The House Plan May Drive Out Employer Offered Insurance

by: Ian Welsh

Wed Jul 15, 2009 at 08:30


Payroll % Costs From KaiserThe House plan for health reform has an employer mandate for employers with a payroll of $250,000 or more(pdf).  Businesses with a payroll for $400,000 or more must either provide health insurance, or pay 8% of payroll to "subsidize" healthcare for their employees.

Take a look at the graph on the right hand side. It's a little out of date (2005) but it shows payroll percentage costs of insurance.  The numbers are higher than the government numbers, because it only includes companies which do provide insurance and doesn't average costs in of employees they don't provide insurance for.

In other words, as of 2005, this was the cost of actually providing insurance for employees.  Since then it's only gone up, rising faster than inflation.  You'll notice, that for companies of all sizes, it's more than 8%, although this doesn't include the value of any tax deductions to the companies.

The costs do vary by size, both because smaller pools of employees tend to cost more (because variability of claims varies more the smaller the pool) and because larger firms tend to have better plans (the latter seeming to outweigh the former, to my surprise).

This will change as time goes on. The House plan will eliminate discrimination by size, which should decrease costs for smaller employers, but it will also mandate the minimum acceptable plan characteristics, which will probably raise their costs. No matter what the case, however, what's clear is that from a pure price perspective, for most employers, dropping their health coverage and paying the 8% "subsidy" is the price effective option.  This is especially true since, while a flat 8% is automatically indexed to inflation, if health care costs continue to rise faster than inflation, and I expect they will, despite various efforts to contain them, the bottom line calculus each year will become even more favorable to dropping coverage.

The end result of this will be that more and more employers will simply drop their insurance plans and throw their employees onto the public insurance exchanges.  Assuming that the public option is cheaper and generally comparable to the private plans, this will mean that large numbers of people will wind up in the public plan.  Larger numbers, I think, than the current scoring expects.

Unless the public plan can reduce costs to what would be 8% or less of payroll, this means the cost of the public plan may be higher than expected, and since the private companies shedding their insurance plans won't be making up the difference (8% being less than their own costs) that means premiums will also be higher than one might otherwise like.

Since companies won't be (as far as I can tell) forced to return the difference in what they were paying in insurance to employees, that means employees will very likely be more out of pocket than they were before the plan.

And if that's the case, support for the plan will collapse since at the end of the day people who used to have employer insurance will have less money in pocket than they did when the company was paying for it.

This scenario is what we would expect to play out of employers act in accordance with the incentives embodied in the plan, so I regard it as rather likely unless there are incentives I'm unaware of that would prevent it or if the tax benefits of providing private insurance are large enough to outweigh the additional costs.

This isn't necessarily either a good or bad thing.  It could well lead to real single payor, for example.  What's interesting is the question of whether it's intentional or not.

(Graph from Kaiser)

Ian Welsh :: The House Plan May Drive Out Employer Offered Insurance

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If the public plan really works, then great! (4.00 / 3)
Tying health insurance to jobs is a uniquely stupid idea which came about through a historical accident.  (During WW2 employers started offering free health care as a way to get around the government-imposed wage caps when labor demand was at a record high.)  It has all sorts of hidden costs, such as people staying at jobs they hate because they need the insurance, gives part timers (who mostly don't get health insurance) a much lower effective wage, deters potential entrepreneurs from leaving their jobs, makes otherwise qualified people unhirable because of a medical condition, and puts the screws on the unemployed.

So if, over the long term, more and more Americans end up on a public plan, I think that's great!  We just need to be sure it's paid for in a progressive way.


Didn't Waxman have a hand in this? ... (0.00 / 0)
Is he a known advocate of single-payer?  If so, and if you are right, maybe he is the master of 3D chess.

Waxman opposes single payer (0.00 / 0)
Bernie Sanders has an amendment that allows states to enact their own single payer plans. If we can pass the Sanders amendment we can get single payer started in the states.

[ Parent ]
why do they need an amendment? (0.00 / 0)
is the idea to exempt the residents of the state from the Federal rules?

i fear it doesn't matter either way, though - states that can't run deficits are going to have a very hard time running a single payer plan.

not everything worth doing is profitable. not everything profitable is worth doing.


[ Parent ]
general equilibrium effects? (0.00 / 0)
Good article, but I'm not sure I agree with your conclusions.  You suggest (rightly I think) that the House plan will cause businesses to drop their health insurance and pay the 8% instead. In the short-term, this would probably lead to lower incomes for workers.  But in the long-term, this will likely lead to higher incomes because the public plan will be less expensive than current private plans.  Also, if we ever get back to full employment, workers will get larger raises, wiping out short-term losses.  

