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  • Huge Number of Businesses to Drop Health Insurance, Thanks to Obamacare

    Experts have warned that Obamacare’s new subsidy program could cause a mass exodus of businesses out of employer-sponsored insurance. New research from McKinsey and Company based on a survey of employers reinforces this concern.

    According to their findings, 30 percent of employers said they would definitely or probably stop offering insurance once the law’s main provisions go into effect in 2014. The inclination to dump coverage exceeded 50 percent once employers’ understanding of the law’s effects increased.

    Obamacare encourages employers to dump coverage on two fronts. First, several provisions will increase the cost of employer-sponsored insurance (ESI), including new insurance requirements and mandates, and a tax on high-cost health plans. Employers who don’t offer a minimum level of coverage deemed essential by the federal government will face a penalty of $2,000 per worker, but as the authors point out, Obamacare’s other “requirements will increase medical costs for many companies. It’s important to note that the penalty for not offering coverage is set significantly below these costs.”

    In addition, Obamacare creates alternatives to employer health plans, reducing the need for firms to continue offering health benefits. McKinsey’s researchers write:

    That reduces the social-equity advantage of employer-sponsored insurance, by enabling these workers to obtain coverage they could not afford on today’s individual market. It also significantly increases the availability of substitutes for employer coverage. As a result, whether to offer ESI after 2014 becomes mostly a business decision. Employers will have to balance the need to remain attractive to talented workers with the net economics of providing benefits—taking into consideration all the penalties and tax advantages of offering or not offering any given level of coverage.”

    For several employers, McKinsey estimates, “at least 30 percent of employers would benefit economically by dropping health coverage even if they make employees 100 percent whole.” And the benefits of dumping coverage would increase over time. Since the subsidies are structured to keep individuals from spending more than a fixed percentage of their income on health care—as long as medical costs continue to rise faster than income—the authors explain, “even employees who initially have to pay more out of pocket toward an exchange policy than they would toward ESI will have less of a difference to make up each year, and the employer will have to provide less to make employees whole.”

    If it sounds too good to be true, that’s because it is. The big losers in this game are American taxpayers. Initially, the Congressional Budget Office (CBO) estimated that only 7 percent of employers would drop their current health benefits, and the new law already raids Medicare to pay for the new entitlement. Former CBO Director Douglas Holtz-Eakin found that the program’s price tag could increase by close to $1 trillion over the first decade if more employees are dumped into the program. This will mean either higher taxes for American workers or bigger debt, which the country cannot afford.

    Heritage experts have predicted this problem. As Heritage’s Brian Blase and Paul Winfree write, “The cost of the subsidies harms the nation’s long-term fiscal health. Furthermore, the subsidies will encourage employers to drop coverage, perpetuate an already inequitable tax code, and discourage work and upward mobility.”

    Posted in Obamacare [slideshow_deploy]

    25 Responses to Huge Number of Businesses to Drop Health Insurance, Thanks to Obamacare

    1. James, NYC says:

      I agree — the subsidies will be out of control. That's why we either need a single-payer system, or to make the decision to transform today's insurance companies into highly-regulated public utilities not allowed to profit off of basic health insurance.

    2. Kevin H, college par says:

      McKinsey and Co and their alumni don't exactly have the best track record on making predictions. With their projectiosn beign so far different than any other projections out there, hard to take it too seriously.

      However, wouldn't conservatives want to push folks out of employer sponsored insurance and put them in individual market where people can make their own decisions?

    3. Dave says:

      Forcing people to buy insurance is unconstitutional. The proper way of handling the topic of uniform health coverage is to put it to the test of a constitutional ammendment. Just as we continually debate the meaning of bearing arms as put forth in the constitution, it can also be argued that congress is required, as the constitution suggests, to provide for the well being of the people. I'm surprised that I haven't heard this argument made yet. Both suggestions are equally vague in the constitution and the argument can be made that health care is necessary to provide the well being of the people. A constitutional ammendment would establish whether the people deem the additional tax burden to pay for health care is justified. I believe strongly though that our government is unqualified to manage such a venture. I am convinced that they would totally mess it up. Consider that all forms of insurance exist to protect individuals and businesses from financial ruin. I believe that all insurance companies should be required to operate similar to non-profit organizations. The very idea that insurance companies are permited to make a profit is distasteful. I believe that this necessary service, insurance, should be a non-profit entity. Taking profit out of the picture will also reduce the cost of insurance.

      • CraigJCasey says:

        Dave sounds very scholarly, but if they don't make a profit, how would businesses grow and competition increase? They get paid in gum or popcorn? Crack? The entire concept of forcing citizens to do anything is repugnant to the Constitution, and the freedoms our founds fought and died to preserve.

