Could ObamaCare sound death knell for employer-based health coverage?

posted at 12:03 pm on October 25, 2010 by Ed Morrissey

Yes, says a Democratic governor.  No, says the White House.  And the private sector will wait for one or two major employers to dump health-care coverage before beginning a stampede, the AP reported over the weekend, as businesses look at the expanding costs of health insurance in the mandate-filled world of ObamaCare:

While it’s too early to proclaim the demise of job-based coverage, corporate number crunchers are looking at options that could lead to major changes.

“The economics of dropping existing coverage is about to become very attractive to many employers, both public and private,” said Gov. Phil Bredesen, D-Tenn.

That’s just not going to happen, White House officials say.

“The absolute certainty about the Affordable Care Act is that for many, many employers who cover millions of people, it increases the incentives for them to offer coverage,” said Jason Furman, an economic adviser to President Barack Obama.

The White House says that penalties and market forces will keep employers in the health-insurance business.  Opting out of providing coverage will mean having to pay $2,000 per employee in penalties, the Obama administration points out, and those companies that don’t offer health insurance would have to pay higher wages to cover the difference in compensation.  Wages will trigger higher Social Security taxes, adding to the penalties in ObamaCare, making it a bad idea to drop coverage.

However, that argument strongly relies on static analysis, in two ways.  First, businesses are not looking at costs in the present sense, but the escalating costs of health insurance in the future, especially the Cadillac tax for bigger companies.  Therefore, that $2000 disincentive becomes less of a barrier to making that decision.  On wages, the administration has a point — but only for the first company that breaks away from coverage.  If most employers begin dumping health insurance, the competitive need to raise wages drops, which means that increases won’t be as large as the administration thinks and won’t produce the Social Security revenue they project.

Why is that important?  First, the administration sold this bill with the promise that people could keep their existing plans and doctors, a promise that the White House already has trouble maintaining.  The bigger problem is fiscal, not political.  When employers stop offering health insurance, the employees become eligible to purchase coverage in the state exchanges — and for the subsidies promised them in ObamaCare.  Congress assumed an initial entry of seven million individuals, although 28 million would be eligible, a dichotomy that has its own problems for the fiscal projections of ObamaCare.  However, if suddenly 50 million people enter the exchanges and demand their subsidies, the entire system will collapse in an ocean of red ink.  It will make Medicare look solvent.

Congress has set up perverse incentives in a market they obviously didn’t understand, and Bredesen sees the predictable consequences.  That’s why lawmakers should read bills before voting for them, and why government is incompetent at restructuring private markets.


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Comment pages: 1 2

These are not unintended consequences – we all know Obama was counting on getting his single-payor system once the insurance companies were destroyed.

Look, we have to hold the Democrats’ feet to the fire. Either they’ve been lying to us or they are utterly incompetent. To paraphrase Vivian Schiller, take your pick.

disa on October 25, 2010 at 8:33 PM

NOW, I REALLY FEEL THAT OBAMACARE IS ALL ABOUT ….

DEATH PANELS … not just one but multiple panels of different sort!

TheAlamos on October 26, 2010 at 7:53 AM

Definitely not unintended consequences. The whole idea of a relatively low “fine” for not providing coverage indicates that the economic choice would be to drop coverage. The additional “incentive” of fining employers who offer good coverage further encourages companies to drop coverage.

Government dependency here we come!

MTinMN on October 26, 2010 at 11:35 AM

Comment pages: 1 2