This doesn't include other gains from increased health and job mobility that public insurance will get us.

So, overall, I think the House plan will be great.


Unless the short term loss is significant enough to create (0.00 / 0)
a voter rebellion against the health care plan, and it ends up being abolished.

[ Parent ]
Since the public option doesn't go into effect until 2013... (4.00 / 1)
... there's going to be plenty of time for a rebellion to build.....

I am in earnest -- I will not equivocate -- I will not excuse -- I will not retreat a single inch -- AND I WILL BE HEARD.  

[ Parent ]
CBO says this is wrong... (4.00 / 1)
CQ TODAY PRINT EDITION
July 14, 2009 - 9:57 p.m.

House Health Care Plan Released

By Drew Armstrong and Alex Wayne, CQ Staff

"Republicans have slammed the Democratic bill as a "government takeover" of health care that would result in most people ending up in the government-run plan. The CBO estimate appears to contradict those claims; the number of people covered through their employers would increase over the implementation of the bill, according to the estimate."

The Seminal :: Independent Media & Politics


Yes, (0.00 / 0)
well, I don't agree given the facts as I currently know them.

[ Parent ]
A Little More Complicated (4.00 / 3)
There are lots of employers who don't offer any health coverage, today. Wal-Mart is an excellent example of an employer that does not provide health coverage to most of its employees. The 8% levy will raise a lot of money from these deadbeat employers. That's important to keep in mind.

Second, the 8% levy will cause a fair number of employers who don't offer health coverage today to offer health coverage. For example, let's suppose at equilibrium the employer is willing to spend a moderate amount more on health coverage in order to attract and retain employees, but not so much as today's health coverage costs. Then the 8% levy comes, and their entire industry (themselves and their competitors) must pay a minimum for health coverage (8%). Some companies will distinguish themselves by paying, say, 10% (2% more than the levy) in order to offer a "better" package to employees. They have to pay 8% anyway, regardless, so if they spend only a little bit more they can look much better than the 8% deadbeats. Good deal, and many will do it, so there will be something like a little bidding war above 8% in many parts of the labor market.

Then there are the employers that offer excellent health coverage already. Google would be an example. They aren't going to change -- they'll continue offering exceptional health coverage.

Finally, the current House plan, as I understand it, will likely outright ban medium and large companies from dropping health coverage if they currently offer it. Instead they'll have to offer health coverage that meets at least the minimum legal standard for quality and comprehensiveness. They won't be able to dump employees onto the public exchange, and they won't have the 8% option even if they wanted it. So Congress already thought of that dumping problem, although this rule bears careful watching to make sure it holds.


This bill, if passed intact, won't lead to single-payer. (0.00 / 0)
It is highly unlikely that Republicans and right-wing Democrats will allow the public option to pass unless they can water it down even further than it is already so that it is utterly meaningless.  Even if they can't accomplish that, Obama and the Dems will use this weak public option as an excuse for saying they've done all that can be done on health care reform and that single-payer is no longer needed or a priority.



The body of your comment has little to do with your subject (0.00 / 0)
You don't discuss anything about the way that the 8% kind of incentiveizes a drive toward single payer.  Now, you might argue that such a structure won't be allowed to survive in the final version of the bill, but 'if passed intact', that structure remains, and you should discuss how it won't lead to single-payer, not how it will be watered down.  

[ Parent ]
"Incentivizes a drive"? (4.00 / 1)
So, rather than simply demand the best, we're going with a complicated and Rube Goldberg-esque hypothetical that may or may not work out as we imagine. Alrighty, then.

I am in earnest -- I will not equivocate -- I will not excuse -- I will not retreat a single inch -- AND I WILL BE HEARD.  

[ Parent ]
It's not very Rube Goldbergesque (0.00 / 0)
All employers have to pay 8%.  Most healthcare plans cost more than 8%.  It would, ergo, make more financial sense to pay the 8% than it would to buy a private plan for your employees.  

I agree that many of the actors are probably not particularly interested in driving the process that way, and, obvioulsy, we need to know soemthing about the subsidies and costs of the public plan before we decide or understand anything, but this is clearly a dynamic behind the health bill.


[ Parent ]
It wasn't clear to the poster at all (0.00 / 0)
That's why, I imagine, that he used to word "may" in his headline, and concluded with these final qualifications (I'll highlight them):


This scenario is what we would expect to play out of [sic] employers act in accordance with the incentives embodied in the plan, so I regard it as rather likely unless there are incentives I'm unaware of that would prevent it or if the tax benefits of providing private insurance are large enough to outweigh the additional costs.

