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Guest Commentary: The uncertain future of America's employer healthcare coverage
Sally C. Pipes
7/7/2012 1:09:00 PM
The average family's health benefits now cost more than $20,000, according to a new report from Milliman, a consultancy. American workers pick up about $8,500 of that tab, and their employers cover the rest.
President Obama's healthcare law may unwittingly offer companies some relief from that obligation -- by encouraging them to discontinue offering health insurance. If employers take the bait, then Americans accustomed to getting coverage through work may have to find it on their own. A new House Ways and Means Committee report estimates that the 100 biggest American firms could save nearly half a trillion dollars over the next decade by dropping health coverage for their employees and foisting them onto public insurance exchanges, which are set to become operational in 2014.
The Committee surveyed 71 Fortune 100 companies and found that they spent $5,197 on health insurance per employee in 2011, on average. The cost of insuring an employee's entire family was, of course, even higher. By the time the insurance exchanges open, the average worker's insurance will cost his employer $6,500.
These estimates may be low. The cost of an employer-based insurance plan has increased by 112 percent over the past decade. And 84 percent of employers expect healthcare costs to increase at rates greater than those they've experienced over the past five years. Reasons for the increases include Obamacare's provision that insurers keep children on their parents' plans until age 26, the ending of price discrimination for patients with pre-existing conditions, and mandated coverage of free preventive care.
Employer-provided coverage is already becoming rarer. A recent study from the Employee Benefit Research Institute found that the number of private-sector employers offering health benefits to their workers has steadily decreased. In 2010, about 47 percent of wage and salary workers reported that they worked for employers that didn't furnish health benefits. Another 15 percent weren't eligible for those available.
Obamacare aims to change that by mandating that all employers with more than 50 workers provide insurance coverage. But it only fines them $2,000 per employee, with certain exceptions, if they don't.
So the cost of insuring an employee in 2014 will be more than triple the penalty for not doing so. That gives employers an enormous financial incentive to scrap coverage.
In 2014 alone, the Fortune 100 companies could save $28.6 billion by dropping their workers onto the exchanges, according to the Ways and Means Committee report. By 2023, the savings could collectively reach $422 billion. That's good news for the companies -- but not for their formerly insured workers. An employee forced onto an exchange will likely see a 79- to 125-percent increase in his premiums, according to an analysis by Lockton, a consulting firm.
The problems don't end there. If American businesses leave the government to figure out how to cover their workers, then the already inordinate costs of Obamacare could skyrocket.
According to the Congressional Budget Office (CBO), Obamacare is set to spend $450 billion between 2014 and 2019 on subsidies for folks with incomes between 133 percent and 250 percent of the federal poverty line -- or between about $30,000 and $46,000 for a family of four.
But those projections depend on employers continuing to offer coverage. If they don't, the cost of the subsidies could more than triple, to $1.4 trillion, according to former CBO Director Douglas Holtz-Eakin.
Obamacare could've headed off this crisis by making insurance more affordable. But its many mandates do just the opposite. For instance, the law limits the availability of high-deductible insurance plans, capping annual deductibles at $2,000 for individuals and $4,000 for families. Many policies featuring high deductibles -- and low premiums -- will be driven off the market by these rules.
RAND Corporation researchers found that expanding plans like these to 50 percent of the employer market -- from their current 13-percent share -- could reduce healthcare costs by $57 billion each year.
Obamacare all but guarantees that companies won't be able to take advantage of those potential savings. President Obama promised Americans that they'd be able to keep their coverage under his reform plan. Those with employer-based health insurance may soon find that's a promise he won't keep.
Sally C. Pipes is president, CEO, and Taube Fellow in Health Care Studies at the Pacific Research Institute. Her latest book is "The Pipes Plan: The Top Ten Ways to Dismantle and Replace Obamacare" (Regnery 2012).
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