Why Smaller Premium Increases May Hurt Republicans in November

Away from last week’s three-ring circus on Capitol Hill, an important point of news got lost. In a speech on Thursday in Nashville, Secretary of Health and Human Services (HHS) Alex Azar announced that benchmark premiums—that is, the plan premium that determines subsidy amounts for individuals who qualify for income-based premium assistance—in the 39 states using the federal healthcare.gov insurance platform will fall by an average of 2 percent next year.

That echoes outside entities that have reviewed rate filings for 2019. A few weeks ago, consultants at Avalere Health released an updated premium analysis, which projected a modest premium increase of 3.1 percent on average—a fraction of the 15 percent increase Avalere projected back in June. Moreover, consistent with the HHS announcement on Thursday, Avalere estimates that average premiums will actually decline in 12 states.

On the other hand, however, given that Democrats have attempted to make Obamacare’s pre-existing condition provisions a focal point of their campaign, premium increases in the fall would remind voters that those supposed “protections” come with a very real cost.

How Much Did Premiums Rise?

The Heritage Foundation earlier this year concluded that the pre-existing condition provisions collectively accounted for the largest share of premium increases due to Obamacare. But how much have these “protections” raised insurance rates?

Overall premium trend data are readily available, but subject to some interpretation. An HHS analysis published last year found that in 2013—the year before Obamacare’s major provisions took effect—premiums in the 39 states using healthcare.gov averaged $232 per month, based on insurers’ filings. In 2018, the average policy purchased in those same 39 states cost $597.20 per month—an increase of $365 per month, or $4,380 per year.

Moreover, the trends hold for the individual market as a whole—which includes both exchange enrollees, most of whom qualify for subsidies, and off-exchange enrollees, who by definition cannot. The Kaiser Family Foundation estimated that, from 2013 to 2018, average premiums on the individual market rose from $223 to $490—an increase of $267 per month, or $3,204 per year.

Impact of Pre-Existing Condition Provisions

The HHS data suggest that premiums have risen by $4,380 since Obamacare took effect; the Kaiser data, slightly less, but still a significant amount ($3,204). But how much of those increases come directly from the pre-existing condition provisions, as opposed to general increases in medical inflation, or other Obamacare requirements?

The varying methods used in the actuarial studies make it difficult to compare them in ways that easily lead to a single answer. Moreover, insurance markets vary from state to state, adding to the complexity of analyses.

However, given the available data on both how much premiums rose and why they did, it seems safe to say that the pre-existing condition provisions have raised premiums by several hundreds of dollars—and that, taking into account changes in the risk pool (i.e., disproportionately sicker individuals signing up for coverage), the impact reaches into the thousands of dollars in at least some markets.

Republicans’ Political Dilemma

Those premium increases due to the pre-existing condition provisions are baked into the proverbial premium cake, which presents the Republicans with their political problem. Democrats are focusing on the impending threat—sparked by several states’ anti-Obamacare lawsuit—of Republicans “taking away” the law’s pre-existing condition “protections.” Conservatives can counter, with total justification based on the evidence, that the pre-existing condition provisions have raised premiums substantially, but those premium increases already happened.

If those premium increases that took place in the fall of 2016 and 2017 had instead occurred this fall, Republicans would have two additional political arguments heading into the midterm elections. First, they could have made the proactive argument that another round of premium increases demonstrates the need to elect more Republicans to “repeal-and-replace” Obamacare. Second, they could have more easily rebutted Democratic arguments on pre-existing conditions, pointing out that those “popular” provisions have sparked rapid rate increases, and that another approach might prove more effective.

Instead, because premiums for 2019 will remain flat, or even decline slightly in some states, Republicans face a more nuanced, and arguably less effective, political message. Azar actually claimed that President Trump “has proven better at managing [Obamacare] than the President who wrote the law.”

Conservatives would argue that the federal government cannot (micro)manage insurance markets effectively, and should not even try. Yet Azar tried to make that argument in his speech Thursday, even as he conceded that “the individual market for insurance is still broken.”

‘Popular’ Provisions Are Very Costly

The first round of premium spikes, which hit right before the 2016 election, couldn’t have come at a better time for Republicans. Coupled with Bill Clinton’s comments at that time calling Obamacare the “craziest thing in the world,” it put a renewed focus on the health-care law’s flaws, in a way that arguably helped propel Donald Trump and Republicans to victory.

