Study: Almost 10% of employers might end health plans once new exchanges start

The perfect complement to Ed’s post this morning about how deficits are bound to drop in the near term if only you assume ridiculously rosy scenarios for every possible budget development. Case in point: CBO’s initial ObamaCare score assumed that only four million, or 2.5 percent, of the 162 million workers who have employer-provided health insurance would end up switching to the new taxpayer-subsidized exchanges once they go online three years from now. What happens to deficit projections if it turns out that that estimate is wildly, wildly low?

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We can guess, but we don’t have to. Looks like we’ll find out.

Nearly one in 10 midsize or large employers expects to stop offering health coverage to workers once federal insurance exchanges start in 2014, according to a survey from a large benefits consultant.

Towers Watson also found in a survey completed last month that an additional 20% of companies are unsure about what they will do

A large majority of employers in both studies said they expect to continue offering benefits once the exchanges start. But former insurance executive Bob Laszewski said he was surprised that as many as 8% or 9% of companies already say they expect to drop coverage.

Such a move comes with potential payroll-tax headaches and could subject firms to fines. It also would give their employees a steep compensation cut if companies don’t raise pay in exchange for ending coverage.

In fact, a survey of employers published by McKinsey in June found that as many as 30 percent will definitely or probably drop coverage once the exchanges begin, and among those with a “high awareness” of the new rules post-ObamaCare, that number rises to 50 percent. And why not? If you can cut costs by paying a fine instead of buying insurance for workers, why not push them off onto the exchanges and let taxpayers pick up the slack? Hopefully employees who see their benefits yanked will get a raise in wages to help them buy insurance on their own, but who knows? Employers have already leveraged workers’ abject terror of being laid off in this economy into longer hours and greater productivity. It’s the rare employee these days who’d quit under any circumstances, even if it means carrying a heavy new insurance burden with little or no extra income to help. Besides, a savvy employer knows that if the average worker proves too poor to afford insurance on the exchange, Congress will simply increase the government subsidy. Which is to say, instead of moving away from ruinous federal health-care spending of the sort that’s making Medicare such a crippling liability, we’ll be moving further towards it.

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That’s not the only bad effect. More from Jeffrey Anderson writing about the McKinsey survey:

Under Obamacare’s mandates, the report says that “employers will no longer be able to offer better benefits to their highly compensated executives than to their hourly employees.”

These mandates would result in perverse hiring incentives. The report writes,

“Instead of completely dropping employer-sponsored insurance (ESI), employers could also choose, in effect, to cover only part of their workforce, without violating the provisions of reform that prohibit employers from discriminating against lower-income employees in a health benefits offering. One way of doing so would be to increase the proportion of part-time workers, for whom employers are not required to provide coverage.”

If you like your plan you can keep your plan, unless you’re either busted down to part-time employment or laid off entirely while your position is outsourced so that your boss can comply with the “no discrimination in benefits” mandate. And as Ed has noted many times, even if you’re an employer who wants to do right by your employees by absorbing the extra cost of providing insurance instead of shunting them off onto the exchanges, competitive pressures may not allow it. Once one business in the industry defects to cut costs, everyone else will be under strain to follow suit. Long story short, we may well be looking at higher unemployment and higher deficits once the new rules kick in. Perfection.

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Exit question: Which far-right Obama-basher once called employee-dumping “the most serious threat” to arise from ObamaCare? The answer may surprise you.

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