Major corporations may dump health insurance, pay penalties instead

Shocker: Major corporations may dump health insurance, pay penalties instead

posted at 11:37 am on May 6, 2010 by Ed Morrissey

Well, well, well. Remember when Barack Obama said that under ObamaCare, people would keep their existing health plans and doctors? Remember when any suggestion that companies would find it a lot less expensive to dump employer-based health care and pay the penalties instead were cast as “myths” and “scare tactics,” even though the math was extremely easy to see? Welcome to Hope and Change:

The great mystery surrounding the historic health care bill is how the corporations that provide coverage for most Americans — coverage they know and prize — will react to the new law’s radically different regime of subsidies, penalties, and taxes. Now, we’re getting a remarkable inside look at the options AT&T, Deere, and other big companies are weighing to deal with the new legislation.

Internal documents recently reviewed by Fortune, originally requested by Congress, show what the bill’s critics predicted, and what its champions dreaded: many large companies are examining a course that was heretofore unthinkable, dumping the health care coverage they provide to their workers in exchange for paying penalty fees to the government.

Remember Henry Waxman’s threat to subpoena CEOs over their writedowns on the tax credit that disappeared in ObamaCare? Fortune now reveals why those hearings got canceled:

Waxman didn’t simply request documents related to the write down issue. He wanted every document the companies created that discussed what the bill would do to their most uncontrollable expense: healthcare costs.

The request yielded 1,100 pages of documents from four major employers: AT&T, Verizon, Caterpillar and Deere (DE, Fortune 500). No sooner did the Democrats on the Energy Committee read them than they abruptly cancelled the hearings. On April 14, the Committee’s majority staff issued a memo stating that the write downs were “proper and in accordance with SEC rules.” The committee also stated that the memos took a generally sunny view of the new legislation. The documents, said the Democrats’ memo, show that “the overall impact of health reform on large employers could be beneficial.”

Nowhere in the five-page report did the majority staff mention that not one, but all four companies, were weighing the costs and benefits of dropping their coverage.
It’s not just the calculus of mandates and penalties that has employers considering the option of dumping health care and paying more in salaries instead. The mandate to keep “children” on plans until the age of 26 has employers seeing a steep cost curve. For Caterpillar alone, the 26-year-old mandate will cost over $20 million a year. Under those conditions, the penalties look pretty good. Add on the “Cadillac tax” on some health plans and the expected jump in medical costs from providers dealing with their own set of mandates, and health insurance looks like a very bad risk.

What will it cost the government to provide subsidies for tens of millions of Americans who used to get health insurance through their employers? No one really knows for sure, but Fortune takes a stab at it:

What does it mean for health care reform if the employer-sponsored regime collapses? By Fortune’s reckoning, each person who’s dropped would cost the government an average of around $2,100 after deducting the extra taxes collected on their additional pay. So if 50% of people covered by company plans get dumped, federal health care costs will rise by $160 billion a year in 2016, in addition to the $93 billion in subsidies already forecast by the CBO. Of course, as we’ve seen throughout the health care reform process, it’s impossible to know for certain what the unintended consequences of these actions will be.

But some of us predicted that the numbers used by Democrats pushing ObamaCare bore little connection to reality — and that it would incentivize employers to destroy the net of employer-based health insurance. It looks like that day is fast approaching, and that’s no myth. It’s a reality that Henry Waxman tried hard to hide from the American public.
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Medicare Report Shows ObamaCare’s Harmful Budgetary Impact
Grace-Marie Turner
Thursday, May 06, 2010

Many Americans wondered why Congress was in such a rush to take the final vote on ObamaCare at midnight on a Sunday night when most of its major programs don’t begin until 2014. It’s now clear that Democratic leaders feared their members might balk if they saw the objective analysis that was being prepared showing the overhaul law’s true costs.

Their concerns were validated when a respected, non-partisan analyst issued a report one month after the law was enacted. The chief actuary for Medicare, Richard Foster, found that under ObamaCare, health spending and health costs will rise, businesses and families will face higher premiums, millions of people will lose their current coverage, and seniors will have trouble accessing care.

The analysis by the administration’s own actuary confirms why a majority of Americans opposed the legislation and why House Republicans want Foster to testify about his findings.

Foster’s analysis already has had an impact on decisions regarding one of the first programs launched under ObamaCare – the new temporary high-risk pools for the uninsured. Congress allocated $5 billion to fund the pools until 2014 when enrollees would be transferred into new health insurance exchanges.

But Foster found that the $5 billion “would be expended during the first 1 to 3 calendar years of operation.” That means states could have to fill the funding void. Nineteen states told HHS Secretary Kathleen Sebelius, “No thanks” when she asked if they planned to run these new programs.

The states don’t want to be responsible for the added cost of the federal high-risk program and wisely chose to protect their taxpayers from yet another unfunded liability. As a result, HHS will now be responsible for creating and operating risk programs in these 19 states.

They wisely told Sebelius who is in charge and that they will not be subservient to Washington.

Now that Foster’s report is out, the White House spin can’t hide the fact that ObamaCare is an abject failure at achieving its number one goal: reducing health care costs. Foster’s analysis estimates that total national health spending will increase by $311 billion as a result of ObamaCare, thereby bending the cost curve up.

He also predicts higher health insurance premiums for individuals and businesses because billions of dollars in new fees and excise taxes will “generally be passed through to health consumers in the form of higher drug and devices prices and higher premiums."

Foster warns that the cost of the health overhaul law may be much greater than advertised. It relies on more than $500 billion in Medicare cuts to help pay for the new entitlement spending. But these cuts “may not be fully achievable” because “Medicare productivity adjustments could become unsustainable even within the next ten years,” Foster wrote. Given Congress’s inability to address Medicare’s exploding costs thus far, Foster’s skepticism is justified.

The report also highlights the shaky financial footing of the new long-term care insurance program – the CLASS Act, which Sen. Kent Conrad (D-ND) has described as “a Ponzi scheme of the first order.” Foster agrees the program faces “a significant risk of failure,” resulting in “a very serious risk that the problem of adverse selection will make the CLASS program unsustainable.” At a time of ballooning deficits and record debt, he finds the program will result “in a net Federal cost in the long-term.”

Concerned you’ll be kicked off your health insurance plans due to ObamaCare? Foster’s report shows that millions of Americans will suffer just this fate. He estimates that 14 million people will lose their employer coverage by 2019 as smaller employers terminate their plans and as workers who currently have employer plans enroll in taxpayer-subsidized coverage.

For seniors, Foster estimates that more than seven million will lose their current Medicare Advantage plans and that the “new provisions will … result in less generous benefit packages.” Recipients on traditional Medicare also will have trouble accessing care: Fifteen percent of all hospitals, nursing homes and other providers treating Medicare recipients could be operating at a loss by 2019 and “possibly jeopardize access to care for beneficiaries.”

He also warns that there simply is not enough capacity in the system, especially at government payment rates, to provide actual medical care for the newly insured: “The additional demand for health services could be difficult to meet initially with existing health provider resources and could lead to price increases, cost-shifting, and/or changes in providers’ willingness to treat patients with low-reimbursement health coverage.”

Unfortunately, the White House and congressional leaders are unlikely to address the damaging findings in Foster’s analysis. When Americans begin to feel the impact, they will see there was independent evidence of the false promises proponents made to gain votes to enact this unpopular legislation.