President Obama: Employer-based Health Coverage Will Not Be Impacted By Health Care Reform

[Fotheringay-Phipps]

@Sage_Rat

Where things may be bad is if the government mandates an arbitrarily high level of coverage for individual health care plans. When that’s the case, people might well ask for more care than is medically relevant, not seeing the relation between their low medical bill and their high monthly insurance bill.

But if the government doesn’t set standards, then it threatens the no-pre-existing condition rule. Because people will go for a very low coverage and low cost plan until they get a serious condition and then suddenly switch to a more generous plan.

@Grumman

The difference is that money given to employees in the form of health cover is a fringe benefit that can be used to replace money given to employees in the form of cash. If you spend $3,000 providing employer-sponsored health insurance to an employee, they aren’t going to have to spend as much of their own money on health insurance, meaning they get the same benefit out of a smaller paycheck. If you spend $3,000 on penalties paid to the government, you might as well have thrown that money into the incinerator, because you’re not getting anything back for that expenditure.

That’s a good point, to the extent that the differential is not great enough.

@Fear_Itself

I don’t follow your logic. Employees won’t work for employers who don’t provide insurance, but employers seem to think this will disappear if there are insurance exchanges? Elucidate.

Only very short-sighted employers will convince themselves that they can remain competitive and attract the most competent employees by dropping group health insurance. Those who do will end up with the employees who have no other choice. The free market works again!

I’ve suggested that the first to drop coverage will be those who are in desperate financial condition. But once they do, others will be able to follow suit.

It’s also thought that the first to drop coverage will be those who have low paid workforces - I’ve seen the hospitality industry pointed to as an example. Because these employers are most likely to be penalized by having employee contributions above 8%, and the employees are most likely to have their coverage on the exchange subsidized.

[Side note: in what must be some sort of oversight in the law, the penalties that an employer faces is their employee has contributions between 8% and 9.5% of household income are significantly higher than that which they pay if the contributions are above 9.5%. In the former case, the penalty is equal to what the employer contributes to the medical plan costs. In the latter case they pay $2/3,000 per employee (it’s a complicated formula) which is generally a lot less. This would suggest that employers with a lot of employees in the corridor could reduce their penalty by increasing employee contributions. But this would be hard to pull off given the disparity in employee income, and especially since most employers have no real idea what their employees’ household incomes are.]

@Sam_Stone

For example, let’s say a company is paying $20K per year for your family coverage. If it cancels it, it pays a $2000 penalty. That’s an 18K savings.

In general your analysis is pretty good, but you’ve overlooked the fact that the $2,000 penalty is after tax money while the employer contributions to the medical plan are tax deductible.

It’s been suggested that if businesses start dropping coverage the government will significantly increase the penalties. Perhaps. But I’m not so sure. Increasing the penalties is an idea without a constituency. Conservatives don’t like penalties on business, and liberals are not trying to prop up the employer model.

@Wesley_Clark

By saying ‘they all do it’, do you mean that if one company drops insurance the best employees will just leave for the company that still has it, so the only option is for all companies to drop insurance together so their employees don’t quit en masse?

More or less. I don’t think it will happen overnight. But the company that drops first will be at a competitive disadvantage.

Why aren’t they doing that now though? You say there is no alternative, but all the part time and contract workers out there have been going w/o health coverage for years while more and more people who work for small and medium businesses have lost their health coverage. In fact the % of jobs that offer health care has dropped from about 75% in 1993 down to about 56% now. So whats to stop them from doing it now?

They could. But in some businesses it’s standard. You can get an occasional part time worker without offering it, but many businesses are not trying to get by with part time workers. They want the long-term skilled people.

It’s been suggested that this bill might push many companies to restructure their business models so as to rely more on part-time workers (defined as less than 30 hours per week).

If employers stop contributing to health insurance, and everyone is forced onto the exchanges, where is the revenue going to come from to fund the subsidies for the health exchanges which I think say people need subsidies so their health insurance expenses do not top 6-10% of their annual gross income?

The bill was loaded with taxes (both hidden and explicit) as it is. There’s always room for more.