Tag: employer-sponsored insurance

WSJ: ObamaCare Could Reduce Employee Health Benefits

ObamaCare supporters promised the law’s employer mandate would require employers to provide workers with comprehensive insurance. But they apparently didn’t read the bill very closely. It’s a recurring theme.

According to the Wall Street Journal, employers and employee-benefits consultants have found, and federal regulators now confirm, that the law actually requires most employers to offer no more than very flimsy coverage. Many employers are now exploring the option of offering limited-benefit health plans that cover preventive services and maybe “$100 a day for a hospital visit” but “wouldn’t cover surgery, X-rays or prenatal care.” Indeed, the law could push many employers to reduce the amount of coverage workers receive on the job.

The Obama administration’s reaction demonstrates they had no idea what they were doing. The Wall Street Journal:

Administration officials confirmed in interviews that the skinny plans, in concept, would be sufficient to avoid the across-the-workforce penalty. Several expressed surprise that employers would consider the approach.

“We wouldn’t have anticipated that there’d be demand for these types of band-aid plans in 2014,” said Robert Kocher, a former White House health adviser who helped shepherd the law. “Our expectation was that employers would offer high quality insurance.”

The Law of Unintended Consequences strikes again.

This and other employer responses to the law could make the roll-out of ObamaCare’s health insurance “exchanges” even more of a train wreck.

  • To the extent ObamaCare’s employer mandate pushes firms to offer bare-bones plans, premiums for plans offered through Exchanges will rise. The healthiest workers will enroll in their employers’ bare-bones plans, but workers who have expensive illnesses (or with dependents who have expensive illnesses) will seek more-comprehensive coverage through the Exchanges. The influx of sick consumers will increase the premiums for Exchange-based plans. Many of these sick workers won’t receive any premium-assistance tax credits or cost-sharing subsidies because their employer’s bare-bones plan will likely satisfy ObamaCare’s definition of adequate – and because the statute forbids those entitlements in the 33 states that have declined to establish an Exchange.
  • Employers are also renenwing their health-benefits contracts early (i.e., before January 1, 2014), which allows them to avoid many of ObamaCare’s regulatory costs for several months. That move could also increase premiums for Exchange-based plans by encouraging workers with high-cost illnesses to seek coverage through Exchanges while healthy workers stick with their employer’s plans.
  • Many employers are also considering self-insuring their health benefits, an arrangement in which the employer bears the risk that is usually borne by the insurance carrier and just hires someone (often an insurer) to administer the coverage. This strategy allows also employers to avoid many of ObamaCare’s regulatory costs and could also increase premiums in the Exchanges and small-group market.

Again, the Journal:

Regulators worry that some of these strategies, if widely employed, could pose challenges to the new online health-insurance exchanges that are a centerpiece of the health law. Among employees offered low-benefit plans, sicker workers who need more coverage may be most likely to opt out of employer coverage and join the exchanges. That could drive up costs in the marketplaces.

These are the sort of unintended consequences that ObamaCare’s opponents warned would plague any attempt by Congress to centrally plan one-sixth of the U.S. economy.

Holman Jenkins: ObamaCare Is Part of the Insanity, Not Its Cure

I’m a week late on this, but Holman Jenkins has an excellent discussion of why health care costs and pricing (not the same thing!) are insane, and why ObamaCare will only make it worse:

Duke University’s Clark Havighurst [wrote] a brilliant 2002 article that describes the regulatory, legal and tax subsidies that deprive consumers of both the incentive and opportunity to demand value from medical providers. Americans end up with a “Hobson’s choice: either coverage for ‘Cadillac’ care or no health coverage at all.”

“The market failure most responsible for economic inefficiency in the health-care sector is not consumers’ ignorance about the quality of care,” Mr. Havighurst writes, “but rather their ignorance of the cost of care, which ensures that neither the choices they make in the marketplace nor the opinions they express in the political process reveal their true preferences.”

You might turn next to an equally fabulous 2001 article by Berkeley economist James C. Robinson, who shows how the “pernicious” doctrine that health care is different—that consumers must shut up, do as they’re told and be prepared to write a blank check—is used to “justify every inefficiency, idiosyncrasy, and interest-serving institution in the health care industry.”

Hospitals, insurers and other institutions involved in health care may battle over available dollars, but they also share an interest in increasing the nation’s resources being diverted into health care—which is exactly what happens when costs are hidden from those who pay them.

Put aside whether President Obama could have pushed real reform if he wanted to. ObamaCare as it emerged from Congress fulfills the insight that any highly regulated system ends up benefiting those with influence, i.e., health-care providers and high-end customers, not those of modest means.

