• The Heritage Network
    • Resize:
    • A
    • A
    • A
  • Donate
  • Side Effects: Obamacare Creates a Costly Drop in Employer Health Coverage

    The President repeatedly promised that if you liked your health plan, you would be able to keep it. Nothing would change. Fat chance.

    In fact, millions of Americans of Americans will lose or be transitioned out of their existing employer based health insurance. The official Actuary at HHS- who doesn’t speak for the Administration- said it would be 14 million. But a new report by former Director of the Congressional Budget Office Douglas Holtz-Eakin predicts it could be as high as 35 million. That kind of disruption comes at a high price:  It’ll cost taxpayers nearly $1 trillion more than previously estimated.

    Why? Because Obamacare calls for lavish subsidies to help low- and middle-income Americans buy health insurance.  Indeed, households earning up to four times the federal poverty level are eligible for subsidies.  According to 2008 Census data, some 127 million Americans would qualify.  Yet the official CBO analysis of Obamacare estimated only 19 million would get subsidies.

    Why did CBO think the other 108 eligibles wouldn’t ask for “free” federal money?  Because Congress added a “firewall” provision: You can’t get a subsidy unless you have no employer-sponsored coverage, or your contribution toward employer-based coverage exceeds 9.8 percent of your income.

    But this firewall is flimsy.  The inducement Obamacare gives employers to keep providing generous health coverage is the threat of slapping them with a $2,000 per employee penalty if they drop coverage.

    The new study by Holtz-Eakin, now president of the American Action Forum, and his colleague Cameron Smith demonstrates just how ineffective this penalty will be.  It presents the example of an insured low-income worker earning one-third more than the federal poverty level. The employer could drop that worker’s coverage, give him a raise, pay the penalty and still save money.  Meanwhile, the worker could pocket the raise and the Obamacare subsidy, buy his own coverage and be none the worse for wear.

    As Holtz-Eakin and Smith put it, “There is room for the employer to actually improve the worker’s life by having a small pay raise and the same insurance and still save money.”  For a health plan worth $15,921, the employee would get a bonus of $128 to keep the same health plan in the exchange, and the employer would save $9,941, even after paying the penalty.

    In theory, everyone “wins”. Sort of.  The employer gets to dump expensive federally mandated health coverage, and the employee, who may have liked that coverage, still gets a pay raise. The only big loser is the employer and employee who happens to be a taxpayer. The feds will have to dole out subsidies to even middle class families whose employers drop coverage due to the programs perverse incentives.  After crunching the numbers, Holtz-Eakin and Smith concluded that as many as 35 million could lose employer-sponsored coverage, bringing the price tag of the subsidies from a” measly” $450 billion to about $1.4 trillion. Have a nice day.

    Posted in Ongoing Priorities [slideshow_deploy]

    14 Responses to Side Effects: Obamacare Creates a Costly Drop in Employer Health Coverage

    1. Bridget, Dana Point says:

      It says "of Americans" twice.

      "In fact, millions of Americans of Americans will lose or be transitioned out "

    2. Wayne P. Jensen says:

      If I knew that this once great country of our"s would one day be led by a marxist like this, I would have never served this nation in two branch"s of the service,

    3. Norma in Nebraska says:

      My grandmother always told me, "haste makes waste." Whenever you find a group of people rushing to do something FOR and TO you that you don't think you want to participate in, you should certainly run for your life.

      All of the speculation about the far-reaching effects of the health care bill are just that, but in five or six years, after our current system is completely destroyed, we will have to learn to "heal thyself" with holistic medicines because we won't be able to go to a real doctor . . . . because there won't be any! Our medical services will go from being the best in the world to basically non-existent.

      I am sure that our elected officials who have made sure they have a big pot of money to travel anywhere in the world to get medical care won't give a second thought about the poor suckers that they have shafted with this bill. Alas, once again we will learn the tough lesson that history could have taught us had we bothered to learn it . . . leave us alone and let us take care of ourselves. We CAN do it without anyone else's help!

