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HHS Official Acknowledges Incentives for Employers to Dump Coverage Under Obamacare

Posted By Kathryn Nix On March 30, 2011 @ 4:30 pm In Obamacare | Comments Disabled

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One major concern of Obamacare is its huge incentive for businesses to dump employer-sponsored coverage. Recently, the Obama Administration acknowledged that this is likely [2], though it did so in an attempt to portray it as a positive outcome of its signature legislation. In reality, Americans will experience severe consequences if this effect of the new law comes to fruition.

Under Obamacare, those without government-qualified employer-sponsored insurance will be able to purchase insurance in the new exchanges. The new law creates generous subsidies [3] to make coverage more affordable for low- and middle-income Americans. To qualify for a subsidy, an individual or family must fall between 138 and 400 percent of the federal poverty level.

As health policy expert James Capretta points out [4], this provision alone would mean that more than 100 million Americans could qualify for subsidies. This would be unaffordable for federal taxpayers and would explode federal deficit spending. So qualifying for subsidies also carries the requirement that an individual or family must not have employer-sponsored insurance, or if they do, it must be unaffordable—as determined by the authors of Obamacare. To discourage employers from dropping existing coverage, Obamacare creates a penalty for employers that fail to offer “minimal essential coverage,” again defined by Washington.

According to the Congressional Budget Office (CBO), only 19 million Americans would receive subsidies in the exchanges. But analysis by former CBO director Douglas Holtz-Eakin shows that [5], in fact, this number could be as high as 35 million as a result of perverse incentives in the new law for employers to dump coverage. For many businesses—especially those that employ mostly low-income workers—it would be possible to drop coverage, pay the employer penalty, reimburse workers for the value of their lost health benefit, and actually come out ahead.

Joel Ario, an official at the Department of Health and Human Services, reinforced this possibility, saying [2], “If it plays out the exchanges work pretty well, then the employer can say ‘This is a great thing. I can now dump my people into the exchange and it would be good for them, good for me.’”

Those outside the beltway know that there’s no such thing as a free lunch. As employers drop health plans for their employees, taxpayers will be left to pick up the tremendous cost of offering more and more subsidized coverage in the exchanges. This will drive up the cost of Obamacare and its already-huge impact on deficit spending [6]. Since the subsidies represent a new entitlement program, the only way to control the cost would be to pass legislation reducing benefits or eligibility.

Though lawmakers struggle to find solutions to rein in unsustainable spending on existing entitlements, Obamacare creates yet another one that is likely to be just as unaffordable. As employers react to favorable incentives to dump employee coverage, the threat to the nation’s long-term fiscal health will only increase.


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URL to article: http://blog.heritage.org/2011/03/30/hhs-official-acknowledges-incentives-for-employers-to-dump-coverage-under-obamacare/

URLs in this post:

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

[2] Obama Administration acknowledged that this is likely: http://thehill.com/blogs/healthwatch/health-reform-implementation/152429-hhs-official-employers-may-gradually-move-to-exchanges

[3] generous subsidies: http://www.heritage.org/Research/Reports/2011/01/Obamacare-and-Health-Subsidies-Expanding-Perverse-Incentives-for-Employers-and-Employees

[4] As health policy expert James Capretta points out: http://www.heritage.org/Research/Reports/2009/12/The-Senate-Health-Care-Bills-Firewall-Creates-Disparate-Subsidies?query=The+Senate+Health+Care+Bill

[5] But analysis by former CBO director Douglas Holtz-Eakin shows that: http://americanactionforum.org/files/LaborMktsHCRAAF5-27-10.pdf

[6] already-huge impact on deficit spending: http://www.heritage.org/Research/Reports/2011/01/Obamacare-and-the-Budget-Playing-Games-with-Numbers

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