Wednesday, May 26, 2010

A Bitter Pill: How Democrats’ Government Takeover of Health Care Will Lead Employers to Drop Coverage

If You Like Your Current Plan…Tough Luck

President Obama and Democrats in Congress promised that nothing would change for the majority of Americans who currently have health coverage.[i] But a series of developments since the enactment of the health care “reform” law demonstrates how rising costs, new taxes, and additional federal requirements will leave many employers with little choice but to drop their insurance offerings:

  • A recent survey of large employers conducted by the consulting firm Towers Watson found that “the overwhelming majority (90 percent) of employers believe health care reform will increase their organization’s health benefit costs.”[ii]
  • The vast majority of the businesses surveyed by Towers Watson will force their employees to bear the brunt of higher health benefit costs imposed by the new law. Nearly nine in ten (88 percent) of firms plan to pass on increased costs through the form of higher premiums, and nearly three in four (74 percent) plan to change plan options, restrict eligibility, or increase deductibles and co-pays.[iii]
  • According to the Towers Watson survey, more than one in ten employers plan to reduce employment—laying off existing workers, or failing to hire new ones—as a result of the law’s increased costs.[iv]
  • Similarly, a survey of several hundred chief financial officers in small and large businesses found that an overwhelming majority—nearly three in four—believe the health care law will have a negative impact on their companies.[v] These financial officers also believe that the new law will raise, not lower, their firms’ health care costs by an average of more than eight percent.[vi]
  • Findings from the business surveys comport with decisions being made by individual companies as a result of the law’s enactment. Documents subpoenaed by the House Energy and Commerce Committee suggest companies are considering dropping their health plans. For instance, an AT&T document compared the company’s $4.7 billion cost of providing coverage currently to potential tax penalties under the health care law of $600 million for dropping its plan.[vii]
  • Likewise, Caterpillar executives discussed the need to “give serious consideration” to dropping coverage outright,[viii] and noted that the law’s enactment would require the company to “figure out what this will cost us and collect that in increased premiums which we will attribute to the legislation.”[ix]
  • Even retirees will not be immune from losing their existing coverage as a result of the health care law. A study found that a single provision in the health care law—eliminating a tax subsidy for employers who cover their retirees’ pharmaceutical expenses—could result in as many as two million retirees losing their drug coverage.[x]

Particularly given the current economic environment, the massive tax increases, rising health costs, and new regulations included in the health law provide companies with strong incentives to drop their current coverage—and every sign indicates that businesses large and small may do just that. More difficult to explain are why Democrats consider higher premiums, higher costs, and less coverage to be the kind of “reform” the American people can believe in.

 

[i] See, for instance, President Obama’s September 2009 address to Congress, http://www.whitehouse.gov/the_press_office/Remarks-by-the-President-to-a-Joint-Session-of-Congress-on-Health-Care

[ii] Towers Watson survey on health care reform, May 2010, http://www.towerswatson.com/united-states/research/1935, p. 1

[iii] Ibid., p. 4

[iv] Ibid.

[v] Financial Executives International, “CFO Quarterly Outlook Survey,” April 2010, http://www.financialexecutives.org/ferf/download/2010%20final/2010-011.pdf, p. 15

[vi] Ibid., p. 16

[vii] “Health Care Bill Legislation,” AT&T Presentation subpoenaed by House Energy and Commerce Committee, available at http://money.cnn.com/2010/05/05/news/companies/dropping_benefits.fortune/index.htm

[viii] Caterpillar internal e-mail subpoenaed by House Energy and Commerce Committee, November 19, 2009, CAT_WAXMAN_000361

[ix] Caterpillar internal e-mail subpoenaed by House Energy and Commerce Committee, March 23, 2010, CAT_WAXMAN_000300, available at http://dailycaller.com/2010/04/28/why-waxman-really-canceled-his-health-care-%E2%80%98show-trial%E2%80%99/

[x] “Assessing the Coverage and Budgetary Implications of Legislation Modifying the Deductibility of Retiree Drug Spending Eligible for Subsidies,” American Benefits Council report by The Moran Company, March 16, 2010, http://www.americanbenefitscouncil.org/documents/hcr_rds-report_031610.pdf, p. 5