Employer-provided health insurance may not be long for this world. According to a new report from SP Capital IQ, 90 percent of American workers who receive health insurance from large companies will instead get coverage through Obamacare’s exchanges by 2020.
For that, patients — many of whom no doubt like the insurance they currently have — can blame Obamacare. The law’s many mandates, fees, and taxes will increase health costs for large employers to the point that providing health benefits at work is financially unsustainable.
Consider some of Obamacare’s most burdensome new levies. For instance, one fee on group plan sponsors is intended to fund the Patient Centered Outcomes Research Institute (PCORI), a government-sponsored organization charged with investigating the relative effectiveness of various medical treatments. Medicare may consider the Institute’s research in the determining what sorts of therapies it will cover.
Set aside the fact that the government — as paymaster for half of the health care delivered in this country — will have a significant incentive to twist the findings of such research so that older, cheaper therapies seem just as effective as more expensive, cutting-edge ones.
Making matters worse, the federal government is forcing private firms to underwrite its dirty work. For plan years ending after September 30, 2013, and before October 1, 2014, employer sponsors must pay the feds a PCORI fee of $2 per covered life. And for plan years between October 1, 2014, and October 1, 2019, they’ll have to pay an amount adjusted for national health inflation.
Large employers also have to pay a Temporary Reinsurance Fee to help “stabilize” premiums in the individual insurance market. In an American Health Policy Institute (AHPI) survey of businesses with more than 10,000 employees, one company estimated that this fee could cost it $15.3 million from 2014 to 2016.
Then there’s the 40 percent excise tax on expensive insurance plans — those with premiums greater than $10,200 for individuals and $27,500 for families — which goes into effect in 2018. One company in the same survey said that this tax could cost it $378 million over five years.
Large employers like these cover 59 percent of private-sector workers, according to the Employee Benefit Research Institute. So many firms will likely face the same tax-motivated cost increases as these two.
Obamacare doesn’t just tax employers directly. Its many coverage mandates also raise the cost of benefits indirectly.
Effective 2015, the law’s employer mandate requires employers with 100 or more full-time employees to provide health insurance to full-timers or pay a fine. In 2016, those with 50 to 99 employees will have to follow suit. The law originally intended for both groups to comply with the mandate in 2014.
Obamacare also orders plans to cover adult children on their parents’ policies until they’re 26 years of age. This “slacker mandate” has already raised employer health insurance costs by 1 to 3 percent. One firm told AHPI that the mandate could cost it almost $69 million over ten years.
Obamacare also requires employer-sponsored health plans to cover 100 percent of preventive care services, such as immunizations, contraceptive care, and depression screening. One large employer reported that full coverage of contraceptive care on its own could cost $25.6 million over ten years.
It’s no wonder that large employers expect their health bills to escalate in the years to come. The AHPI survey revealed that Obamacare could increase their health costs by 4.3 percent in 2016, 5.1 percent in 2018, and 8.4 percent in 2023.
Those percentages equate to real dollars. Over the next ten years, Obamacare could cost large employers $151 billion to $186 billion. That’s about $163 million to $200 million in additional cost per employer — or $4,800 to $5,900 per employee — solely attributable to the health reform law.
Employers will likely pass along these costs to their workers. According to a recent Mercer survey, 80 percent of employers are considering raising deductibles — or have already done so.
Eventually, large employers may opt to pay the fine for not providing health insurance and leave their workers to get coverage in the exchanges. Doing so might even save them money.
The care for an employee with hemophilia, for example, can cost a company $300,000. That could end up being a lot more expensive than the $2,000 per-employee fine for not offering insurance.
Firms could also continue furnishing insurance to most of their workers — but nudge their costliest ones onto the exchanges by making the company insurance plan unattractive to them. A company could shrink its network of doctors, raise co-payments, or even offer a chronically ill employee a raise to opt out of the employer plan.
In so doing, the company would save money. The employee would be able to secure better coverage through the exchange. And if a raise covered the cost of the exchange policy, both parties would benefit.
Others in the exchange pool — and the taxpayers subsidizing them — won’t be so lucky. Exchange enrollees are already sicker than their counterparts outside the government insurance portals. Indeed, the exchange pool fills prescriptions for the sorts of specialty drugs associated with chronic disease at a rate that’s 47 percent higher than for folks outside the exchanges.
Adding even more high-cost individuals to the exchanges could cause insurers to hike premiums. And higher premiums require greater taxpayer subsidies. Already, the Congressional Budget Office projects that the federal government will spend $1.03 trillion on exchange subsidies and related spending from 2015 to 2024.
If employers dump their sickest employees into the exchanges, that number could go spiral even further upward.
The president promised that Obamacare would provide all Americans access to affordable health coverage. But he failed to mention that it would squeeze nearly $200 billion out of large employers — and potentially destroy the employer insurance marketplace altogether — in order to do so.
Sally C. Pipes is President, CEO, and Taube Fellow in Health Care Studies at the Pacific Research Institute. Her latest book is The Cure for Obamacare (Encounter 2013).