The Big Lie
The new state health insurance
exchanges will raise government costs, but federal officials
refuse to acknowledge it.
There’s one thing that former Rep. Anthony Weiner,
D-N.Y., and I can agree on: We both wish the media focused on
more important issues back in June, such as how healthcare
reform will be put into practice. You wouldn’t know it
from watching the nightly news, but there was a barnburner of a
debate that month about the impact of the Affordable Care Act
on employers that drop health coverage. Depending on
who’s right and who’s wrong, the consequences for
the nation could be enormous.
The barbs started flying when the consulting firm McKinsey
released a report pointing to a radical restructuring of
employer-sponsored health benefits following the 2010 passage
of the act. McKinsey estimated that 30% of employers will
“definitely or probably” stop offering health
coverage after 2014. Among those with a “high awareness
of reform,” the number rose to more than 50%.
Democrats on the Hill and in the White House were stung, and
they pounced. White House Deputy Chief of Staff Nancy-Ann
DeParle blogged that the study misses key points and
doesn’t provide a complete picture of how the Affordable
Care Act will strengthen the system and make it “easier
for employers to offer high-quality coverage to their
employees” by tackling healthcare costs.
Senate Finance Committee Chairman Max Baucus, D-Mont., fired
off a letter to the consulting firm, demanding to know its
methodology. It was Baucus who launched an investigation into
Humana two years ago, when the firm sent a letter to customers
suggesting that cuts were coming to Medicare Advantage plans
(which is exactly what is happening).
A central Democratic selling point on healthcare reform is
that it will reduce the federal deficit. But if McKinsey is
right and the administration wrong, the act will instead send
federal health costs soaring—as employers drop their
coverage and send millions of workers to state exchanges, where
subsidies are available to families making up to 400% of the
federal poverty line.
The Congressional Budget Office estimated that only a
fraction of the 161 million Americans insured through
employer-sponsored plans would migrate to the exchanges.
Democratic leaders have repeatedly cited the CBO study as proof
that McKinsey has it wrong. But the CBO is constrained in its
estimates, unable to “dynamically score” the full
implications of the law. Its estimate of worker migration, for
example, doesn’t take into account medical cost inflation
that is sure to continue to rise.
I’ve visited scores of Council member firms and
hundreds of their clients in the past two years, and the clear
consensus is that the retail and hospitality sectors will be
the first to go. Employers are already calculating the ways in
which they can escape the act’s mandates by switching to
more part-time workers and dumping employees into state
exchanges (despite the $2,000-per-employee penalty). But the
anxiety extends beyond those sectors, even all the way up to
professional services firms.
The White House, meanwhile, insists that employers
“have no incentive to drop coverage.” I hope
they’re right and I’m wrong, but I don’t buy
it. The notion that the Affordable Care Act makes providing
healthcare easier for employers is undermined not so much by
the McKinsey study but, rather, by a June study released by the
Health Reform Advisory Practice of the Lockton Benefits Group
(a Council member firm).
“Far from making the provision of group health
insurance less expensive and less burdensome, (our) survey
demonstrates last year’s health reform law has instead
had the opposite effect,” says the Lockton report.
“A significant majority of employers responding to the
survey…say the health reform law has increased their
costs and administrative burdens, and nearly 20% say
they’ll consider terminating group coverage in
Indeed, nobody really knows where the numbers will wind up.
For the most part, states have made little progress
establishing their exchanges. The administration correctly
notes that employer-sponsored coverage has actually increased
in Massachusetts, but perhaps that’s more a reflection of
how poorly the Massachusetts Connector has performed. The
Lockton study cataloged the many ways in which health plan
administration, already a costly and burdensome endeavor, will
be made more difficult.
“The survey confirmed what we had been hearing
anecdotally from our clients for months—that many of them
are very, very apprehensive about the reform law’s
mandates,” says Ed Fensholt, director of Lockton’s
compliance services division. “They know there is a lot
of extra work and additional expense ahead.”
The Lockton study did not uniformly criticize the new law.
Some employers like the law, and most of them were enthusiastic
about the increases in maximum permissible wellness
But the bigger picture, Fensholt says, looks frightening.
“What we have learned is that, while most clients are
taking a ‘wait-and-see’ approach to the issue of
terminating group coverage, about one in five say they will
consider dropping coverage,” he says. “If we see
that a significantly larger number of employees migrate to the
insurance exchanges for coverage, then Congress’s
estimate of the dollars needed to supply subsidies in the
insurance exchanges will have been significantly
Wood is The Council’s senior vice president of