This year, as paradoxical as it first sounds, flat premiums may represent bad news for Republicans. While liberals do not want to admit it publicly, polling evidence suggests that support for the pre-existing condition provisions plummets when individuals connect those provisions to premium increases.

The lack of a looming premium spike could also neutralize Republican opposition to Obamacare, while failing to provide a way that could more readily neutralize Democrats’ attacks on pre-existing conditions. Maybe the absence of bad news on the premium front may present its own bad political news for Republicans in November.

This post was originally published at The Federalist.

Obamacare’s Exchanges Have Become Medicaid-Like Ghettoes

The October surprise that Washington knew about all along finally arrived yesterday, as the Obama administration announced that premiums would increase by nearly 25 percent nationally for Obamacare’s individual insurance. With the exchanges already struggling to maintain their long-term viability, the premium increases place the administration in a political vise, as it tries to encourage people to buy a product whose price is rising even as it presents a poor value for most potential enrollees.

In the 40-page report the Department of Health and Human Services (HHS) released, breaking down premium and plan information for 2017, one interesting number stands out. Among states using Healthcare.gov, the federally run exchange, the median income of enrollees in 2016 topped out at 165 percent of the federal poverty level (FPL). In other words, half of enrollees made less $40,095 for a family of four. And 81 percent earned less than $60,750 for a family of four, or less than 250 percent of the FPL.

The new data from the report further confirm that the only people buying exchange plans are those receiving massive subsidies — both the richest premium subsidies, which phase out significantly above 250 percent FPL, and cost-sharing subsidies, which phase out entirely for enrollees above the 250 percent FPL threshold. If the House of Representatives’ suit challenging the constitutionality of spending on the cost-sharing subsidies succeeds, and those funds stop flowing to insurers, Obamacare may then face an existential crisis.

Even as it stands now, however, the exchanges are little more than Medicaid-like ghettoes, attracting a largely low-income population most worried about their monthly costs. To moderate premium spikes, insurers have done what Medicaid managed-care plans do: Narrow networks. Consultants at McKinsey note that three-quarters of exchange plans in 2017 will have no out-of-network coverage, except in emergency cases. And those provider networks themselves are incredibly narrow: one-third fewer specialists than the average employer plan, and hospital networks continuing to shrink.

In short, exchange coverage looks nothing like the employer plans that more affluent Americans have come to know and like. Case in point: At a briefing last month, I asked Peter Lee, the executive director of Covered California, what health insurance he purchased for himself. He responded that he was not covered on the exchange that he himself runs but instead obtained coverage through California’s state-employee plan. Which raises obvious questions: If Covered California’s offerings aren’t good enough to compel Lee to give up his state-employee plan, how good are they? Or, to put it another way, if exchange plans aren’t good enough for someone making a salary of $420,000 a year, why are they good enough for low-income enrollees?

Therein lies Obamacare’s problem — both a political dilemma and a policy one. Insurers who specialize in Medicaid managed-care plans using narrow networks have managed to eke out small profits amid other insurers’ massive exchange losses. As a result, other carriers have narrowed their product offerings, making Obamacare plans look more and more alike: narrow networks, tightly managed care — yet ever-rising premiums.

While restrictive HMOs with few provider choices may not dissuade heavily subsidized enrollees from signing up for exchange coverage, it likely will discourage more affluent customers. The exchanges need to increase their enrollment base. The combination of high premiums, tight provider networks, and deductibles so high as to render coverage all but useless will not help the exchanges attract the wealthier, and healthier, enrollees needed to create a stable risk pool. By reacting so sharply to its current customer base, insurers on exchanges could well alienate the base of potential customers they need to maintain their long-term viability. In that sense, Obamacare’s race to the bottom could become the exchanges’ undoing.

This post was originally published at National Review.

Obamacare’s $170.8 Billion in Insurer Bailouts

Obamacare has been in the news — and the courts — quite a lot recently. While much of the press attention has focused on the controversial contraception mandate, a potentially bigger issue remains largely unreported — namely, that the Obama administration has set in train an unholy trinity of bailouts that could pay health-insurance companies $170.8 billion in the coming decade.