    4. Clem F. says:

      Kevin, you missed the point. The result of this whole "Obamacare" is that the taxpayer is going to be forced to cover the difference, no matter what. Remember – you HAVE to have insurance or take a big tax hit. No problem, just hit up your local state "pool". Oh, excuse me….no state pools to go to. Hey, just to to Nevada. Reid opted out the entire state! Gotta say something about the program he & Pelosi ran through.

    5. Ted B., Greensboro, says:

      Obamacare was designed to eventually force everyone into a single payer government health care system. As with other countries who have this type of system you will see decreased quality of care, denial of benefits and rationing of services.

    6. David, Buena Vista, says:

      Sorry, Kevin. First, learn to spell.

      Secondly, it seems their prediction is dead on. And you seemed to miss the entire point of the article, which would seem to point out that you didn't actually read it, but felt smart enough to tell us what a great plan Obamacare really is for all of us.

      Yes, conservatives would love an open market, but PUSHING people in to a market isn't OPEN, nor does it involve choice. Isn't your side about choice? Or is that just about abortion?

      A true open market that involves true actual choice would involve fewer laws, not more. Any law that forces one choice over another is not promoting open markets or choice. Any government that creates a market isn't actually creating a market, they are creating economic doom. History has shown this time and again, and I fail to see how anyone who is as smart as you think you are does not understand economic history?

      However, I guess that being a slave to your federal overlords is fine with you.

    7. David, CA says:

      Kevin H. is correct that we conservatives would rather see more individual choice and in fact would like to see the end of ESI. At least I would. But it would have been SO simple to flip the tax incentives, making individual policy premiums deductible or creditable on income tax, within limits, while ending that deduction for employers. Presto, level playing field for all companies, and no more insurance portability issues. But no! Obamacare dictates that we purchase all sorts of BS coverage that many of us don't want or need, and dictates deductible levels that will elevate premiums through the roof. That's NOT choice, in case you were wondering, Kevin. Obamacare is an abomination and must be repealed before it totally bankrupts us all.

    8. George Colgrove, VA says:

      Rather than what we have or what we will have, try this one:

      Companies and Governments completely remove themselves from the employee healthcare business altogether. Allow workers to go to "BROKERS" on Main Street to obtain the benefits package that best meets their needs IN THE OPEN MARKET. Single young guys who have virtually no health maintenance can get major medical and pay very little. A family of 6 will likely get something more. But the whole business will be competitive at the individual level and not the "group" level. Since there will be 310 million people as potential customers cost will plummet.

      Workers will also add retirement options, life options, and "leave time" reimbursement mechanisms to the benefits package. I can see other benefits being tossed in as well.

      The only thing the companies or governments will need to do is opt to provide partial or full compensation for that benefits package. There is also a concept that an employee gets FULL PAY where they then decide what to do with their paycheck. HR costs in government especially are unsustainable and as we have seen in the auto industry, the same is true in the private sector.

      Consider 1000 companies and governments that have an average of 100,000 employees each (which is a pool of 100 million people.) Where will the prices drop faster, 1000 companies negotiating or 100 million people negotiating?

      A BROKER will act as an agent that provides the "group" effect to the benefit.

      This solution requires absolutely no government bureaucracy what so ever. Not only that, millions of people currently working in government and corporate HR departments will be able to start their own benefits broker businesses from coast to coast – creating more enterprises and jobs.

    9. Kevin H, college par says:

      Reason #2 you can't give any legitimacy to this study/poll – McKinsey won't release the questions. That alone shows what a quack this is.

    10. John Barasa says:

      The system as it is broken: expensive, wasteful and unable to satisfy needs of American public. Solution is not matter of ideology: constitutionality is rather like not requiring travellers not to use airports when they have to fly! Please propose a workable alternative. Elsewhere it looks like those affected most (physicians, health insurers and so forth) are willing and able to make necessary positive changes, whilst arm-chair ideologues pour over the good old days like when GM had to look after the health of children of their retirees who had been born 10 years after the retiree had left the company. Few things work better than statutory 3rd party insurance coverage in the US.

    11. Dick, Texas says:

      Bottom line to the whole situation.

      When the government decides to project itself into competition in the open market, the market is no longer open. The government will make sure of that.

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    13. Bobbie says:

      In America, under capitalism, there's free choice. Government dictating specific choice eliminates "free" and collapses capitalism.

      It was understood that America doesn't neglect a dying person as a Christian nation. Meaning emergency care for life threatening situations that warrant necessary medical attention. What happened? Who let it happen? If the hospital does anything for "free" it should be at their loss. How did it ever become the costs of taking advantage of other patients', insurance, costs and services? Was this initiated by government mandate? It's life's personal responsibility.

