Friday, July 8, 2011

Yet Another Report Discusses Employers Dropping Coverage

The Employee Benefits Research Institute released an issue brief on issues surrounding employer-sponsored coverage recently.  While part of the EBRI brief analyzed the impact of proposals to alter the tax treatment of employer-provided health insurance, and whether such moves would lead employers to drop coverage, the report is particularly noteworthy because it admits that employers already have reasons to drop health coverage, due to Obamacare’s perverse incentives.  Several sections of the report confirm what former CBO Director Doug Holtz-Eakin, former Tennessee Gov. Phil Bredesen, the non-partisan Tax Policy Center, and even HHS officials have already noted – many workers can come out ahead if their employers drop coverage and stick taxpayers with the bill for insurance subsidies:

For instance, premiums will average $690 after subsidies for single coverage among policyholders regardless of age at 150 percent of the federal poverty level (FPL) in 2014.  Such low-income workers are predicted to pay an average of about $1,500 for employment-based health benefits through payroll deduction.  They would therefore save an average of about $800 a year by receiving health coverage through the insurance exchange as compared with employment-based coverage.  Workers at 200 percent of FPL would come out about even between employment-based coverage and the insurance exchange….

Employers would not have to give workers the entire employer portion of the premium to provide a large enough fixed contribution for workers to afford coverage in the insurance exchange.  If employers gave workers 60 percent of the employer share of the premium for employee-only coverage, and only 21 percent of the employer share of the premium for family coverage, then all workers below 400 percent of the federal poverty level would be able to cover their full share of the premium in the insurance exchange.  Employers would still have about $2,000 left over per worker with employee-only coverage and about $8,500 per worker with family coverage to pay the $2,000 penalty for not offering coverage….

About 41 percent of workers are in families with income between 133 percent and 400 percent of the federal poverty level.  They account for 65 million workers.  Even if only a fraction of these workers preferred coverage through an insurance exchange, it would send a clear message to employers that millions of workers no longer valued employment-based health benefits….

If workers show a preference for health coverage in an insurance exchange over employment-based coverage, it sends a message to employers that their workers no longer value the health coverage being provided.  Employers would then start to ask themselves why they should continue to offer health coverage if workers no longer value it as an employee benefit.  At that point, they might simply drop the benefit, which would enable workers to get subsidized coverage in the exchange.

While the report does note that in many cases the insurance subsidies will be linked to plans offering less-rich health insurance benefits than the average employer policy does currently, younger and healthier workers in particular would likely be willing to accept plans with slightly higher cost-sharing in order to come out ahead financially.  And as the report notes, once the proverbial tipping point is reached, firms will ALL rush to drop coverage and send their employees to exchanges.

The head of the American Benefits Council, another employee benefits trade association, last fall said that Obamacare was “a huge roll of the dice” and “could begin to dismantle the employer-based system.”  This latest report further illuminates the problems with that approach, not least the trillions of dollars in additional taxpayer subsidies that will result from any mass migration by employers away from offering health coverage.