      Those who are looking for their government to take care of them need to move to any other country in the world because we don't need them here! We need more people with ambition, fresh ideas, and the will to succeed . . . not freeloaders! for those who could work but choose not to . . . . work or don't eat should be our motto.

    4. Pingback: Side Effects: Obamacare Creates a Costly Drop in Employer Health Coverage « Faulk For Congress

    5. ann kitay fulton, tx says:

      Don't know much about this aspect of healthcare, Obama-style, but got a letter from Kathleen Seiblious this am saying my new health booklet out this fall will explain all our new benefits and also that 26 year olds living at home will be covered as of this September! Whoa! I thought none of this was to go into effect until 2014. Have called Senators in DC who are 'out' this week – but their clerks agree with me. I'm not a happy camper re: Obamacare even though I live on SS and use Medicare. Guess I need to stop reading and listening to radio and tv – than, like some of my peers, I wouldn't worry so much about the direction our country is going. Not!!

    6. Dave, Iowa says:

      Nothing but bad. Across the board. Obama is the greatest enemy this country has ever faced.

    7. Billie says:

      Seems our lives will be filled with time consuming government applications and watching our backs…

      the more government, the less freedom, the weaker the people…

    8. joan, connecticut says:

      Everyone gasped, when the USA House representative from South Carolina, Joe Wilson, blurted out "You Lie" during Obama's State of the Union address last January. Rep. Wilson, was ostracized and offered an apology to President Obama. The passage of time, has proven that Rep. Wilson was correct in his comment, the health care bill does, or will cover illegal aliens. They get free health care now, so it for more votes and more power? The President, does not favor fencing the border,until he gets comprehensive immigration passed. He made this statement to Governor Brewer from Arizona during a White House visit after he avoided it, but finally was shamed into it. He dislikes her illegal immigration bill, although it mirrors the Federal Law it was patterned after. That stumps me as to why, he refuses,or allow his administration to enforce a US law. Is it okay to pick and choose which law will be enforced and which law will not? If so, then why bother writing them. He recently sent his legal staff, to high court in an attempt to appeal a law signed by then Gov, Naolitano, which allows the state of Ariz,. to fine and cancel the license's of any business hiring Illegal aliens. It is confusing to grasp which group of people he represents– Is it the illegals or is it Arizona,a US state, that is under siege by illegal alien criminals?? I stand by Arizona and its right to protect itself by any means possible, because it appears our own Government won't.

    9. Drew Page, IL says:

      The above article expresses shock, shock to learn that Mr. Obama has been less than truthful in his campaign promises. Well who could have imagined that? Are you people for real? The only promise he has kept is that of redistributing the wealth.

      This man is a clear and present danger to the United States. It isn't because he's black. It's because he is a socialist. It's because he doesn't like the U.S.A. or the principals of limited government, on which it was founded. He doesn't know anything about governing, because he never has. He doesn't know anything about business, or the economy, or health care, or energy production, or the military, or foreign relations, yet he wants to be in charge of all of this. He has created debt that our children and grandchildren will be stuck paying off.

      He professes to be christian and Muslim, depending on the group he addresses. His actions in this regard however show him to be more closely tied to Muslims than to Christians. Obama is out of touch with the majority of Americans and I believe that the elections in November of 2010 and 2012 will prove that..

    10. Barbara, LA says:

      Just wanted to say "Amen" to all the comments here. I totally agree. Being 61 myself, I have no plans to retire …EVER! and have decided that I will not sign up for Medicare or SS. I know one person won't make a difference , but just don't feel I can. And I support Governor Brewer in AZ. Only hope my governor will do the same if that happens here. Illegal aliens, regardless of where they are from, are a drain on our economy and our lifestyle because all the money spent on free housing, food, and health care. Once upon a time, you had to have a sponsor to come to the US so the government wouldn't be burdened with taking care of you. Now our government WANTS to be your sponsor….insanity. God help us before we go the way of the Europe.

    11. bubba, north carolin says:

      hussein…………your time will come and you will pay dearly!!

      power to the people……at the ballot box.

