Goodbye, Employer-Sponsored Insurance

[driveby]

Millions of American workers could discover that they no longer have employer-provided health insurance as ObamaCare is phased in. That's because employers are quickly discovering that it may be cheaper to pay fines to the government than to insure workers.

 

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 Congressional Budget Office (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 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 think tanks like 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 ideal arrangement is for the hotel to fire the lower-paid employees—simply cutting their plans is not an option since federal law requires nondiscrimination in offering health benefits—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 based on government subsidies.

 

A much better approach was proposed by Sen. John McCain in the last presidential election. The principle behind that plan is enshrined in the legislation sponsored by Sens. Tom Coburn (R., Okla.) and Richard Burr (R., N.C.), and Reps. Paul Ryan (R., Wis.) and Devin Nunes (R., Calif). This approach would replace the current subsidies with a system that gives every family, regardless of income, the same number of dollars of tax relief for health insurance.

 

Under this approach, all insurance would be subsidized the same way, regardless of where it is purchased. All taxpayers would be subsidized the same way, regardless of how they obtain their insurance. Unlike the president's scheme, it makes sense both in terms of equity and economics.

 

WSJ

[evil_gop_liars]

OMGZ!!1!

[Square]

I wish insurance had nothing to do with what employer I work for. I'd like for it to be like car insurance where I can select what I want and who I want to handle my insurance.

[SayItAintSoJoe]

Why did AT&T, Caterpillar, John Deere and Verizon provide any insurance to it's workers in the past (pre-Obamacare)? They didn't have to. AT&T would have saved the whole 2.4 billion last year.

[Big Country]

Why did AT&T, Caterpillar, John Deere and Verizon provide any insurance to it's workers in the past (pre-Obamacare)? They didn't have to. AT&T would have saved the whole 2.4 billion last year.

 

IMO, health insurance, like any other benefit, is considered when a potential employee is considering compensation packages. These companies, like many others, offered it to remain an attractive option for a skilled work forces. At least this is one major factor in the decision to offer health care options to employees.

[CaP'N GRuNGe]

IMO, health insurance, like any other benefit, is considered when a potential employee is considering compensation packages. These companies, like many others, offered it to remain an attractive option for a skilled work forces. At least this is one major factor in the decision to offer health care options to employees.

 

Yep, and if these companies choose to drop coverage than the employees can say piss off and go work for their competition.

[keggerz]

and if AT&T wanted to not insure their employees they could have saved 2.4 billion...since there are no fines for not insuring employees now can you explain to me why many companies waste their money on employee health care

 

edit: say it ain't so joe beat me to it

Edited May 21, 2010 by keggerz

[keggerz]

IMO, health insurance, like any other benefit, is considered when a potential employee is considering compensation packages. These companies, like many others, offered it to remain an attractive option for a skilled work forces. At least this is one major factor in the decision to offer health care options to employees.

i think it was a rhetorical question...or better yet a sarcastic one

[Puddy]

Yep, and if these companies choose to drop coverage than the employees can say piss off and go work for their competition.

Yep. I just sat in a strategy session regarding our health care options moving forward under reform and the option of "not providing any" was discussed for a minute (as it is the cheapest option financially). It was also dismissed quickly. If you want to attract the best talent you still have to offer the best overall compensation...be it in benefits, pay, retirement, etc.

Edited May 21, 2010 by Puddy

[Big Country]

and if AT&T wanted to not insure their employees they could have saved 2.4 billion...since there are no fines for not insuring employees now can you explain to me why many companies waste their money on employee health care

 

edit: say it ain't so joe beat me to it

 

And Cap'n and I gave some reasons of the incentive for employers to offer these benefits.

 

 

Or is this where we are supposed to put in the obligatory blame the unions statement?

[keggerz]

And Cap'n and I gave some reasons of the incentive for employers to offer these benefits.

 

 

Or is this where we are supposed to put in the obligatory blame the unions statement?

I know the reasons...my reply was straight-up smart ass

[Big Country]

I know the reasons...my reply was straight-up smart ass

 

My comprehension at the moment is straight-up dumb ass

[SteelBunz]

WHAT about this post did anyone NOT know when they were debating and passing this atrocity?