Much of the litigation surrounds the legality — or more specifically, the lack of legality — of these bailouts. On May 12, the administration lost a case in United States District Court, U.S. House of Representatives v. Burwell, in which Judge Rosemary Collyer ruled that payments to insurers for cost-sharing subsidies without an express appropriation from Congress violated the Constitution. And recently, multiple insurers have filed suit against the government in the Court of Federal Claims, seeking payment for unpaid “risk corridor” funds, designed to cushion insurers from incurring major losses, or major gains, during the exchanges’ first three years.

What exactly do all these Obamacare lawsuits entail? And how much taxpayer money is the Obama administration shoveling to insurers in an attempt to keep them participating in its moribund exchanges? Herewith, a 101 tutorial on the more than $170 billion in Obamacare bailouts.

RISK CORRIDORS

What’s the issue? Risk corridors were one of two temporary programs (I discuss the other below) designed to provide stability to the law’s exchanges in their first years. From 2014 through 2016, the risk-corridor program is designed to minimize large insurer losses, as well as large insurer profits. Initially, the administration claimed risk corridors would be implemented in a budget-neutral manner — that is, outgoing payments to insurers with losses would equal incoming payments from insurers with gains. But the healthcare.gov catastrophe, coupled with policy changes unilaterally made in the fall of 2013, caused the Centers for Medicare and Medicaid Services (CMS) to float the idea of using taxpayer funds in risk corridors to offset insurer losses — in other words, bail them out.

How much has the government paid? Nothing, thankfully — at least not yet. Fearful that the administration could utilize risk corridors to implement a taxpayer-funded bailout of insurers, Congress passed in December 2014 (and subsequently renewed this past winter) appropriations language that prevents CMS from using additional taxpayer funds to pay insurers’ risk-corridor claims.

How much could the government pay? In 2014, insurers submitted $2.87 billion in risk-corridor claims, but because insurers with gains paid in only $362 million, insurers with losses received only that much in payments — approximately 12.6 percent of the requested funds. Last week insurers in North Carolina and Oregon sued to recover their unpaid risk-corridor funds, following a $5 billion class-action suit filed in February by an Obamacare co-op insurer in Oregon. While CMS has not yet settled those lawsuits seeking unpaid risk-corridor funds, in November it issued a policy memo stating that those unpaid funds represent an obligation of the federal government. Insurer losses more than doubled last year when compared with the 2014 losses.

Although CMS has not yet released data on risk-corridor claims for 2015 or 2016, it seems likely that risk corridors will incur losses similar to those for 2014. A McKinsey study released last month, “Exchanges Three Years In,” found that insurer losses more than doubled last year when compared with the 2014 losses — making $2.5 billion in claims the likely low estimate for risk corridors. A conservative assumption would estimate a total of $7.5 billion in unpaid risk-corridor claims — $2.5 billion each for 2014, 2015, and 2016.

Although the appropriations language in place currently prevents CMS from using taxpayer funds for risk-corridor claims, it is possible — even likely — that the administration could attempt to settle the insurer lawsuits as one way of getting bailout funds to insurers. Any settled lawsuits would be paid from the Judgment Fund of the Treasury, not out of a CMS budget account, thus circumventing the appropriations restrictions.

REINSURANCE

What’s the issue? The second Obamacare temporary stabilization program, called reinsurance, requires “assessments” — some would call them taxes — on all employer-provided health-insurance plans. These assessments are designed to 1) reimburse the Treasury for the $5 billion cost of a separate reinsurance program that operated from 2010 through 2013 and 2) reimburse insurers with high-cost patients from 2014 through 2016.

How much has the government paid? In 2014, insurers received nearly $8 billion in payments from the reinsurance “slush fund.” The administration still holds nearly $1.7 billion in funds from the 2014 benefit year — money that will no doubt get shoveled insurers’ way as well. While the law explicitly stated that the Treasury should get reimbursed for its $5 billion before insurers receive payments from the reinsurance fund, the Obama administration has implemented the law in the exact opposite manner — prioritizing insurer bailouts over repaying the Treasury. The Congressional Research Service (CRS) has stated that this action represents a clear violation of the text of the Obamacare statute. The Obama administration chose to violate the plain text of the law and prioritize claims to insurers over the statutory requirement to repay taxpayers.

How much could the government pay? Between 2014 and 2016, insurers appear likely to receive the full $20 billion in reinsurance payments provided for under the law. On the other hand, the Treasury will receive far less than the $5 billion it was promised, because the Obama administration chose to violate the plain text of the law and prioritize claims to insurers over the statutory requirement to repay taxpayers.

