PDF Much fuss has been made of health reform’s “individual mandate”. It is the favorite target of tea baggers. Several states have filed suit against the federal government to block its implementation.
There are debates about whether the individual mandate is legal, and more important, whether it will be effective.
These questions may take on even more significance if employer-sponsored health insurance (ESI) does not survive. There are some, including this author, who question whether it will survive?
Shamrock on First Day of Spring
Confusing Incentives
What will be the incentives under ACA (the Affordable Care Act) for employers to continue to provide health insurance? During the debate leading up to its passage a year ago, employers clung to the promise that if more people paid for their coverage it would lower the costs to employers.
But employers resisted efforts at a strong employer mandate. So absent a strong mandate and any certainty of cost containment, what incentives does ACA hold out to keep employers in the game?
It’s confusing.
There is a $2,000 fine per employee if employers don’t offer “qualified coverage”. BUT ONLY:
IF the employer employs more than 50 employees (I am sure the regulators will have many, many paragraphs splitting the hair between the 50th and the 51st employee.);
AND IF one of those employees purchase their health insurance from one of the new health insurance exchanges;
AND IF one of those employees who purchase their health insurance on the health insurance exchange requires a federal subsidy.
THEN the employer would have to make an “assessable payment” of $2,000. BUT ONLY:
- On the number of employees in excess of 30 employees.
Let’s do some math
An employer with 60 employees covered under a group health insurance plan could easily pay $500,000 with an average group policy. If one of this company’s employees exercised their presumed right to get his or her health insurance through an insurance exchange, then the company would be required to make an “assessable payment” of $60,000. That is the 30 employees in excess of the first 30 times $2,000.
But wait! If all 60 employees get their insurance from the exchange, the company’s “Assessable payment” will be — $60,000.
Hmmm? Oooops!
Of course, it’s not quite that simple. It never is. The company would have paid the overwhelming majority of that $500,000. In the exchange, the employee would have to pay the full cost – minus any government subsidy.
So if a company were serious about moving its employees onto the exchange, it would most likely have to consider:
- Increasing the employee wages by the amount now paid by the employer for health insurance.
- That amount would need to be “grossed up” to account for taxes on the employee wages so that the net pay increase to the employee would cover the cost of health insurance.
- There would be additional tax and other consequences to the employer for increasing wages to its employees.
There are two considerations that would likely be decisive for the employer:
- Medical inflation. Health care costs for employers have historically been higher than general medical inflation and two to three times higher than the general rate of inflation. If the ACA does not flatten that cost curve, companies could well calculate that it is to their long term advantage to take the cost hit in the first year for a more predictable cost curve in the future.
- Competition. Once one large company make that decision, all of its competitors will jump on that bandwagon to the basement. No one will want to lose its competitive advantage on account of health care costs.
There are further complications in this analysis and those don’t make it any more favorable for employer sponsored health insurance.
I will explore those additional wrinkles and the false dichotomy between individual and employer group health coverage in future posts.
Passing the PPACA is analagous to pruning a dead branch off of a tree when the real problem is the root. From my perspective, the bigger concern I have is: What has caused such an increase in health care costs? Remember when there used to be no co-pays or deductibles and coverage was affordable? That wasn’t so long ago. Privatized health care was never a problem for so many years. So what has happened?
Clearly, there are two areas that contribute to this problem:
-The food that is available to us (which changes based on economic class)
-The staggaring amount of diabetics in this country, caused by the food we eat
Much like how Wall Street controls DC (see the documentary “Inside Job”), the same control exists in the food industry (see the documentary “Food Inc”). Fix these two issues (giving power back to the honest american farmer) and you will see just how unnecessary health care reform is. Seriously…a company can legally patent a soybean?!?!
It is yet another case of the government taking control of certain industries. Both parties offer no accountability for this trainwreck…both parties continue to do nothing to protect capitalism and the well being of its citizens.
See the bigger picture. Understand corruption.
I agree with your analysis of the food industry, but I’m not sure if you are suggesting that PPACA should have addressed that.
Guns, autos, wars, also contribute to health care costs, but PPACA primary thrust is coverage for health care costs and managing the costs – not preventing them.
That is an equally large challenge.
Thanks for your thoughts
It is certainly the duty of each person to live a healthy life. The question then becomes what is a healthy life? Is it a happy life full of drinking and merriment? Is it a life of making healthy selections in eating,drinking, and physical activity? Those selecting healthy habits will in the long run have less illness and recover faster from medical treatment. That will reduce the cost of health care.
Please provide an idea of the legislation or insurance company rules that would result in widespread use of these habits.
The system of financing the medical treatment of both those making unhealthy choices or those making well choices is complicated. It is bound up in employment, taxes, and social mandates. The individual is at the mercy of the market place. It rewards the healthy and penalizes the sick. The pooling system leaves the sick in the high priced line and the well in the low priced line. That economic rule in place what is the politically correct answer?
PPACA is an attempt at financing health care. Medicare is another example of attempting to finance the medical system for the oldest, most sick age group of people. Medicare relies on employment related taxes and retirees premiums to finance it. Tac on the supplements and drug coverage and the retiree becomes insurance poor. Considering the life expectancy is gotten older since Medicare may be the system that is doing its job today, but cannot be afforded in the future.
Now the hard questions- should medicare be scrapped? should benefit schedules be reduced? should the very sick be left on their own? should the government be involved in providing medical care for anyone? do you want the government making those decisions or the market place?
Should employers pay their employees and the employees choose if they want to purchase health insurance? I did not say the employer provides dedicated dollars. are we afraid to let people make their own decisions? what if a person chooses not to purchase insurance and cannot afford to pay- should medical providers have to care for that person?
Wish I had the answers.