just do away with all employer paid health insurances and let them make it up with a higher paycheck.

V-rod on May 6, 2010 at 12:41 PM

Let them make it up?

Do you honestly think any company will transfer the cost they pay for insurance to the payroll?

Hell, that’s poor cash management.

BacaDog on May 6, 2010 at 1:13 PM

Yep, happens at small businesses to but for different reasons. We’re in the process of evaluating our clinic’s health care coverage options (used to be 5, now 4 full time employees). Our existing HSA goes from $1300 to $1700/month — a 30% increase.

Costs may be going up because of new WA state preventive coverage mandates, like 1 colonoscopy every 10 years over 50 or something… I’d say thanks, but no thanks, HSAs are about subscribers paying their own way, but the liberal politicians of WA don’t hear that message — the earth doesn’t spin and sun doesn’t rise unless liberal politicians mandate it to happen…

Two staff are too lazy to set aside money in their HSA (Our family has set aside almost $10k over several years), apparently preferring to spend taxable dollars on their care instead of tax exempt HSA dollars. Dumb, but even after explaining this to them, apparently, buying a couple lattes every day, having a personal trainer at some club are ‘more important’ than saving for their health care costs. This year, they’ve requested the numbers for the option of getting paid for the coverage and paying the extra for their own PPO plan (aka dropping out of employer coverage). The PPO plans will cost each employee several hundred per month more per employee out of their own pocket — probably taxable? Dumb, but I guess that’s the nature of it — some folks just can’t figure out how to take care of themselves unless it’s lattes and personal trainers…

Perhaps when they get the numbers, they’ll figure it out? Anyone really think this is going to happen?

drfredc on May 6, 2010 at 1:16 PM

And voila! We have a single payer system.

DrStock on May 6, 2010 at 1:18 PM

I get health insurance IN LIEU of a better salary. Not being taxed on it is a benefit I earn and the government may see fit to take away. It’s part of recruiting workers…hey, we can’t pay a lot but we can give you great benefits. But if the state drops our coverage I seriously doubt they’re going to feel bad about it and give us a bigger salary to make up for it. We’ll just be screwed trying to buy it on our own out of the same salary. Great plan, government, especially for those of us in our 50s. I can only imagine what “affordable” coverage would cost me.

scalleywag on May 6, 2010 at 1:19 PM

Let them make it up? Do you honestly think any company will transfer the cost they pay for insurance to the payroll? Hell, that’s poor cash management.
BacaDog on May 6, 2010 at 1:13 PM

All joking aside, that’s actually very good point. All liberals are trained to think this way: That all employees in a free economy are really slaves and have no choice in what jobs they take or how much, or what form of renumeration they get.

And as utterly asinine as this obviously is, Communists honest-to-God see the world this way. And the ones who really believe this crap aren’t kidding. They’re as serious as cancer, and they won’t rest until the government controls everything.

logis on May 6, 2010 at 1:21 PM

I am moving to Greece, the financial outlook there is much more certain!

EliTheBean on May 6, 2010 at 1:23 PM

This is tough math: keep your existing coverage for your employees, or pay a fine at a quarter of the cost.

Let me get out a calculator and work this one out.

Vashta.Nerada on May 6, 2010 at 1:32 PM

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.

So the Federal costs rise $160 billion plus $93 billion in subsidies makes $253 billion a year, or $2.53 trillion over 10 years. But this was supposed to cost less than $950 billion, per the CBO.


Steve Z on May 6, 2010 at 1:32 PM

It is definately shovel ready.

percysunshine on May 6, 2010 at 1:34 PM

This is as unexpected as the increasing foreclosure rate, the increasing job losses and the increasing unemployment insurance filings…. unexpected!!


ihasurnominashun on May 6, 2010 at 1:35 PM

So the Federal costs rise $160 billion plus $93 billion in subsidies makes $253 billion a year, or $2.53 trillion over 10 years.

Steve Z on May 6, 2010 at 1:32 PM

Interestingly, that’s pretty much the number Republican critics were using for the real costs, which suggests to me that it will actually be far more than that. How long do you think it will be before we see legislation to drastically increase the fine?

ProfessorMiao on May 6, 2010 at 1:46 PM

This is tough math: keep your existing coverage for your employees, or pay a fine at a quarter of the cost. Let me get out a calculator and work this one out.
Vashta.Nerada on May 6, 2010 at 1:32 PM

While you’re at it, go ahead and subtract the exact same amount of money out of every employee’s paycheck.

It’s amazing to me that Americans are allowed to graduate high school – let alone college – without even the very most remedial comprehension of how economics work.

Liberal logic: “No, no. The worker doesn’t have to pay any of this money. Only the employer has to pay an additional lump sum to the government for each person on his payroll. Then he can go ahead and still pay that same money to you, too, if he wants. And if he doesn’t, it’s not because he no longer HAS the money he just paid us; it’s only because he’s greedy.”

logis on May 6, 2010 at 1:47 PM

Whatever happened to Obama’s big PR stump to teach us peasants about his glorious plan? And Pelosi sure has been quiet lately.

scalleywag on May 6, 2010 at 1:49 PM

Maybe Obama’s forcing his nose to grow to bring his large ears into proportion.