COST-SHARING SUBSIDIES

What’s the issue? The law requires insurers to reduce cost-sharing (such as deductibles and co-payments) for certain low-income individuals with incomes under 250 percent of the federal poverty level. While Section 1402 of the law authorized the Departments of the Treasury and Health and Human Services to remit payments to insurers for the cost of these discounts, it did not include an explicit appropriation for them. Judge Collyer’s May 12 ruling, though stayed pending appeal by the administration, prohibits future spending on cost-sharing subsidies by the federal government unless and until Congress enacts an explicit appropriation.

How much has the government paid? In fiscal year 2014, insurers received $2.1 billion in cost-sharing subsidies. In fiscal 2015, the cost-sharing subsidies totaled $5.1 billion, and this fiscal year, spending on the subsidies will total an estimated $6.1 billion — for a total paid out (through this September 30) of $13.9 billion. How much could the government pay? If Judge Collyer’s ruling is not upheld on appeal, this bailout program — unlike the other two — will continue without end. According to the Congressional Budget Office, spending on cost-sharing subsidies will total $130 billion over the coming decade, unless halted by a judicial ruling — or unless a new administration decides it will not spend funds that have not been appropriated by Congress.

There you have it. Combine a total of $33.3 billion paid to date ($20 billion in reinsurance plus $13.3 billion in cost-sharing subsidies) with potential future bailouts of $137.5 billion ($7.5 billion in risk-corridor funds plus an additional $130 billion in cost-sharing subsidies) and you come up with a not-so-grand total of $170.8 billion in taxpayer-funded Obamacare bailouts to insurers.

The scope of both the bailouts and Obamacare’s failures looks truly staggering. Despite literally billions of dollars coming from three separate bailout programs, insurers still cannot make money selling Obamacare products. Most insurers continue to lose funds hand over fist, while some, such as UnitedHealthGroup, the nation’s largest health insurer, have all but exited the exchanges entirely.

The scope of the bailouts put the lie to Joe Biden’s claims just prior to Obamacare’s passage, when he claimed to ABC News, “We’re going to control the insurance companies.” Au contraire, Mr. Vice President. By requiring more than $170 billion in bailouts just to keep the sputtering exchanges afloat, the insurance companies are controlling you — and us, the taxpayers, as well.

This post was originally published at National Review.

More Evidence That Employers Will Drop Coverage

The Wall Street Journal reports this morning on a study by consultants at Deloitte showing that a large number of businesses are viewing Obamacare as an opportunity to “head for the exits” and stop offering health insurance coverage altogether:

In all, 9% of companies in the Deloitte study said they expected to stop offering insurance in the next one to three years….But around one in three respondents said they could decide to stop offering health coverage if they find that the law requires them to provide more generous benefits than they do at the moment; if a tax on high-cost plans takes effect in 2018 as scheduled; or if they conclude that the cost of penalties for not providing insurance could be less expensive than paying for benefits.

The Deloitte survey further reinforces the numerous prior studies, papers, briefs, reports, employer questionnaires, consultant presentations, surveys, op-eds, interviews, quotes, and comments from other prominent Democrats suggesting that employers will drop coverage in numbers far greater than the White House lets on, resulting in trillions of dollars of added federal costs.  Even Jon Stewart, in an interview with Secretary Sebelius in January, would not believe the Administration’s line that employers would keep offering coverage: Stewart stated that there would likely be a “big dump” by employers into Exchanges, meaning Obamacare would become “sort of, a back door, of government, not a takeover necessarily, but of a government responsibility for the health care.”

On a related note, a brief follow-up to last week’s post on consulting firm Truven’s “analysis” of whether employers will benefit from dropping health coverage for their employees or not.  We pointed out at the time that the report did NOT take into account the impact of federal insurance subsidies on firms’ drop-or-no-drop calculus.  Sarah Kliff responded by saying that according to Truven, most people in the study will not qualify for insurance subsidies due to their income.

