We all know the strata of deception: lies, damned lies, and statistics. Consulting firms of all types have been constructing the stats in recent months to suggest that the sky isn’t falling on employer-provided group health insurance.
The consultant Booz Allen contributed mightily to the political double-speak with the release of a report titled “The Future of Health Insurance: The Demise of Employer-Sponsored Coverage Greatly Exaggerated.”
The study asserts that mid-sized and large employers are unlikely to drop their traditional group health plans in favor of sending employees to subsidized exchanges, saying that there “is not enough of a cost-value differential to offset the risks to employee morale and retention.” From data collected in interviews with 150 organizations, Booz suggests that only five to seven million Americans will gravitate from private plans to exchanges. That’s pretty close to the Congressional Budget Office estimate of five million over a decade, a number used to legitimize the claim that healthcare reform legislation will help lower the federal deficit.
The consulting firm Milliman similarly ran the numbers, suggesting that the cost of dumping employees into exchanges doesn’t add up. Unfortunately, both the Booz and the CBO claims are wishful thinking. Read further into the reports, and the details emerge. A lot of employers just don’t know what they’re going to do when the exchanges come online in 2014, when subsidies become available to American families making up to 400% of the federal poverty line (almost $90,000). To say that employers are confused and haven’t made decisions is rational; it’s not rational to predict, based on the available data, that employers would be unlikely to dump their plans.
Mike Brewer, president of the Lockton Benefit Group, provided a far more insightful appraisal of the likely outcomes of reform when he testified in March before the House Education and the Workforce Committee.
“Across most industry segments, our clients will have a significant incentive to terminate their group coverage once the insurance exchanges present employees with another subsidized health insurance option,” Brewer told the committee. “This is because the vast majority of our clients currently spend far more on health insurance, per employee, than the penalty under the ‘play or pay’ mandate. By 2014, this gap will be even wider.”
Lockton’s actuaries modeled for several hundred clients the impact of the new healthcare reform law on their group health programs. The reform bill’s immediate benefit mandates have added 2.5% to clients’ health costs. Doesn’t sound so bad, huh? But that’s 2.5% on top of medical cost trend lines that exceed 10% a year. Further, the “automatic enrollment” requirement in 2014 will add an average of 3.8% to clients’ health insurance spending—even assuming that 75% of the automatically enrolled employees, who would not otherwise enroll in coverage, will opt back out of the health plan.
“The vast majority [of clients] tell us they will wait and see,” Brewer said. “They tell us what they do in 2014 depends on their health insurance costs then, and their perceived need to use a health plan to gain a competitive advantage for labor. With regard to this latter point, many clients have told us, ‘We won’t be the first to drop coverage, but we won’t wait to be third, either.’”
Of course, the incentives to drop coverage differ among industry sectors, and Lockton has broken them out. Not surprisingly, the retail/restaurant/hospitality sectors are the most likely to flee their health plans and send workers to the exchanges; professional-service firms are the least likely to do so. Almost surely, the hospitality sector will respond by eliminating large numbers of full-time positions.
To comply with the mandate, Lockton estimates, hospitality employers will see their health insurance costs increase 150%. Even if the employer terminates its group plan, it will still pay more than it would to maintain its current plan in 2014 because it then pays a $2,000 per year, non-deductible penalty for each full-time employee, even those to whom the employer has never offered coverage.
And, let’s see, how have the estimates for signup in high-risk pools gone? And how many small businesses have managed to thread the bureaucratic needle and receive tax breaks for their coverage? Congressional and administration estimates have been way off. For clients whose employees make over $90,000, there are risks in terminating a plan. But this is the labor market of 2011, not 2005.
Reform legislation gave us health insurance reform, not healthcare reform. It adds mandates for coverage, and qualifying plans are going to become richer and richer.
Brewer summarized it perfectly before Congress: “Our clients agree that improvements in the health insurance system are necessary. But they are frustrated that the law imposes additional costs and other burdens upon them. Our clients wish that Congress would work to make an employer’s provision of health insurance easier and less costly, rather than more expensive and more burdensome.”