Too Much Booz
Booz Allen overestimates those who
will stay with private health coverage and snub government
insurance exchanges in 2014.
We all know the strata of deception: lies, damned lies, and
statistics. Consulting firms of all types have been
constructing the stats in recent months to suggest that the sky
isn’t falling on employer-provided group health
insurance. The consultant Booz Allen contributed mightily to
the political double-speak with the release of a report titled
“The Future of Health Insurance: The Demise of
Employer-Sponsored Coverage Greatly Exaggerated.”
The study asserts that mid-sized and large employers are
unlikely to drop their traditional group health plans in favor
of sending employees to subsidized exchanges, saying that there
“is not enough of a cost-value differential to offset the
risks to employee morale and retention.” From data
collected in interviews with 150 organizations, Booz suggests
that only five to seven million Americans will gravitate from
private plans to exchanges. That’s pretty close to the
Congressional Budget Office estimate of five million over a
decade, a number used to legitimize the claim that healthcare
reform legislation will help lower the federal deficit.
The consulting firm Milliman similarly ran the numbers,
suggesting that the cost of dumping employees into exchanges
doesn’t add up. Unfortunately, both the Booz and the CBO
claims are wishful thinking. Read further into the reports, and
the details emerge. A lot of employers just don’t know
what they’re going to do when the exchanges come online
in 2014, when subsidies become available to American families
making up to 400% of the federal poverty line (almost $90,000).
To say that employers are confused and haven’t made
decisions is rational; it’s not rational to predict,
based on the available data, that employers would be unlikely
to dump their plans.
Mike Brewer, president of the Lockton Benefit Group,
provided a far more insightful appraisal of the likely outcomes
of reform when he testified in March before the House Education
and the Workforce Committee.
“Across most industry segments, our clients will have
a significant incentive to terminate their group coverage once
the insurance exchanges present employees with another
subsidized health insurance option,” Brewer told the
committee. “This is because the vast majority of our
clients currently spend far more on health insurance, per
employee, than the penalty under the ‘play or pay’
mandate. By 2014, this gap will be even wider.”
Lockton’s actuaries modeled for several hundred
clients the impact of the new healthcare reform law on their
group health programs. The reform bill’s immediate
benefit mandates have added 2.5% to clients’ health
costs. Doesn’t sound so bad, huh? But that’s 2.5%
on top of medical cost trend lines that exceed 10% a year.
Further, the “automatic enrollment” requirement in
2014 will add an average of 3.8% to clients’ health
insurance spending—even assuming that 75% of the
automatically enrolled employees, who would not otherwise
enroll in coverage, will opt back out of the health plan.
“The vast majority [of clients] tell us they will wait
and see,” Brewer said. “They tell us what they do
in 2014 depends on their health insurance costs then, and their
perceived need to use a health plan to gain a competitive
advantage for labor. With regard to this latter point, many
clients have told us, ‘We won’t be the first to
drop coverage, but we won’t wait to be third,
Of course, the incentives to drop coverage differ among
industry sectors, and Lockton has broken them out. Not
surprisingly, the retail/restaurant/hospitality sectors are the
most likely to flee their health plans and send workers to the
exchanges; professional-service firms are the least likely to
do so. Almost surely, the hospitality sector will respond by
eliminating large numbers of full-time positions.
To comply with the mandate, Lockton estimates, hospitality
employers will see their health insurance costs increase 150%.
Even if the employer terminates its group plan, it will still
pay more than it would to maintain its current plan in 2014
because it then pays a $2,000 per year, non-deductible penalty
for each full-time employee, even those to whom the employer
has never offered coverage.
And, let’s see, how have the estimates for signup in
high-risk pools gone? And how many small businesses have
managed to thread the bureaucratic needle and receive tax
breaks for their coverage? Congressional and administration
estimates have been way off. For clients whose employees make
over $90,000, there are risks in terminating a plan. But this
is the labor market of 2011, not 2005.
Reform legislation gave us health insurance reform, not
healthcare reform. It adds mandates for coverage, and
qualifying plans are going to become richer and richer.
Brewer summarized it perfectly before Congress: “Our
clients agree that improvements in the health insurance system
are necessary. But they are frustrated that the law imposes
additional costs and other burdens upon them. Our clients wish
that Congress would work to make an employer’s provision
of health insurance easier and less costly, rather than more
expensive and more burdensome.”
Wood is The Council’s senior vice president of