If you listened to the campaign rhetoric during the 2008 election you could be forgiven for thinking that health reform would mainly mean insuring people who cannot afford insurance on their own; in the process there would be no tax increases or benefit cuts for the middle class; and, “If you like the plan you are in, you can keep it!”
Turns out, the reality is 180 degrees different. Things are likely to change least for low-income people. About 18 million of them will be herded into Medicaid. But with no new doctors or nurses, they will face greater access problems than ever before and they will show up at hospital emergency rooms in increasing numbers.
It is for middle-class families who already have insurance that things will change the most:
- Within the next few months senior citizens will be getting notices that their Medicare Advantage plans are being cancelled, and for those who continue there will be premium increases and benefit cuts. Over the next decade, 7.4 million Medicare Advantage enrollees will lose coverage they otherwise would have had.
- By September, between 1 million and 2 million people with limited benefit insurance are likely to lose coverage because their insurance doesn’t comply with the “no lifetime limit on benefits” regulation.
What about health plans that were supposed to be “grandfathered,” and thus immune from onerous, cost-increasing regulatory burdens? A draft of the proposed regulations, leaked all over Washington over the weekend and finally made public on Monday shows the news isn’t good. Under a “mid-range” estimate, more than half of all workers will not be in grandfathered plans within three years. Under the worst case scenario, the number will be two-thirds. Here is the full table:
Table source: Department of Health and Human Services
Under the most likely scenario, 87 million Americans will no longer be able to retain the health plan they have and the number could be as high as 117 million. Small businesses will be especially hard hit. As many as 80% will lose their grandfather status by 2013, for example. One reason: any change of insurers (say, to take advantage of lower premiums) will cause a loss of such status. By contrast, a self-insured union plan is free to change its third-party administrator and still keep its grandfather status.
Also, it now appears that “grandfathering” was never intended to be a long-term phenomenon. Eventually, all firms will lose their grandfather status.
Moreover, as I wrote in The Wall Street Journal the other day, even if you are in a grandfathered plan, your employer could drop your coverage anyway. As we previously reported here, the number of workers who will lose their employer-provided insurance is estimated at 9 million to 10 million by the Congressional Budget Office (CBO), 14 million by the Medicare Chief Actuary and 35 million by former CBO Director Douglas Holtz-Eakin.
AT&T, Caterpillar, John Deere and Verizon have all made internal calculations, according the House Energy and Commerce Committee, to determine how much could be saved by a) dropping their employer-provided insurance, b) paying a fine of $2,000 per employee, and c) leaving their employees with the option of buying highly-subsidized insurance in the newly created health-insurance exchange.
AT&T, for example, paid $2.4 billion last year to cover medical costs for its 283,000 active employees. If the company dropped its health plan and paid an annual penalty for each uninsured worker, the fines would total almost $600 million. But that would leave AT&T with a tidy profit of $1.8 billion.
Economists say employee benefits ultimately substitute for cash wages, which means that AT&T employees would get higher take-home pay. But considering that they will be required by federal law to buy their own insurance in an exchange, will they be net winners or losers? That depends on their incomes.
A CBO analysis of the House version of ObamaCare, which is close to what actually passed in March, assumed a $15,000 premium for family coverage in 2016. Yet the only subsidy available for employer-provided coverage is the same one as under current law: the ability to pay with pretax dollars. For a $30,000-a-year worker paying no federal income tax, the only tax subsidy is the payroll tax avoided on the employer’s premiums. That subsidy is only worth about $2,811 a year.
If this same worker goes to the health-insurance exchange, however, the federal government will pay almost all the premiums, plus reimburse the employee for most out-of-pocket costs. All told, the CBO estimates the total subsidy would be about $19,400 — almost $17,000 more than the subsidy for employer-provided insurance.
In general, anyone with a family income of $80,000 or less will get a bigger subsidy in the exchange than the tax subsidy available at work.
But will the insurance in the exchange be as good? In Massachusetts, people who get subsidized insurance from an exchange are in health plans that pay providers roughly Medicaid rates plus 10%. That’s less than what Medicare pays, and a lot less than the rates paid by private plans. Since the state did nothing to expand the number of doctors as it cut its uninsured rate in half, people in plans with low reimbursement rates are being pushed to the rear of the waiting lines.
The Massachusetts experience will only be amplified in other parts of the country. The CBO estimates there will be 32 million newly insured under ObamaCare. Studies by such think tanks as Rand and the Urban Institute show that insured people consume twice as much health care as the uninsured. So all other things being equal, 32 million people will suddenly be doubling their use of health care resources. In a state such as Texas, where one out of every four working age adults is currently uninsured, the rationing problem will be monumental.
Even if health plans in the exchange are identical to health plans at work, the subsidies available can only be described as bizarre. In general, the more you make, the greater the subsidy at work and the lower the subsidy in the exchange. People earning more than $100,000 get no subsidy in the exchange. But employer premiums avoid federal and state income taxes as well as payroll taxes, which means government is paying almost half the cost of the insurance. That implies that the best way to maximize employee subsidies is to completely reorganize the economic structure of firms.
Take a hotel with maids, waitresses, busboys and custodians all earning $10 or $15 an hour. These employees can qualify for completely free Medicaid coverage or highly subsidized insurance in the exchange.
So the profit-maximizing arrangement is for the hotel to fire the lower-paid employees, and contract for their labor from firms that employ them but pay fines instead of providing health insurance. The hotel could then provide health insurance for all the remaining, higher-paid employees.
Ultimately, we could see a complete restructuring of American industry, with firms dissolving and emerging solely based on government subsidies.