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Paying The Price

Call me paranoid, but will Obamacare build a two-tiered system with Cadillac private coverage for highly skilled, high-demand labor and public coverage for everyone else?

By  Joel Wood

I’m a card-carrying conservative Republican, though not of the Tea Party extraction (I rarely buy into conspiracy theories). But I’m increasingly convinced that the bottom-line impact of the healthcare reform law is to lead us into a single-payer system. I’m also convinced that many of the law’s architects knew this.

Many of my Democratic friends on the Hill, including those who voted for the legislation, take umbrage at that notion. They point to many aspects of the new law that seem to fulfill the promise of “building on a private system.” They’d be right on many points—there’s no public option. The exchanges are being established on a state-by-state basis, and the guy at HHS in charge of overseeing the exchanges, former Pennsylvania insurance commissioner Joel Ario, is a great guy—certainly, he’s no plotting liberal.

Notwithstanding the ongoing legal challenges and efforts in Congress to roll back aspects of the law, all the evidence points to an unraveling of the employer-provided group health insurance marketplace as the law moves toward full implementation. The individual and employer penalties pale in comparison to expected premiums, especially as the legislation does so little to actually constrain costs.

One of the national brokerage members of The Council took a comprehensive survey of its group health clients, analyzing the likelihood that they would drop their coverage in favor of sending employees to state exchanges. One of the central premises of the legislation is the Congressional Budget Office’s estimate that about 5 million Americans would gravitate from employer plans to exchanges. But what we’re hearing from brokerages is a much harsher reality. Professional services organizations—populated by higher-paid workers—are the least likely to bail on their plans. But manufacturers, retailers, restaurants and similar small businesses are doing the math. Federal subsidies in the exchanges will apply up to 400% of the federal poverty line. Penalties for employers who refuse to offer coverage are essentially set at $2,000 per head. With all plans required to offer plans loaded with mandates and no annual or lifetime limits, $2,000 is a pittance.

Aside from dropping their plans, one escape clause being considered by many employers is to reshuffle their workforce to part-time, where no penalty for non-coverage will apply. Is this what Congress had in mind?

As employers dump their coverage (beyond 2017, states can allow groups larger than 100 to check out and send workers to exchanges), adverse selection within the exchanges will skyrocket, as individuals game the system of guaranteed issue accompanied by a weak penalty. Obamacare doesn’t even establish an open enrollment period.

So the plans in exchanges may be private, but they’ll be deeply subsidized and regulated by the government. If the Congressional Budget Office is off only a few more million people, any “deficit control” element of the law will vanish. The overall federal burden will spiral out of control.

The law directs the Department of Health and Human Services to ensure that the “essential health benefits package” is “equal to the scope of benefits provided under a typical employer plan.” Of course, there is no way to define a “typical” plan. The administration could determine that the most comprehensive plans, such as those offered by large, unionized industries, are the most “typical.”

“Then there’s the fact,” notes the Heritage Foundation, “that the act of mandating benefits alone will bring advocacy groups out of the woodwork to lobby for particular items and services, leading to arbitrary and unnecessary inclusion of certain benefits. Benefit mandates at the state level have shown this effect.”

The minimum federal benefits will be an all-you can-eat smorgasbord, or perhaps the better analogy is a Japanese Nyotaimori (Google that one up!).

The Council for Affordable Health Insurance observed, “Mandating benefits is like saying to someone in the market for a new car, if you can’t afford a Cadillac loaded with options, you have to walk.” Existing state-mandated benefits include things like acupuncture, hair prosthesis, massage therapy and other services that are unnecessary for most patients. Nevertheless, once mandated, all covered individuals must pay for these.

It’s not a stretch to imagine what happens next. The feds already pay a huge percentage of the nation’s healthcare bills: Medicare, Medicaid, Tri-Care, etc. As double-digit increases in premiums pile up, with an ever-aging population, Washington will come to understand that it’s unsustainable. At that point—you got it—in comes the single-payer system.

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