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Side Effects: Obamacare Compels More Employers to Dump Coverage

Posted By Kathryn Nix On October 6, 2010 @ 11:00 am In Obamacare | Comments Disabled

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Obamacare has struck again. Last week, 3M announced plans to drop health benefits for retirees, citing the new law’s impact as a contributor in its decision.

In 2013, 3M retirees who qualify for Medicare will lose their current employer-sponsored health benefits, and instead receive a health reimbursement account (HRA) with which to buy a Medicare plan.

In 2015, this policy will extend to all 3M retirees. Those who do not qualify for Medicare will be able to use their HRA to purchase a health plan in the new federally mandated insurance exchanges.

The Wall Street Journal reports [2] that 3M claimed “the recently enacted health care reform law has fundamentally changed the health care insurance market.” The company added that cheaper options in the marketplace encouraged their decision.  However, reports [3] show that the new law will not curb health care costs. So while other options will be more affordable under the new law for employers and consumers, it’s not because they offer better value. Instead, a larger share of costs will be picked up by Washington, courtesy of federal taxpayers.

Several provisions in the legislation create incentives for employers to drop health benefits.  In this case, it was likely the elimination of tax deductibility for federal subsidies for retiree prescription drug coverage, as 3M’s coverage elimination date coincides with enactment of this part of the bill.

Employer penalties offer another reason for businesses to drop health coverage. It’s more beneficial for employers with a large proportion of low-income workers to stop offering health benefits, but the success that Obamacare supporters claim hinges on employers continuing to offer current health benefits. Favorable cost projections for the overhaul also heavily rely on this assumption [4].  Reality is likely to be quite different.

As more employers find it beneficial to end health coverage—former Congressional Budget Office Director Douglas Holtz-Eakin predicts will be the case [5]—the cost of Obamacare for taxpayers will soar because of the growing reliance on government health programs and subsidies.

Technically, moving from employer-sponsored health benefits that offer defined benefits to defined-contribution HRAs is a positive change for 3M retirees. Defined contribution plans empower patients to choose the health plan that best meets their personal needs.

But in this case, the change is an unplanned consequence incompatible with system created by new law.  To learn more about the right way to create a defined contribution system, check out “Utah’s Defined-Contribution Option: Patient-Centered Health Care [6].”


Article printed from The Foundry: Conservative Policy News from The Heritage Foundation: http://blog.heritage.org

URL to article: http://blog.heritage.org/2010/10/06/side-effects-obamacare-compels-more-employers-to-dump-coverage/

URLs in this post:

[1] Image: http://www.foundry.org/wp-content/uploads/SideEffectsLogo4.jpg

[2] The Wall Street Journal reports: http://online.wsj.com/article/SB10001424052748703859204575526953379583836.html

[3] reports: http://www.foundry.org/2010/09/16/side-effects-fuzzy-math-won%e2%80%99t-bend-the-health-care-cost-curve/

[4] Favorable cost projections for the overhaul also heavily rely on this assumption: http://site.heritage.org/healthcarewidget

[5] former Congressional Budget Office Director Douglas Holtz-Eakin predicts will be the case: http://www.foundry.org/2010/06/02/side-effects-obamacare-creates-a-costly-drop-in-employer-health-coverage

[6] Utah’s Defined-Contribution Option: Patient-Centered Health Care: http://www.heritage.org/Research/Reports/2010/07/Utahs-Defined-Contribution-Option-Patient-Centered-Health-Care

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