      FORCING INSURANCE ON THEM WILL HELP NO ONE BUT GOVERNMENT. FORCE THOSE THAT COST, THEIR DUE COSTS!!! …it doesn't matter how it's paid (family, friends, fund raiser etc just that they're responsible to their own COSTS!) People have been so misled by government influence and manipulation. Abuse OF GOVERNMENT AUTHORITY IS NOT TOLERATED! When is it going to STOP!?? The government has promised the people over many years, they would reduce costs. Why is Obama allowed to patronize the effort?

      Obama is unconstitutional unless it's to his convenience. America is undeserving of this…

      I do believe businesses getting waivers is all apart of the plan to collect penalty fees and to get to the individual.

    14. Trubble, GA says:

      The healthcare bill was passed and signed into law by our constitution-based process. If we do not want it we should deal with our elected officials and repeal it in the same way. The opponents lost because they tried to fight it by lies demonizing the supporters. Stories of death squads, "Obama wants to kill old people"…..this does not get it done. The Republicans have made "politics" a dirty word. The political process works…..tell our elected officials to work it. Trying to make Obama fail and make him a one term President is not what we sent them to Washington for……if the President fails we all suffer, Bush (both), Nixon and Carter showed us that. Ronald Reagan was not a brilliant Pres. he was succesful because he had our support for the days of the 50's….those days are gone and will not return. Let's embrace the future….it will come whether we do or not.

      • I have to jump in here because clearly you have not read the bill. How are you forming your opinions? Recall the phrase 'a rose by any other name is still a rose.' There's nothing in the bill that expressly says "Obama wants to kill old people nor are the words 'death squads' used. Do you understand what a euphemism is? The word 'panel' is used for squad and the bill provides for 'panels' of bureaucrats to determine who gets what care. If I understand correctly those determinations will be based on age and capacity. You need to look beyond the political and economic debate my friend and at least drive by the physicians who are explaining that ObamaCare will likely take us all back to 1950"s medicine.

        And there is one thing more I would add. Your hubris coupled with your ignorance and blatant partisanship is quite disheartening for those of us who are already frightened by the thought that, because of people like you, we are on our way to totalitarian government.

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    19. catgrill says:

      Hey, Heritage Foundation, it's called The Patient Protection and Affordable Care Act (PPACA), not Obamacare.

      I'd be interested to know what your analysis would be of a single payer system. Seems to me that healthcare costs could be dramatically reduced under such a system. Employers would no longer have the cost of providing benefits and instead could offer more in wages. More wages mean more tax revenue to help our deficit and with everyone covered regardless of employment status we would have a healthier workforce.

    20. catgrill says:

      Also, employees would be free to move from dead end jobs without losing healthcare. Heck, some of them might be more inclined to start up their own business (job creation). I know I would. I just can't afford to lose my employer sponsered healthcare. My premium is $600/mo. My employer pays the entire thing. Under a single payer system she would have a choice. She could pay me an extra $600/mo, that I would be taxed on, and the net would be spent thereby stimulating the economy. Or she may choose to pay me $400/mo and roll $200/mo back into her business. Or she just might keep the entire $600! Anyway, my point is it seems there would be alot of economic benefits for everyone. I think having healthcare tied to your job has a stifling effect on everyone and is bad for our economy.

    21. Joey says:

      How Obamacare will cause employers to Game the system
      So….if you own a business, and your employee could purchase a benefit with HIS MONEY for around $4,000/year, would you ever spend $12,000 of YOUR MONEY to purchase that benefit for your employee? I highly doubt it.
      But this huge disparity between what an employee can do on his own via the new Exchange, vs. how much an employer will need to pay if they purchase through the private markets is at the heart of Obamacare.
      In 2014, employees who do not have access to employer-sponsored plans will be able to purchase plans with government subsidies via the government health exchange. People with a family income of up to 400% of federal poverty will receive subsidies. The maximum amount that they can pay, as a percentage of family income, has been defined by law.

    22. cowfors says:

      One way to correct the health care expense problem is to allow doctors, hospitals and others to lower their costs by states stopping lawyers from suing except in rare cases. Then have all of us pay for normal office visits and other care by cash. We all would then only buy health care for catastrophic health problems.
      This insurance would be charged on how much risk you are to the Insurance companies much the same as car or home owners ins. If you do not care how fat your are, do not wish to eat healthy and basically do not care about your health. Then you would need to pay a large premium since you are a big risk. Doctors would make more money, hospitals would not need to do all the tests because of fear of getting sued and so their costs would go down. Competition would exist the same as any other business which would drive costs down or they go out of business. No one talks about this as it is too simple and some people would loose their cushy high paying positions. It would work and it must begin now.

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