This isn't necessarily either a good or bad thing.  It could well lead to real single payor, for example.  What's interesting is the question of whether it's intentional or not.

The post is an interesting but complex hypothetical. When you write:


I agree that many of the actors are probably not particularly interested in driving the process that way, and, obviously, we need to know soemthing about the subsidies and costs of the public plan before we decide or understand anything, but this is clearly a dynamic behind the health bill.

you are attributing a level of clarity to the "dynamic" of the bill that the poster does not share. Clarify, please.

I am in earnest -- I will not equivocate -- I will not excuse -- I will not retreat a single inch -- AND I WILL BE HEARD.  


[ Parent ]
You also assume that there IS a drive (4.00 / 2)
Since Obama and the Dem leadership have consistently frozen single payer advocates out of the process -- they've got to get arrested to get heard, and their comments have been censored at the forums -- it would be extremely odd if they decided to incentivize, in "security through obscurity" mode, what they are unwilling to say they support. That's why, if the incentives are as Ian says they may be, I don't think its intentional (as Ian says they may not be).

Further, "watered down" assumes that there's strength to the bill in the first place. Ian, however, is quite careful to frame the post as a hypothetical.

I am in earnest -- I will not equivocate -- I will not excuse -- I will not retreat a single inch -- AND I WILL BE HEARD.  


[ Parent ]
Have you read the bill? (0.00 / 0)
Or any of the several analyses of it shown on the internet?  We're actually talking about a real proposal now, and if you're responding with this anger, I'd rather it be about something that's actually weak with the house bill, which everyone seems to think is better than what would be expected, and actually kind of good.  

That's not to say that sausage making can't or won't fuck it up.  Clearly, that is still possible, and perhaps even likely.  But what is your problem with teh actual proposal?


[ Parent ]
analysis (4.00 / 1)
lambert's analysis
hipparchia

my analysis: we were locked out from the very beginning and now we have been sold out. Unless the conference committee has Bernie Sanders amendment allowing the states to do their own single payer plans, we are better off with no legislation at all. The cuts to Medicaid and Medicare are particularly frightening.


[ Parent ]
Valatan, I not only read the bill... (4.00 / 2)
... 1. I made sure that the Kennedy bill was online for comment in post form (as opposed to unusable PDF). So, yes, I not only read bills, I invest the time to enable other citizens to inform themselves and affect debate by reading and commenting.  

2. Responding to a plain statement of facts with a claim of anger is an old Village tactic; I'm disappointed to find it here. Let me just provide the links to show that single payer advocates have been:

a. frozen out

b. censored;

c. arrested.

3. Finally, I note the absence of a substantive response to my point. which I will repeat:

It seems odd that the Democrats are trying to accomplish a policy objective like abolishing employer-based health insurance, through obfuscatory legislation, when they are not willing to acknowledge they are in favor of that policy in public.

Does that not seem odd to you? Why not?

I am in earnest -- I will not equivocate -- I will not excuse -- I will not retreat a single inch -- AND I WILL BE HEARD.  


[ Parent ]
The House (0.00 / 0)
Bill is the high point of the process.  It is the best we will get.  The Senate bill will be worse.  And whatever comes out of reconciliation will probably be closer to the Senate bill than the House Bill.

As the House bills stands right now, and as I understand it (and I've read some of it, but not all 1000 pages as yet) I can probably, very reluctantly, support it.  Whether I can support the final bill, well, that's a whole other matter.


[ Parent ]
Look at the pattern of this regime we're dealing with. (0.00 / 0)
Nothing but tepid half- or quarter-measures that end up being the only effort at any sort of fix.  Then cries for more are allowed to die out, and it becomes that much more difficult to pass future legislation once it becomes clear that the half-measures weren't enough in the first place.



[ Parent ]
Dumping? (0.00 / 0)
Sounds to me like the fear of dumping... is a false fear. It's the next step in the old trigger meme. Fear dumping, because triggers (meaning forcing people to buy or continue buying private insurance) must be a good thing. It's not a public plan or option if people cannot join in if they so choose.

I'm not buying it, BBC Watcher.

Ian, Late last night on CSPAN, a Senate committee rerun, they passed an amendment (one of more than 30 amendments) which would place the trigger at 25 employees, if I understood  their final discussion correctly. Nothing mentioned about percentages at all. So I doubt we know where this House plan will end up.

As always, great to hear your take.



As a small biz owner (4.00 / 1)
My company would be in the zone here. We currently provide full benefits, and I think our cost is a little over 10%, so it would make economic sense for us to switch over to letting the Public Option handle our employees.

