Obamacare scare

Several years ago, there was a popular book and tv series out called ‘Goosebumps.” I recalled that this morning while listening to an expert business analyst reporting on the impact of the healthcare legislation now, and what’s looming on the horizon.

Seriously.

In a WSJ opinion piece, Tennessee Governer Philip Bredesen spells it out.

Our federal deficit is already at unsustainable levels, and most Americans understand that we can ill afford another entitlement program that adds substantially to it. But our recent health reform has created a situation where there are strong economic incentives for employers to drop health coverage altogether. The consequence will be to drive many more people than projected—and with them, much greater cost—into the reform’s federally subsidized system. This will happen because the subsidies that become available to people purchasing insurance through exchanges are extraordinarily attractive.

This was all predictable, and predicted by Heritage Foundation expert Bob Moffitt, long before the largely unread healthcare legislation was rushed into law. Though it was Bredesen’s party that passed it (‘in order to know what’s in it’, in the infamous words of Speaker Pelosi), he now sees clearly the writing on the wall that was actually in the bill. These aren’t hypotheticals he’s presenting. Bredesen’s commentary analyzes the realities of what this legislation is leading to.

For an entrepreneur wanting a lean, employee-oriented company, it’s a natural position to take: “We don’t provide company housing, we don’t provide company cars, we don’t provide company insurance. Our approach is to put your compensation in your paycheck and let you decide how to spend it.”

But while health reform may alter the landscape for small business in unexpected ways, it also opens the door to what is a potentially far larger effect on the Treasury.

The authors of health reform primarily targeted the uninsured and those now buying expensive individual policies. But there’s a very large third group that can also enter and that may have been grossly underestimated: the 170 million Americans who currently have employer-sponsored group insurance. Because of the magnitude of the new subsidies created by Congress, the economics become compelling for many employers to simply drop coverage and help their employees obtain replacement coverage through an exchange.

Which was the intent behind this carefully crafted but convoluted package in the first place.

Let’s do a thought experiment. We’ll use my own state of Tennessee and our state employees for our data. The year is 2014 and the Affordable Care Act is now in full operation. We’re a large employer, with about 40,000 direct employees who participate in our health plan. In our thought experiment, let’s exit the health-benefits business this year and help our employees use an exchange to purchase their own.

First of all, we need to keep our employees financially whole. With our current plan, they contribute 20% of the total cost of their health insurance, and that contribution in 2014 will total about $86 million. If all these employees now buy their insurance through an exchange, that personal share will increase by another $38 million. We’ll adjust our employees’ compensation in some rough fashion so that no employee is paying more for insurance as a result of our action. Taking into account the new taxes that would be incurred, the change in employee eligibility for subsidies, and allowing for inefficiency in how we distribute this new compensation, we’ll triple our budget for this to $114 million.

Now that we’ve protected our employees, we’ll also have to pay a federal penalty of $2,000 for each employee because we no longer offer health insurance; that’s another $86 million. The total state cost is now about $200 million.

But if we keep our existing insurance plan, our cost will be $346 million. We can reduce our annual costs by over $146 million using the legislated mechanics of health reform to transfer them to the federal government.

That’s legislated mechanics, alright.

Our thought experiment shows how the economics of dropping existing coverage is about to become very attractive to many employers, both public and private. By 2014, there will be a mini-industry of consultants knocking on employers’ doors to explain the new opportunity. And in the years after 2014, the economics just keep getting better.

The consequence of these generous subsidies will be that America’s health reform may well drive many more people than projected out of employer-sponsored insurance and into the heavily subsidized federal system.

It has already begun, and the White House really doesn’t like hearing this.

The new health care law wasn’t supposed to undercut employer plans that have provided most people in the U.S. with coverage for generations.

But last week a leading manufacturer told workers their costs will jump partly because of the law…

“I don’t think you are going to hear anybody publicly say ‘We’ve made a decision to drop insurance,’ ” said Paul Keckley, executive director of the Deloitte Center for Health Solutions. “What we are hearing in our meetings is, ‘We don’t want to be the first one to drop benefits, but we would be the fast second.’ We are hearing that a lot.” Deloitte is a major accounting and consulting firm.

And only one of a vast number of American businesses scrambling to brace for the impact of Obamacare and its mandates. Like, McDonald’s Corp.

When employers drop health coverage because of economic constraints, when “the larger effect on the Treasury” translates to incalculable debt, individuals and their families will be impacted in ways we don’t yet know but a lot of folks seem to dread.

Which gets back to ‘Goosebumps’, and why it’s actually a better analogy than I realized when I first felt them after hearing Stuart Varney’s report on the morning news about what healthcare law portends, on its current trajectory. And thought of the news as the reality tv version of the kids’ shows. As Wiki notes, the stories in the series feature

“plot structures with normal kids being, frequently indirectly, involved in scary situations; chapters end in cliffhangers, and after the central conflict has either been or appears to have been resolved, there is often a twist ending.”

There are twists alright, and we’re nowhere near conflict resolution. But we do seem to be heading toward a cliff…