 

You'd think the government would learn to write proposals/laws based on percentages....instead of actual numbers. They learned nothing from the debacle that IS the Alternative Minimum Tax. How about saying the penalty for not offering employee health benefits is 200% of what it WOULD have cost you, as an employer, the year you drop it, with a 20% increase year to year. Or....1% of your gross sales. (Just throwing out examples...don't do the math here.)

 

The penalty should hurt.....not help.

 

Instead, they make it some arbitrary figure like.....$100 per month per employee. Dumbasses.

 

I thought they DID the math as to how much it is costing to cover an individual currently. I guess they are bad with decimals or something.

Nothing tied into inflation or future value of money? Unbelievable.

[jetsfan]

I wish insurance had nothing to do with what employer I work for. I'd like for it to be like car insurance where I can select what I want and who I want to handle my insurance.

 

It already is. Employer health care has always been optional

[Yukon Cornelius]

It already is. Employer health care has always been optional

right my insurance company wont insure one of my sons.... it just swell

[i_am_the_swammi]

Yep, and if these companies choose to drop coverage than the employees can say piss off and go work for their competition.

 

Unless, of course, they offer their employees, say, a $10,000 raise.

 

Suppose the insurance cost, as the article says, IS $15,000. By not offering it, they net a savings of $13,000 ($15K - $2K fine). If they took some of that savings, and offered it to their employees (say, $10K), they still save $3K per employee, and lock in the fact they won't be on the hook for any future health cost increases.

 

The employee then has $10K extra (in addition to the $5K they likely already pay towards their employer plan) to shop for a plan that they feel is right for them. They don't have to go for the only plan their employer offers. They can pick and choose the benefits they want, and only pay for what they want to be covered for (just like auto insurance, with certain minimum requirements).

 

Simple win-win, if you ask me.

Edited May 22, 2010 by i_am_the_swammi

[Ursa Majoris]

Unless, of course, they offer their employees, say, a $10,000 raise.

 

Suppose the insurance cost, as the article says, IS $15,000. By not offering it, they net a savings of $13,000 ($15K - $2K fine). If they took some of that savings, and offered it to their employees (say, $10K), they still save $3K per employee, and lock in the fact they won't be on the hook for any future health cost increases.

 

The employee then has $10K extra (in addition to the $5K they likely already pay towards their employer plan) to shop for a plan that they feel is right for them. They don't have to go for the only plan their employer offers. They can pick and choose the benefits they want, and only pay for what they want to be covered for (just like auto insurance, with certain minimum requirements).

 

Simple win-win, if you ask me.

They'll have to pay SS, Medicare and state tax on that 10k, won't they?

[Puddy]

They'll have to pay SS, Medicare and state tax on that 10k, won't they?

And there is no way they can get close to the rates on their own that you can get with group coverage.

[i_am_the_swammi]

They'll have to pay SS, Medicare and state tax on that 10k, won't they?

 

When I was self-employed, I paid my own benefits, and was able to fully deduct their cost. We went thru this in another thread, and I posted the link that showed the legality of being able to deduct premiums. I would think, if there isn't a law passed that allows the individual to do this, that someone could form a simple LLC or SP and pay for their benefits that way,

 

That being said, the point is the company's can offset the loss of company-sponsored insurance (which is often expensive because you pay for things you don't need covered), and pass that savings onto their employees so they can find their own, more-efficient coverage. Companies could even hire an insurance specialist to help employees find the coverage that fits them best.

[i_am_the_swammi]

And there is no way they can get close to the rates on their own that you can get with group coverage.

 

Yes, they absolutely can.

 

My coverage thru work is $1800 per month (company pays $1500, I pay $300 )...full benefits, Blue Cross Blue Shield. I am covered for things I know I'll never need again: pregnancy coverage for my wife, drug dependence, other items I get just because its the only plan offered.

 

My best friend, who is self-employeed, pays $1100 per month for coverage I'd be more than happy to have. Same co-pays as me, just different items covered.

 

No-brainer. Sadly, I presented this plan to my employer in hopes they'd pay the whole thing (saving me $300, and them $400)....they said they couldn't do it, or every employee would want to do it.

[Ursa Majoris]

Yes, they absolutely can.

 

My coverage thru work is $1800 per month (company pays $1500, I pay $300 )...full benefits, Blue Cross Blue Shield. I am covered for things I know I'll never need again: pregnancy coverage for my wife, drug dependence, other items I get just because its the only plan offered.