However, we're a bit a-typical in that many employers require a sizable employee contribution towards premiums. Sometimes as much as 50%. In those scenarios, assuming employers returned that money to employee paychecks when they curtailed their benefits, cash in pocket might increase for workers. They would join the public plan, and get back whatever percent they had been paying for of their employer-provided plan.

In terms of whether 8% payroll tax is enough, I think there's got to be some assumption here that the Public Option would be more cost-effective than private plans. I don't know if that's a good assumption or not, but I would be marginally hopeful that this kind of incentive structure (as well as the massive numbers of uninsured at the likes of wal*mart) would lead relatively directly to a Public Option out-competing private plans for subscribers and "premiums" via the 8% payroll number.

Assuming that plus a surtax on Very Wealthy People can pay for the whole thing, this would be the road to a single payer (or more likely, a Very Big Guaranteed Payer augmented by boutique private insurance options).

Me | My Work | Future Majority


The latter is, of course, what most single-payer countries have (4.00 / 1)
anyway.  Private health care still exists in Canada and Italy and the like, it's just not predominant.

[ Parent ]
Two points... (4.00 / 1)
First, I thought this was a right wing point used to scare reform. Second, if it isn't just fear-mongering, how does paying more out of pocket until (or even IF) single payer comes along, not a bad thing (you claimed isn't necessarily a good or bad thing)? It's a very bad thing, and the public will not only lose momentum at a time when real reform could have happened, but we'll lose our seats in Congress if this is done where more suffering happens.

I think he meant (0.00 / 0)
it would be a good thing if it led to single-payer, for example.  Obviously part of an optimistic scenario, which is  of course, in no way guaranteed, or even very likely, as you and others point out.

sTiVo's rule: Just because YOU "wouldn't put it past 'em" doesn't prove that THEY did it.

[ Parent ]
I'm just following the (0.00 / 0)
numbers.  The 8% leaped out at me when I read the bill.  If it leads to real single payor, that's a good thing, if it leads to a revolt against government backed health care, that's a bad thing.  I'll discuss a bit later, perhaps, one reason why I'm fairly worried that the public plan won't contain costs as much as people are hoping.

[ Parent ]
Since the bill isn't actually implemented until 2013... (4.00 / 1)
... there's plenty of time for the extremely complex hypothetical that Ian outlines to be gamed by the usual suspects.

Meanwhile, if this hypothetical could lead to single payer, it will certainly be written out of the bill, according to Kathleen Sibelius.

What I find more interesting is that 2013 is a kick in the teeth to the HCAN't-inspired "principle" that coverage should be available from Day One.

I am in earnest -- I will not equivocate -- I will not excuse -- I will not retreat a single inch -- AND I WILL BE HEARD.  


Congressional staffers on intent (4.00 / 2)
Unless they're lying, here's what staffers believe about how many will use the public plan. Reuters:

* Congressional aides said about 9 million people would be insured by the public plan, with 21 million insured by private companies in the exchange by 2019.

That doesn't sound like enough numbers to keep the health insurance companies honest, let alone move to single payer.

I am in earnest -- I will not equivocate -- I will not excuse -- I will not retreat a single inch -- AND I WILL BE HEARD.  


That's possible (0.00 / 0)
but unlikely.  Following the logic in my post, I just don't see how that can be the case UNLESS the public plan fails to be cheaper than private plans.  In either case, I expect employer backed insurance coverage to nosedive.

[ Parent ]
Tax policy was a qualifier in your post, though (0.00 / 0)
Maybe the Congressional aides took that into account.

I am in earnest -- I will not equivocate -- I will not excuse -- I will not retreat a single inch -- AND I WILL BE HEARD.  

[ Parent ]
Yes (0.00 / 0)
there could be numbers I'm not seeing.  But let's just say that over the years I've learned to trust my own estimates a lot more than those of Congressional aides. Unless there are numbers I don't know about, I think this is fairly solid.

Mind you, this isn't the final bill, and it is the best possible bill we can get out of this congress (the House Bills so far have almost always been far better than the Senate or reconciled bills.)


[ Parent ]
Forgive my skepticism... (0.00 / 0)
... about reliance on instinct, given the heavy qualifications in the original post.

Maybe if you want to do the additional research on the tax implications to which you allude. I mean, it's not as if there aren't a lot of people on K Street who are very well paid to work out these details for their clients.

It all seems rather faith-based to me, like so much public option advocacy. I'd have a lot more confidence, for example, in the talking point that public option could or would evolve into single payer if the Senate HELP committee hadn't just voted down a Sanders amendment to permit single payer experimentation in the states.