There are several problems with this claim, and the study.  First, most Americans WILL qualify for subsidies.  According to the Census Bureau, there are 266.5 million individuals under age 65.  Of those, 169.2 million, or 63.5 percent, have incomes under 400 percent of the federal poverty level – the threshold under which individuals can receive insurance subsidies.  But at no point in the Truven study does the paper note that the population being studied is asymptomatic from the nation as a whole.  Making supposedly-generalizable claims that “employers who choose to cut plans as a perceived cost-saving measure will not benefit as much as they might assume” – and having those trumpeted in the press – based on an incorrect and faulty premise (i.e., that most workers nationwide won’t qualify for subsidies) is highly misleading, and severely flawed.

There’s also an ironic footnote here.  Some may recall that last year McKinsey put out a study – one which, unlike the Truven analysis, suggested that a large number of employers would drop coverage.  Democrats immediately cried foul, and Max Baucus and others sent letters promising an investigation and demanding McKinsey publicly release its methodology.  Yet surprisingly, given the obvious flaws in the Truven study, Chairman Baucus has yet to issue a similar letter demanding the company explain its highly dubious conclusions.  I only wonder: Why might that be…?

Pelosi Advises Employers to “Emancipate” Themselves from Coverage

In an interview with CNBC’s Maria Bartiromo on Friday afternoon, former Speaker Nancy Pelosi was asked about the ominous headlines surrounding Obamacare – the law’s many waivers to union plans, the recent CLASS Act debacle, and the survey from McKinsey (among MANY others) indicating employers will drop insurance coverage.  Pelosi responded by saying those headlines reflect only one side of the story, and that “on the other side, the way we see it is an innovative prevention-oriented way for businesses to be emancipated from health care costs because they have a way out or whatever works for them.”  (Exchange is at about 7:00 of the video).

Last February, then-Speaker Pelosi promised that the law “will create 4 million jobs – 400,000 jobs almost immediately.”  Apparently the former Speaker believes businesses should create these jobs by “emancipating” nearly 170 million workers and their families from their existing employer-based coverage.  While that would reduce business’ health care expenses, it would NOT “emancipate” the federal budget, raising spending on Obamacare insurance subsidies, and thus the deficit, by trillions.

In that context, it’s particularly ironic that Speaker Pelosi’s interview with CNBC was focused on deficit reduction and the supercommittee recommendations – because her suggestion would not only “emancipate” individuals from the coverage they have and like now, it would also shackle the federal budget will trillions of dollars of obligations for decades to come.

Howard Dean Encourages Employers to Drop Coverage: “A Very, Very Good Thing”

Appearing on Morning Joe today, Howard Dean once again expressed support for the idea of employers dropping coverage, calling the recent findings from McKinsey that up to half of all employers could drop coverage “a good thing.”  (Makes you wonder why Democrats sent McKinsey nasty letters attacking their study as biased.)  Dean specifically said about Obamacare:

The fact is, it’s very good for small business.  It’s incredibly good for small businesses.  The McKinsey study, which the Democrats [in Congress] don’t like, but I do, and I think it’s true.  Most small businesses are not going to be in the health insurance business any more after this thing goes into effect….I think Obamacare is a huge help to small business.

Former New York Governor George Pataki, also on the show, chimed in: “The only way it’s a help [to small business] is if they dump coverage,” and Dean promptly agreed: “That’s right – and that’s what they should do.”  Dean said that contrary to the President’s promise that individuals would be able to keep their own coverage, “It is going to happen – and I think it’s a very, very good thing.”

However, employers’ financial gain will be the taxpayers’ loss: Former Congressional Budget Office Director Doug Holtz-Eakin’s analysis confirmed that, because many more firms than originally projected will have a rational economic basis for dropping their plans come 2014, the federal government will incur in up to $1 trillion more in new federal spending on insurance subsidies than official estimates.

In other words, employers are going to drop coverage in New Hampshire.  And they’re going to drop coverage in South Carolina and Oklahoma.  And they’re going to drop coverage in Arizona and North Dakota and New Mexico.  They’re going to drop coverage in California and Texas and New York.  And they’re going to drop coverage in South Dakota and Oregon and Washington and Michigan.  And the exploding federal subsidies on Obamacare won’t send anyone to the White House – they’ll send our nation to the poor house.  Byah!

Howard Dean Supports Dumping Workers in Obamacare Exchanges

In a debate on the health care law this afternoon, former Vermont Governor Howard Dean expressed support for the idea of employers dropping coverage, calling the recent findings from McKinsey that up to half of all employers could drop coverage “a good thing.”  (Makes you wonder why Democrats are sending McKinsey nasty letters.)  Dean went on:

The biggest thing we can do for small businesses is get them out of the healthcare business….If this bill does that, and all these small businesses dump their people into the exchanges, we will finally have broken the link between the employer and health insurance in this country.

