The Coming Collapse of Employer-Based Health Coverage

140px-CaduceusIn their desperation to pass some kind of health care bill now now now now now, the Democrats have annexed one-sixth of the economy despite the opposition of a majority of Americans.  The debate over the bill may be over, but the unintended consequences are only starting to make themselves known. A new Fortune article provides a glimpse of the future under Obamacare, and it ain’t pretty.  (Hat tip: Neo.)

Remember when Rep. Henry Waxman, whose photo can be found in the dictionary next to the word “grandstanding,” summoned the leaders of AT&T, Caterpillar, Verizon, Deere and other companies to grill them about the write-downs they took  to recognize the costs of the newly-passed legislation? The hearings were abruptly canceled, and the Democratic staff of the committee put out a memo acknowledging what had been clear all along — that the write-downs were not just appropriate, but in fact legally required.  Fortune reviewed the subpoenaed documents and discovered why the hearings were canceled:

Nowhere in the five-page report did the majority staff mention that not one, but all four companies, were weighing the costs and benefits of dropping their coverage.

AT&T produced a PowerPoint slide entitled “Medical Cost Versus No Coverage Penalty.” A document prepared for Verizon by consulting firm Hewitt Resources stated, “Even though the proposed assessments [on companies that do not provide health care] are material, they are modest when compared to the average cost of health care,” and that to avoid costs and regulations, “employers may consider exiting the health care market and send employees to the Exchanges.” (Under the new bill, employees who lose their coverage will purchase health care through state-run exchanges.)

Kenneth Huhn, vice president of labor relations at Deere, said in an internal email that his company should look at the alternatives to providing health benefits, which “would amount to denying coverage and just paying the penalty,” and that he felt he already had the ability to make this change under his company’s labor agreement. Caterpillar felt it would have to give “serious consideration” to the penalty option.

It’s these analyses — which show it’s a lot cheaper to “pay” than to “play” — that threaten to overthrow the traditional architecture of health care.

Of course, none of these companies have dropped employee coverage yet.  But can there be any doubt that they and many others will do so if the economics are compelling enough?

From the beginning, the Democrats have relied on the premise that people who like their current health coverage will be able to keep it. The phony economic calculations that enabled the Democrats to claim that Obamacare would not add to the deficit were based in part on assumptions that big companies would continue to offer health care coverage to their employees.  Oops.

During the Obamacare debate, I took to referring to the public “option” — with scare quotes around the word option — as a shorthand way of reiterating the truism that no corporation can possibly compete with the resources of the United States government.

Here’s a longhand version of the argument, from an August 18 post:

Despite Obama’s disingenuous talk about having the insurance companies “compete” with a “public option” backed by the vast resources and regulatory clout of the government, most people recognize that no such competition is sustainable.

With a public option, the corporations who currently fund health insurance for their employees will have two choices — they can continue to negotiate with insurance companies to try to get the best deal for themselves and their employees, or they can get out of the middle, stop bothering with insurance companies and just dump all their employees into the public “option.” Hmmm… decisions, decisions.

People intuitively understand that the “public option” is a first step toward a single-payer world in which the government directly controls one-sixth of the economy, and has no competitive incentive to reduce costs and improve service.

I celebrated when it became clear the public “option” would not be part of the final health care bill.  But even in the legislation that was passed, the incentives for companies to wash their hands and walk away from health care will be overwhelming.

November can’t come soon enough.


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