Video: AOL CEO says ObamaCare adding $7 million to costs

Remember when Democrats sold ObamaCare as a system that “bends the cost curve downward”? Tell that to employers, who face a make or break decision point this year when the employer mandate comes into full force for 2015. Do companies dump health insurance in order to control their costs, or pay the higher costs and pass them along to employees as reductions in compensation? Tim Armstrong explains to CNBC that employers — even one as large as AOL — can’t avoid what is a $7 million question to him (via Daniel Halper):

“We have to look at our benefits programs very seriously,” said Armstrong. “In the CEO chair, let me give you an example of the decisions we have to make as a company: Obamacare is an additional $7.1 million expense for us as a company. So we have to decide whether or not to pass that expense to employees or whether to cut other benefits.”

Speaking of bending cost curves, a lot of people have noticed that their new and supposedly oh-so-much-better insurance has a lot fewer choices when it comes to providers. In Covered California, some have found that they have nearly no choice, for example. The Obama administration and Democrats on Capitol Hill are threatening insurers to restore provider networks, but the insurers say they have no choice if they want to keep premiums low:

Insurers are facing pressure from regulators and lawmakers about plans that offer limited choices of doctors and hospitals, a tactic the industry said is vital to keep down coverage prices in the new health law’s marketplaces.

This week, federal regulators proposed a tougher review process for the doctors and hospitals in plans to be sold next year through, a shift that could force insurers to expand those networks. …

A spokesman for America’s Health Insurance Plans, the industry’s main trade group, said narrower provider networks are “one way health plans can help to preserve benefits and mitigate cost increases for consumers” as health-law changes take effect.

Narrower networks can help keep down costs partly because providers agree to lower their fee in exchange for the volume of business they expect with fewer competitors.

Some 70% of new plans under the health law offer relatively narrow networks compared with many current plans, according to a recent report by McKinsey & Co. The consulting firm found that plans with smaller choices of hospitals had significantly lower premiums than similar plans offering a broader choice.

The narrow networks have drawn protests, lobbying and some legal challenges from doctors and hospitals.

Insurer networks are providers who agree to a reimbursement schedule from the insurer. The tighter those reimbursements, the narrower the provider network will become as providers decline to join on those price schedules. In order to make a network broader, insurers would have to offer better reimbursements — which would force premiums to go up. This is nothing more than Risk Pool 101, or even more basically, the law of supply and demand.

It’s also a demonstration of the difference between price and cost. One can easily bend price curves downward, but not without serious distortions to product/service and delivery, and to the larger market overall. And even then, consumers will see very quickly through the illusion of price manipulation, especially since those manipulations are unsustainable.

So far, these disasters have been confined to the individual-plan markets. When they hit the employer-provided group markets, the disaster will amplify exponentially. Either employees are going to get hit with massive increases in insurance costs, or will get kicked out of their group plans altogether. AOL won’t just eat that $7 million, and neither will anyone else’s employers.