As far as the "best bill out of this Congress" -- since that doesn't mean the bill is actually good, and public option doesn't kick in 'til 2013, why do we need anything out of this Congress at all? I mean, aside from being able to run TV ads in 2010 and 2012. There's that.

Like I said above: "an interesting but complex hypothetical." Though that hasn't prevented other commenters on this thread from trying to turn it into esablished fact.

I am in earnest -- I will not equivocate -- I will not excuse -- I will not retreat a single inch -- AND I WILL BE HEARD.  


[ Parent ]
I'm not an apologist (0.00 / 0)
for the public plan.  It's not actually clear this is a good thing (under taxation, which is what it is).  However:

a) this won't be the final bill; and,
b) I have a lot of confidence in my analysis, more than the caveats would indicate.  Why?  Because I have found I'm pretty good at this sort of thing.

However,at this point I'm not supporting any health care bill.  I am in the camp of nothing is better than a shitty bill.  And it is not clear to me at this point that this is not a shitty bill.  The subsidies are not high enough, the taxation is dubious and putting it off till 2013 is moronic for a variety of reasons. I also think that the public plan will get dumped on (as I'll explain in a later post).

But, this is the logic.  If it costs more to provide private insurance than to dump people onto the insurance exchanges, companies will do it.  Many big companies in the US do not pay any taxes at all, and many more pay only nominal taxes. When you start hitting the zero bound on corporate taxation, tax policy becomes ineffective.

Anyway, take it for what you will.  If you don't want to believe it, don't.  The truth is we'll never know if I'm right, because this bill won't be what passes after reconciliation.

And no, insurance companies don't want any possibility of single payor, and so neither does Congress as a whole.  But 1,000 page bills always have unintended consequences, and not always the ones expected (so to speak) by the lobbyists.

I wouldn't worry too much about Obama if I were you.  At the rate he's mismanaging the economy, he may not be president in 2013.  If he is, he may not have a majority in both chambers.


[ Parent ]
My bad... (0.00 / 0)
1. I wasn't clear enough that I didn't think you personally were a public plan advocate (why I wrote "like so much public option advocacy," instead of, say, "... like so many public advocates, you..."). What I meant was that, to me, the flavor of the argument was the same. And I have some familiarity with that flavor of discourse because I've consumed a ton of it.

2. I agree that no bill is better than a bad bill. I'm just very concerned that when the obfuscation is removed, this will turn out to be a bad bill. And the public option advocates are already saying "Please sir, may I have some more?" since, as you recall, being available on Day One was one of HCANt's principles. Now the bill starts in 2013, and ***crickets***

3. The Times thinks that there will be more people in private insurance, not less. I see your argument, but for it to be true, a lot of self-interested people would have to be wrong about something that concerns them intimately. Not at all impossible, but I prefer to think that some as yet unknown factor is distorting their behavior. Maybe it's tax policy.

I guess the scenario I see as most likely is that a few million of us are forced to buy junk insurance as the subsidies get slashed (which they will be, since they're framed as welfare) and the insurance companies game the minimum standards (and continue to deny care). And so for profit health care staggers on for another decade or so, and the money is saved by killing off more of the unterbussen. Well done, all.  

I am in earnest -- I will not equivocate -- I will not excuse -- I will not retreat a single inch -- AND I WILL BE HEARD.  


[ Parent ]
Well (0.00 / 0)
I think the question is the public plan.  Mandates + shitty public plan = more people in private insurance.  And that's a possible outcome.

I also think that at first there would be more people in private plans. Year one the mandate kicks in, people go to the exchanges, private plans are priced competitively (I assume) and they buy.  If the public plan is better, it probably won't be obviously better out the door because it has to pay all its start up costs out of premiums.

Single payor (medicare for all) would be better in every single way, including politically (since 3 years of being covered would prove it works), but hey, no one (who matters) wants that...

Read my article tomorrow on too big to fail/regulation.  It may look like it's not directly related, but it is related, because the problem there is the same.  We know what has to be done, and we won't do it.  Which is why I remain very bearish on the US.


[ Parent ]
Bearish. You said it. (0.00 / 0)
Pelosi says public option is "next best" after single payer. The Dems are in control of the Presidency, the House, and the Senate, with a supermajority, and they're cramming what they know is second best down are throats. They suck.

I'd sharpen your equation:

Mandates + shitty public plan = more people forced to buy junk insurance

(On TBTF, I'm not surprised the problem is the same. It's all in the "rents" (Stirling) from which a percentage feeds back to buy the lawmakers who write the laws that keep the rents in place. It's feudal, except the castle is invisible.)


I am in earnest -- I will not equivocate -- I will not excuse -- I will not retreat a single inch -- AND I WILL BE HEARD.  


[ Parent ]
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