Why Employers Will Stop Offering Health Insurance

March 26 01:00 2014 by ushadmin

Here’s a prediction: By 2025, “fewer than 20 percent of workers in the private sector will receive traditional employer-sponsored health insurance.” The source of this claim? Dr. Ezekiel J. Emanuel, in his just-published book, “Reinventing American Health Care.”

Dr. Emanuel is an accomplished oncologist, medical ethicist and academic (and contributing opinion writer to The New York Times). And, of course, he’s no stranger to politics: He helped craft the Affordable Care Act as a health policy adviser to the Obama administration, when his brother, Rahm, now the mayor of Chicago, was chief of staff. The book is a full-throated defense of the law (its subtitle: “How the Affordable Care Act Will Improve Our Terribly Complex, Blatantly Unjust, Outrageously Expensive, Grossly Inefficient, Error Prone System”).

In it, Mr. Emanuel argues that in the next two or three years, “a few big, blue-chip companies will announce their intention to stop providing health insurance. Instead, they will raise salaries substantially or offer large, defined contributions to their workers. Then the floodgates will open.” He says that few small businesses will join the SHOP exchanges set up for them and that most of those that offer coverage are even more likely than big companies to drop it, since those who employ fewer than 50 workers face no mandate to offer it in the first place, which Mr. Emanuel thinks is fine.

Mr. Emanuel acknowledges that the fact that workers don’t pay taxes on the premium benefit from their employers is a big obstacle to this vision — the tax break is the second-biggest deduction in the tax code, and employees won’t be eager to give it up. But, he argues, the so-called Cadillac tax on especially generous health plans, set to take effect in 2018, will help pave the way by discouraging companies from offering those plans.

In two conversations that have been condensed and edited, Mr. Emanuel walked us through his prediction and talked about other aspects of the health law’s impact on businesses small and large — and then conceded that he could well turn out to be wrong.

Q.
You say that employers will stop offering insurance by 2025. Why do you think that’s a good thing?

A.
I have a different view than many people. I think that if you have good options in the exchange, and a lot of competition to keep prices down, I think a good marketplace could work well. But a lot of people like their employer giving it to them, and I think a lot of people are uncertain about what the new world will offer.

Q.
What will cause employers to stop offering insurance?

A.
Why does an employer do it now, when there’s no mandate, no requirement? Because it needs to attract workers, and workers have no real other options. The individual market is not enough of an alternative. The first and most important, essential, requirement is that the exchanges work well, become a positively branded experience, and give people a lot of choice — choice that they like.

Q.
Do you think that’s going to happen — especially given the way the rollout took place?

A.
I’m driving back from having visited the Connecticut exchange — yeah, I think it can happen. The Connecticut exchange has arguably been the best exchange, but nothing they do is rocket science. It’s like running an e-commerce site focused relentlessly on a better customer experience and making sure things go well. They want to get down to 30-minute shopping. And I think if you’ve got exchanges that are working in that frame of mind, I think, yes, it’s possible.

Q.
So an alternative is in place. What then makes employers conclude they don’t want to provide insurance?

A.
Some of them will continue. They’ll say, “A good employer provides insurance, takes care of its workers, cares about its workers, and this is one way we communicate it.” Others will say, “It’s better for my employees to drop coverage. They have freedom to decide how much they want to spend on health care. They have more choices than I can offer, and I would prefer not to spend the money, resources, time doing the insurance – I can give them the defined contribution, I’ll know what the costs are year to year – it’s very predictable.” And the exchange is a good place. People actually like it. It’s not looked at as, “Wow, they’re abandoning me.”

Q.
Won’t losing the tax break on the coverage be painful for middle-class employees who make too much to qualify for subsidies?

A.
Well, there may be ways of their employer not providing them insurance but providing them a way to get insurance that allows them to keep the tax exclusion. You have to go into the innards of what it means for the employer to sponsor the insurance. But I’m sure they’ve got a lot of lawyers working on it.

Q.
There has been a perception that the rollout of the Affordable Care Act has been more difficult for small businesses than it was supposed to be — even businesses that aren’t subject to the mandate worry their costs will go up.

A.
One of the problems we have here is that human beings have short memories. It was not an easy market for most people before the A.C.A. Rates were very volatile – if you’re a small business and one person gets sick, your rates the following year are really subject to increases. I don’t think people were by and large happy with it. And so to complain about the A.C.A. seems to me to be not fair.

Q.
Do you think that the Obama administration wanted to get companies away from coverage?

A.
No! I didn’t actually think this through. I don’t think anyone thought it through. Look, we relied on Massachusetts, where there was crowd-in — more employers began offering coverage. So that was the thinking: More people will offer coverage.

Q.
You say in your book that Massachusetts hasn’t been able to set up a vibrant SHOP exchange. What’s the problem with the SHOP exchanges?

A.
I’ve always been a bit perplexed by the idea of setting up a SHOP exchange, since I don’t understand why it’s just not better if you’re a small business to say, all right, everyone, I’m just going to give you X amount of dollars and let you shop in the individual market. That seems to me to be a way to go – why should a small business set up a lot of machinery around it? Why should exchanges set up a lot of machinery? And it would be better for exchanges to have these workers in the individual exchange.

Q.
Doesn’t it come down to that basic comfort level that people have — they are used to getting their insurance from their small-business employer.

A.
Right. We’re creatures of habit, and once we’ve gotten the habit, it may be that people will prefer that habit. Look, the best argument against me, and against my prediction, is Massachusetts. Lots of big in-state employers have continued to offer insurance, and as a matter of fact what has happened in Massachusetts is more employers have offered insurance because their workers say, “Look, there’s a mandate, you’ve got to give it to me.”

That’s the danger of making predictions. The best example we have says that Emanuel is wrong on all counts when it comes to this, and I don’t have a counterargument. I have my predictions, but there’s no evidence for mine that’s as strong as the Massachusetts evidence.

Q.
Should there be any employer mandate to provide insurance? Some people argue that it’s a marginal policy at best.

A.
I think that the mandate or a penalty for larger businesses is the right thing to do. They should pay their fair share.

Q.
But it makes it harder for them to exit.

A.
Exactly. That’s another argument against me, which is $2,000 an employee is not so easy to do. That’s real money to them, but obviously if they exit and they put people into the exchange, and many of those people get subsidies, someone’s going to have to pay for it.