    12. Pingback: One Hundred Days Later: The Best Way Forward with Obamacare is to End It | Step Down Obama

    13. Rhoda141 says:

      I am a senior citizen and disabled with a handicapped daughter and have been very concerned about all of the crap that Obama and his (old) Democratic WH who is trying to destroy the senior citizens and disabled. There will be 49,thousand senior citizens that will not get insurance at all. If we do get insurance then Obama and his Idiots will tell us whether we can have treatment or not and if not that means we could just lay in bed and then die. This is an outrage and discrimination to the senior citizens after we have been the backbone of this country. I have worked since I was 15 yrs old and have paid into Medicare and Social Security, like all the other senior citizens have done all these years, then Harry Reid took the money out of Medicare and Social Security account and spent the money on whatever he wanted to spend it on and maybe some embezzlement because of the $10,Million that he has for his campaigning. All this crap which is called Obamacare is nothing but a government takeover and they are trying to have control over all American people. Obama hates the American people because he is a Muslim, which he has already said he was a Muslim and he and his Demon possessed WH staff are trying to bankrupt the US and will do everything in his power to take the US for everything he can get out of them. Now is the time for all American people rise up over these Demon possessed Idiots in the WH and go there fire everyone of them with heavy fines, and throw them in jail and throw away the keys. If there isn't something done immediately this gang will take us to a no return. Obama has borrowed $2,Trillion and the Federal Reserve will not tell anyone about where this money has gone to. This is another amount that goes on the taxpayers back. I want answers and I want them now and if we don't get these answers that is going to be an automatic impeachement, because he has already commited Treason, Fraud, and no telling what else. Obama and his Idiots have done nothing and don't intend to do anything. They haven't got enough sense to make out a budget or Obama has spent trillions and trillions of dollars and doesn't want the American people to find out how much money has been put on their backs. Please, Please, all Americans can't wait to stand up for what is right. No government takeovers/ Immediate Impeachment.

    14. Concerned, Connectic says:

      Thought this little bit of information might help some people take a breath over the so-called 'crisis' over the potential loss of employer-based health coverage. Employers will not only have to pay the $2,000 fine, but also lose a tax deduction covering the cost of the employee's coverage. So, as in the article above states, employers would lose a $15,921 deduction ON TOP OF the $2,000 fine. This makes it FAR more expensive then this article's author leads us to believe.

      From a recent AP article:

      "A spokeswoman for the senators who wrote that part of the law says she's confident that when companies do the math, they'll decide to keep offering coverage.

      That's because employers get to deduct the cost of workers' health care from the company's taxes. Take away the health plan and two things happen: Employers lose the deduction and they'll probably have to pay workers more to get them to accept the benefit cut. Not only will the company's income taxes go up, but the employer will also face a bigger bill for Social Security and Medicare payroll taxes. So it's not as simple as paying $2,000 and walking away.

      "It is clearly cheaper for employers to continue providing coverage," said Erin Shields, spokesman for the Senate Finance Committee.

      Another wrinkle: the health insurance tax credits available through the law are keyed to relatively Spartan insurance plans, not as generous as most big employers provide. Send your workers into the insurance exchange, and valuable employees might jump to a competitor that still offers health care.

      MIT economist Jon Gruber says it's impossible to create new government benefits without some unintended consequences, but he doesn't see a big drop in employer coverage. "This is a brave new world with uncertainties," said Gruber. But "the best available evidence suggests a small erosion. It's not going go down wildly.''

    Comments are subject to approval and moderation. We remind everyone that The Heritage Foundation promotes a civil society where ideas and debate flourish. Please be respectful of each other and the subjects of any criticism. While we may not always agree on policy, we should all agree that being appropriately informed is everyone's intention visiting this site. Profanity, lewdness, personal attacks, and other forms of incivility will not be tolerated. Please keep your thoughts brief and avoid ALL CAPS. While we respect your first amendment rights, we are obligated to our readers to maintain these standards. Thanks for joining the conversation.

    Big Government Is NOT the Answer

    Your tax dollars are being spent on programs that we really don't need.

    I Agree I Disagree ×

    Get Heritage In Your Inbox — FREE!

    Heritage Foundation e-mails keep you updated on the ongoing policy battles in Washington and around the country.

    ×