Chuck Schick on May 6, 2010 at 1:49 PM

Liberal logic: Add to that the fact that if business isn’t going to buy employees health insurance than the employee is violating the law requiring them to be insured and should be fined and possibly sent to jail. You can bet the fine for the employee, just like for business, is going to be far less than any health insurance premium they’re going to find.

scalleywag on May 6, 2010 at 1:53 PM

This is not unexpected. Big business no longer shows loyalty to employees like in the old days. It’s all about the bottom line and how much profit the ceo’s can siphon off. I’d say this is going according to the Amateur in Chief’s plan. They knew big business would dump employee insurance and pay fines. It’s cheaper, saves the company big $$$, which equals more for the ceo’s. Meanwhile the little guy is screwed.

GrannySunni on May 6, 2010 at 12:07 PM

AMEN! I know my employer will! 1st our diviend was cut from .34 to .05 a share because they could. Can you say 3B in net profits on avg for the last 5 or 6 quarters!! Next our pension portion was eliminated (money put into a cash account which was disbursed at the time you leave the company). Why not save 4k per employee each yr?!? Now my only employer option for retirement is my 401k which I’m doing the max contribution each year. My big concern is if the “clowns” (dems & repubs) try to “replace” the 401k’s. I know, I know……it could never happen right? / s

VikingGoneWild on May 6, 2010 at 1:53 PM

And Pelosi sure has been quiet lately.

scalleywag on May 6, 2010 at 1:49 PM

Thanks, at least one little silver lining.

JusDreamin on May 6, 2010 at 2:04 PM

So OT but when are we going to clamp down on the housing executives that took billions in bailout funds?

Bailouts the right and the tea party argued were a horrible idea turned out to be? A horrible idea.

scalleywag on May 6, 2010 at 2:07 PM

Thanks, at least one little silver lining.

JusDreamin on May 6, 2010 at 2:04 PM

It is a blessing, isn’t it. But as proud as she was of passing this boondoggle the majority of the country didn’t want, you’d think she’d be crossing the country extolling all its virtues. Instead, she’s been quiet as a mouse.

scalleywag on May 6, 2010 at 2:11 PM

These companies could pay large amounts back to the worker for not taking insurance. Many, many years ago, I worked for a place that paid me about $250 a month to not enroll in the insurance plan. I didn’t need it, had other coverage, and I loved that extra money each month.

bopbottle on May 6, 2010 at 2:14 PM

This is of course the failing of The Ivy League. Hopefully real business owners and alumni will throw out requests from the Ivy’s for money in the trash.Harvard/Yale MBA= mindless brainless A%&%&$%$h

Col.John Wm. Reed on May 6, 2010 at 2:22 PM

OK, so we lose our health care. At least now things are equal, right comrades?

james23 on May 6, 2010 at 2:45 PM

What will happen here will be the same story as happened to Social Security…it will morph and morph to deal with the problems as they arise. The problem is, on whose back will it morph? There are a lot of ‘if only’s’ to go around here, and much finger-pointing on both sides of the aisle. You’re right to point this out, Ed. I’d also like to hear some solutions.

Halli Casser-Jayne

The CJ Political Report on May 6, 2010 at 3:00 PM

Anyone up for GOVERNMENT RUN HEALTH CARE? After all, that’s what the Democrats have wanted since day one.

GarandFan on May 6, 2010 at 3:02 PM

Welcome to Bairy Soetoro World!

BHO Jonestown on May 6, 2010 at 3:12 PM

This is exactly what they want to happen. It was never about health care, it is about SINGLE PAYER.

rjoco1 on May 6, 2010 at 4:28 PM

rjoco1, you are dead spot on there. That whole bill was designed to crush the system as it is and then single payer will “save us” once the whole system melts down.

To put things in perspective, I have employees that I pay for. One of my managers makes $4K per month. It would cost my company $1700 extra per month to cover her and her family. Right now, my HR budget for that position IS $4K per month + employer taxes. An 8% fine would only cost me $320 per month, saving $1400 per month over offering insurance.

We have idiots in DC. Or maybe not idiots, this was probably deliberately designed to do this because they know they will break the system. I hate them all.

karenhasfreedom on May 6, 2010 at 5:13 PM

Come on, rubes.

The purpose of Bambicare was not to re-make or transform the US health care system, the purpose was to collapse it.

The dems want to make us all dependent on DC for our health care.

Labamigo on May 6, 2010 at 7:32 PM

Dont raise people out of the gutter. Lets make sure everyone goes IN the gutter so we’re all equal. WRONG ANSWER!

johnnyU on May 6, 2010 at 7:35 PM

My husband’s company just made a policy that if your partner or spouse is elibible for health insurance elsewhere, they can’t carry him/her. I would assume that they did that in anticipation of Obamacare.

foxforce91 on May 7, 2010 at 10:29 AM

Take away half the populations jobs, their homes, their savings and their health care then add a hidden tax on everything and what do you think will happen? The peons that voted for this deserve it. Worst regime ever.

Reality Check on May 7, 2010 at 10:35 PM

No worries comrades, we can raise the penalties later.

AshleyTKing on May 8, 2010 at 2:27 AM

“You can keep your doctor and other Health Care programs under this legislation”. It does state that in the 2K plus pages. What, it does not tell you, clearly and immediately following that statement, is that you will be placed on the Government dole when/if they do dump you.

Then let the Chipping begin not in your T.V. but IN YOU.

MSGTAS on May 9, 2010 at 10:44 AM