Will Obamacare Spell the End of Employer Insurance?

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One of the criticisms of Obamacare is that it gives employers a big incentive to drop healthcare coverage. Sure, they’d have to pay a fine, but they’d still save a bundle of money and it’s not like they’d have to worry about their workers going completely without insurance. Employees would just go onto the exchanges and buy subsidized plans there. Sarah Kliff met with Lockton, a Kansas City-based company that consults with mid-sized companies on health insurance benefits, to put some numbers to this:

For the employer, dropping coverage is a pretty decent deal: A company would see its health care costs reduced by over 40 percent. They don’t drop to zero, however, since the employer would still be on the hook for the fines that come along with not offering coverage.

But for the employee, it’s a pretty lousy deal. Lockton ran the numbers, using data on how much employers pay for health insurance now and how much health insurance on the exchanges is projected to cost.They found that employers foot a significantly larger chunk of the insurance bill than the federal government would, even with the new subsidies they’d receive. The firm predicts their premiums would increase anywhere from 79 to 125 percent if they lose employer coverage and have to go to the exchange. There’s such a big variation because exchange subsidies vary by income: Those who earn more are eligible for a larger subsidy.

Here’s my question about this — and it’s a genuine question since I don’t understand the dynamics here too well. It’s fairly common in big companies for executives to have a better healthcare plan than rank-and-file employees. But that’s usually limited to just the very top execs. At the level of director and below, everyone is on the same plan, and that’s because health insurance providers aren’t willing to let companies pick and choose who’s on the group plan. It’s all or nothing. So one of the things that will prevent companies from dropping coverage is that they’d have to drop it for everyone, and that would cause so much uproar in the managerial ranks that they couldn’t get away with it.

There are a couple of reasons why this might not be a big deal:

  • Health insurers, in fact, might be happy to provide policies that cover supervisory personnel and no one else.
  • Or maybe they wouldn’t, but it wouldn’t be that big a deal. Companies would shunt everyone onto the exchanges, but give managers an annual bonus of some kind that would cover (say) 85% of the cost of a gold level plan. Everyone else would have to make do with whatever they could afford through the exchange.

So much of this depends on behavioral predictions that I imagine that there’s really no way to know for sure how it’s going to play out. But if employers do decide to start dropping health coverage en masse, what will that mean? Is it genuinely a bad thing? Or would it be a good deal in the long run, increasing pressure on Congress to hasten the day when we have genuine universal coverage in America? It’s a good question.

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FACT:

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