 

My best friend, who is self-employeed, pays $1100 per month for coverage I'd be more than happy to have. Same co-pays as me, just different items covered.

 

No-brainer. Sadly, I presented this plan to my employer in hopes they'd pay the whole thing (saving me $300, and them $400)....they said they couldn't do it, or every employee would want to do it.

If my company abandoned it and gave me the money, I'd do one of those $5k deductible things with three free visits. I'd make bank.

[Puddy]

Yes, they absolutely can.

 

My coverage thru work is $1800 per month (company pays $1500, I pay $300 )...full benefits, Blue Cross Blue Shield. I am covered for things I know I'll never need again: pregnancy coverage for my wife, drug dependence, other items I get just because its the only plan offered.

 

My best friend, who is self-employeed, pays $1100 per month for coverage I'd be more than happy to have. Same co-pays as me, just different items covered.

 

No-brainer. Sadly, I presented this plan to my employer in hopes they'd pay the whole thing (saving me $300, and them $400)....they said they couldn't do it, or every employee would want to do it.

 

Maybe in your situation...but overall there are many people who need the coverages you don't and to try and purchase them on their own would be much more expensive than buying as a group. You aren't trying to argue that buying "identical" coverage as a single person is as cheap as buying as part of a thousand member group are you?

 

Of course having a cafeteria style situation may save "some" people that are currently forced to buy a one size fits all plan some money but overall buying as part of a large group is cheaper, i.e. your self-employed friend would be able to get his exact same coverage cheaper if he organized a group of 500 people that had the same insurance needs as he does.

[i_am_the_swammi]

You aren't trying to argue that buying "identical" coverage as a single person is as cheap as buying as part of a thousand member group are you?

 

No, what I am arguing is that, in my opinion, 70-80% (or more) of our population doesn't need "identical" coverage. I would further guess many people would opt for higher deductibles, or lesser coverage, in exchange for lower cost...or in my example above, more money in their pockets.

 

Problem is, most employers don't offer that option. Its either all or nothing, and if you choose "no coverage", you are not compensated for the value of the benefit. If my company came to me and said "you can either be insured under our plan and we'll pay $1500 for you, or you can search for your own plan and we'll pay you $1500"....it would be a no-brainer.

 

To compare it apples to apples, suppose auto insurance was a benefit companies offered. But suppose the only policy they offered was a top-notch one. That may be great for people with new Cadillacs, but not so great a deal for people with 1995 Honda Accords. They be much happier with that money in their pocket, and insuring their vehicle for a more reasonable amount, with more realistic amounts of coverage.

[Puddy]

No, what I am arguing is that, in my opinion, 70-80% (or more) of our population doesn't need "identical" coverage. I would further guess many people would opt for higher deductibles, or lesser coverage, in exchange for lower cost...or in my example above, more money in their pockets.

 

Problem is, most employers don't offer that option. Its either all or nothing, and if you choose "no coverage", you are not compensated for the value of the benefit. If my company came to me and said "you can either be insured under our plan and we'll pay $1500 for you, or you can search for your own plan and we'll pay you $1500"....it would be a no-brainer.

 

To compare it apples to apples, suppose auto insurance was a benefit companies offered. But suppose the only policy they offered was a top-notch one. That may be great for people with new Cadillacs, but not so great a deal for people with 1995 Honda Accords. They be much happier with that money in their pocket, and insuring their vehicle for a more reasonable amount, with more realistic amounts of coverage.

Okay so I can see that argument. We all have different 'needs' when it comes to health insurance. I'm not sure I agree with the 70-80% or higher in terms of employed people but the point you make is understandable. I still question just how inexpensive even selective coverage would be on an individual basis (or that the company you would get the insurance through is as reputable as a major carrier like BCBS). Choice is good and would be ideal in a corporate setting as the rates should be cheaper.

[i_am_the_swammi]

Choice is good and would be ideal in a corporate setting as the rates should be cheaper.

 

Yep, I 100% agree. I really made the HR person scratch their head when he actually uttered " We can't let you choose your own plan, even though it would save us both money...then everyone would want to do it". Talk about a benefit that would draw great talent....a customizable health plan, a la carrte. We give you, say $1300 towards it. You buy what you want, and either pay the excess or keep the difference.

 

I imagine he'll be promoted to VP Finance when he actually works behind the scenes to make the idea a reality.