Over the course of the campaign, President Obama repeatedly promised: “If you like your current insurance, you can keep your current insurance”—despite any reforms his Administration would implement. This claim is far from true, as Amy B. Monahan and Daniel Schwarcz illustrate in their 2011 study “Will Employers Undermine Health Care Reform by Dumping Sick Employees?” published in the Virginia Law Review. Schwarcz presented the study on Capitol Hill last week.
Obamacare mandates that employers provide health insurance for their employees or pay a fine. With the increasing cost of health insurance, which Obamacare does nothing to assuage, employers will find it increasingly more expensive to cover employees. That, along with the other incentives in the law, will likely encourage employers to dump coverage or find other ways to avoid additional costs.
Monahan and Schwarcz discuss one way this will occur. Since high-risk, unhealthy employees are more expensive to cover, they explain that the new health care law will incentivize employers to find ways to avoid insuring these individuals. The new federally imposed exchanges create a way out for employers to avoid covering high-risk workers while also avoiding the penalty by offering a level of coverage that is simply unattractive to those with higher-cost needs. In this way, employers could “game the system” by providing coverage that is attractive to low-risk, healthy employees but not to those with more costly needs.
As Monahan and Schwarcz write that “employers will, for the first time, have both an incentive and the ability to design their plans to discourage enrollment by high-risk employees. By doing so, employers can benefit themselves and their employees while individual purchasers and the federal government suffer the consequences.”
As Americans outside the Beltway know, there’s no such thing as a free lunch. Many other individuals will receive coverage through the exchanges, including low-income individuals receiving government subsidies. Although many high-risk employees opting in to the exchanges instead of their employers’ plans won’t be eligible to receive subsidies, with more high-risk people entering the exchange insurance pool, the cost of the insurance within the exchanges will increase. Consequently, costs—in terms of government spending on subsidies as well as premiums for everyone else purchasing insurance through the exchanges—will also increase.
Thus, Americans will not be able to keep their current coverage, and they will also experience even higher costs than before Obamacare was implemented. The Monahan and Schwarcz study gives us more reason to believe that the original estimates of the health care law likely understated its true cost.