In other words, employers are going to drop coverage in New Hampshire.  And they’re going to drop coverage in South Carolina and Oklahoma.  And they’re going to drop coverage in Arizona and North Dakota and New Mexico.  They’re going to drop coverage in California and Texas and New York.  And they’re going to drop coverage in South Dakota and Oregon and Washington and Michigan.  And the exploding federal subsidies on Obamacare won’t send anyone to the White House – they’ll send our nation to the poor house.

More on Employers Dropping Coverage

Yet another consulting firm has released a survey regarding employers dropping coverage.  In this case, Towers Watson’s annual survey of retiree health coverage found that nearly three in five employers who offer coverage to retirees under age 65 are assessing new alternatives in light of the law.  Nearly nine in ten (87%) of employers responded that the new insurance options available under the law are influencing their strategy for offering benefits to retirees.  Last week’s Associated Press story about how early retirees making as much as $64,000 can receive “nearly free” health care courtesy of federal taxpayers will only further encourage these firms to drop coverage for their former workers.

Meanwhile, Bloomberg Government ran a story Friday about how “employers may prefer paying fines” to offering coverage.  The article indicated that “business groups are dubious” of economic models claiming firms will not drop coverage, “and say the more negative findings” of McKinsey’s health survey “provide a better indication” of employer responses.  Among the reactions in the piece:

  • The National Retail Federation said it is “not bullish on the future of health care coverage in the private sector;”
  • A representative of the Employee Benefit Research Institute said that “even if companies don’t drop their health plans entirely, ‘a significant number’ are looking at alternative arrangements” – which could involve reorganizing their firms so that low-wage workers receive government subsidies in Exchanges, while keeping employer-provided insurance for high-income workers; and
  • A representative from America’s Health Insurance Plans noted that “almost all employers are taking a look at their health care strategy…many will keep their options open, and if their competition drops, they will too.”

A June Gallup poll found nearly 10 million adults have lost employer-based coverage since President Obama was elected President.  These latest surveys once again confirm that, thanks to Democrats’ unpopular health care law, millions more Americans are about to follow suit.

Democrats’ Brickbats Towards McKinsey

The Wall Street Journal has a great editorial this morning about the vilification campaign against consultants at McKinsey – complete with letters asking for the names of its biggest clients (what exactly do Democrats intend to do with that list…?).  McKinsey’s “sin” in this case was daring to speak a politically inconvenient truth – that employers may well drop coverage for their workers in 2014 because of Obamacare’s perverse incentives for them to do so.

Democrats claimed vindication because McKinsey rightly claimed their survey was a study of employers and not an economic analysis.  The Administration’s supposed logic behind that claim?  “An analysis of business attitudes in the real world is less credible than CBO’s macroeconomic models that depend on undisclosed assumptions.  These are the same models that claim the stimulus ‘created or saved’ millions of jobs.”  (Incidentally, if Democrats are interested in transparency – rather than just intimidating people with whom they disagree – why aren’t they asking for CBO to make public the “undisclosed assumptions” in its model?)

But consider this quote: “It appears that the new law will make it beneficial for many employers to drop their health insurance coverage.  In 2014 and beyond, once federal money is available through the insurance Exchanges, switching from employer coverage to the Exchanges may benefit both employers and workers in a wide range of income levels.”  That quote comes not from McKinsey, but from the Tax Policy Center – hardly a conservative, and perhaps not even a moderate, think-tank.  Their analysis from last year confirmed the same findings as former CBO Director Doug Holtz-Eakin – that firms will gladly pay a $2,000 fine to shed health insurance obligations that can exceed $15,000 per year.

Just to emphasize, daring to point out employers will make economically rational decisions in response to perverse incentives from government has prompted a massive vilification campaign from the White House and Congressional Democrats.  At a time of anemic growth and record-high unemployment, it’s a sad commentary indeed on American economic policy.

Democrats’ Assault on McKinsey’s Inconvenient Truths

The White House and other Democrats continue to take aim at the McKinsey consulting study released two weeks ago and its conclusions that as many as half of all employers are considering dropping coverage as a result of Obamacare.  The criticisms of the survey fall into three general characteristics, each of which can be easily rebutted:

The Study Was Flawed

McKinsey’s release of the survey questions, methodology, and data has put to rest many questions about the objectivity and subject matter in the study.  Other folks have analyzed these points at greater length, but to summarize: The study was paid for by McKinsey and not any of its clients; the survey was administered by an internationally-recognized survey firm; the survey’s descriptions were largely fact-based and generic in nature (i.e., no “push polling” occurred); and the study surveyed a large, representative sample of the nation’s employers.

In releasing their full survey questionnaire, McKinsey has now been FAR more transparent than the Congressional Budget Office, which has yet to release the underlying economic assumptions behind their health insurance model.  Democrats wrote multiple letters to McKinsey asking for details about their study; will they now write CBO asking Congress’ budgetary scorekeeper to make its assumptions public?  Put another way, are Democrats interested in full transparency of ALL health insurance studies – or will they only demand details regarding studies with which they disagree?

The Study Studied the Wrong Topic

After McKinsey released the survey data yesterday, the White House last night said that the study was “not a prediction;” other liberal bloggers have assailed “its lack of predictive value.”  Implicit in these statements is a belief by those on the Left that computer-driven models created by academic economists are a better predictor of employers’ future behavior than surveys of the actual employers themselves.

The “dismal science” has long been criticized for the limitations of its predictive value – hence the old saying that economists have predicted 12 of the last 10 economic recessions (or, more appropriately under this President, economists have predicted 12 of the last 0 economic recoveries).  If Democrats want to make the assertion that economists’ models are more predictive of employers’ behavior than surveying employers themselves, then why did the Administration’s economic models showing that the trillion-dollar stimulus would keep unemployment below 8 percent fail?  Or, for that matter, why has the health care law has failed to deliver the $2,500 per family reduction in premiums candidate Obama promised based on economic assumptions by his campaign advisors?

The Study Is An “Outlier”

Democrats have relied on this mantra, in an attempt to marginalize the import of the McKinsey findings.  But the reality is far from accurate, as multiple studies – and Administration officials themselves – have acknowledged that Obamacare’s perverse incentives will encourage employers to drop coverage:

  • A PWC survey of employers found that nearly half of all employers “indicated they were likely to change subsidies for employee medical coverage” thanks to the law.
  • Former Congressional Budget Office Director Doug Holtz-Eakin’s analysis confirmed that many more firms than originally projected will have a rational economic basis for dropping their plans come 2014 – resulting in up to $1 trillion more in new federal spending on insurance subsidies than official estimates.
  • An Associated Press story from last fall, titled “Employers Looking at Health Insurance Options,” included quotes from a Deloitte consultant saying that “I don’t know if the intent was to find an exit strategy for providing benefits, but the bill as written provides the mechanism” and from the head of the American Benefits Council claiming that the law “could begin to dismantle the employer-based system.”
  • Former Tennessee Governor Phil Bredesen – a Democrat – wrote an op-ed explaining very succinctly why employers will drop their existing coverage options.  Gov. Bredesen noted that Tennessee could drop coverage for its state employees, pay the $2,000 per employee penalty to the federal government, give their workers cash raises to compensate for the loss in health benefits, and STILL come out at least $146 million per year ahead.
  • An April paper previously released by HR benefits consultants at Lockton discussed the costs for businesses, and confirmed the financial incentives for employers to drop coverage.  The report noted that “some employers WILL eliminate group health insurance and full-time jobs in 2014 because of the law.”  The analysis found employers could save an average 44% of their health insurance costs by dropping coverage and placing their employees in government-run Exchanges; some industries could save more than 80% of premium costs by “dumping” their employees.
  • Joel Ario, head of the health insurance Exchange office within HHS, admitted in March that if “the Exchanges work pretty well, then the employer can say ‘This is a great thing.  I can now dump my people into the Exchange and it would be good for them, good for me.’”

To summarize: The McKinsey survey followed usual rigorous methodological standards; the survey of what employers say they are thinking about doing in 2014 should actually be of GREATER use to policy-makers than what computer-driven models say they will do; and the McKinsey study is far from the first to point out Obamacare’s incentives for employers to drop coverage.  Given all this, Democrats’ continued obsession with undermining the survey seems far more like an attempt to intimidate anyone who dares speak politically inconvenient truths rather than a serious attempt at scientific scrutiny.