What are ObamaCare’s mandates on individuals and employers except an attempt to force back into the insurance market those who have been priced out by previous “reforms” so their money can be used to prop up a system of gold-plated coverage that mostly benefits those in the highest tax brackets? What are ObamaCare’s minimum coverage standards except a requirement that these customers buy more costly coverage than they would choose for themselves so their money can be used for somebody else?

I include a lengthy excerpt from Robinson’s excellent article in my chapter for the Encyclopedia of Libertarianism.

Why Hospital Price Quotes Are So Often Useless

A colleague forwarded me a letter his friend received from their local hospital.  The friend needs surgery.  His health insurance has a very high deductible, so he figured he would do some comparison shopping.  He asked the local hospital to quote him a price. Here’s how the hospital responded:

[This] hospital typically charges between $2,360.45 and $22,290.74 for this procedure or service.  This is an estimate only…

Our goal is to provide you with the most informed and accurate estimate of the cost of your treatment.  If circumstances result in a final bill that exceeds this estimate by more than 20%, we will work together with you to resolve the balance.

For surgical services, the price quote does not include any physicians’ charges.  The surgeon and/or anesthesiologist will bill you separately for his or her time.

That price range varies nine fold, or 11 fold if you count the additional 20 percent.  Translated from Hospitalese into English, the letter essentially said:

Our hospital faces so little competitive pressure, we’re just going to blow you off.

If you do have your surgery here, don’t even think about complaining about the bill unless it exceeds $27,000.

Or even then.

The hospital noted – correctly – that “people react in their own individual way to surgery.”   Those individuated reactions could easily lead to an 11-fold cost variation for the same procedure.  That information is useful to a hospital.  It is not useful to a patient who is trying to find the lowest-cost hospital.

One would expect hospitals (or ambulatory surgery centers) to find some way to cope with the uncertainty about costs and provide useful price information to patients.  For example, hospitals could offer the same flat price for each procedure; the flat price would cover the higher costs of patients who experience complications.  Or they could quote higher prices to patients who have risk factors associated with complications.  While they’re at it, they could also include the physicians’ charges.  In a competitive market, hospitals that didn’t do these things would lose customers to hospitals that do.

The problem is that most hospitals do not operate in a competitive market.  Many states pass regulations that block entry by new hospitals.  Government interventions from Medicare to the tax exclusion for employer-sponsored health insurance block the creation of health systems that face greater incentives to offer a single “package” price and to reduce the uncertainty associated with surgical complications.  Those same interventions also encourage excessive health insurance, which reduces the share of patients who pay out of pocket for surgeries in this price range.  That reduces the demand for useful price information.

Price transparency is not a problem for government, private insurance companies, or employers.  They control the money, so they get all the price information they demand.  If we want to give patients useful price information, we need to let patients control the money.

KFF/HRET Survey, Part III: Employers Can’t Shift to Workers a Cost that Workers Already Bear

In a previous post, I promised to address the negative spin that the Kaiser Family Foundation put on its annual Employer Health Benefits Survey, released this month.  I do so in an op-ed that ran today at the Daily Caller.  An excerpt:

The Kaiser Family Foundation recently issued its annual survey of employer-sponsored health benefitsdeclaring: “Family Health Premiums Rise 3 Percent to $13,770 in 2010, But Workers’ Share Jumps 14 Percent as Firms Shift Cost Burden.” That’s half-right — but the other half perpetuates a myth about employee health benefits that stands in the way of real health care reform….

[Y]ou pay the full cost of your health benefits: partly through an explicit $4,000 premium and partly because your wages are $9,770 lower than they otherwise would be.

Kaiser therefore claims the impossible when it says that firms are shifting costs to workers.  Employers cannot shift to workers a cost that workers already bear. Yet this year, as in past years, the Associated PressBloombergCNNKaiser Health NewsThe Los Angeles TimesThe New York TimesNPRThe Wall Street Journal, and The Washington Post uncritically repeated the cost-shifting myth.

The bolded sentence is Cannon’s Second Rule of Economic Literacy.  (Click here for the first rule.)

I have also collected a series of excerpts from past Kaiser Family Foundation surveys showing this is a persistent issue.  Here are a few:

1998: “Workers in small firms bear a much larger share of the financial burden for health benefits than employees of larger firms.”

2005: “The average worker paid $2,713 toward premiums for family coverage in 2005 or 26% of the total health premium.”

2007: “Annual Premiums for Family Coverage Now Average $12,106, With Workers Paying $3,281”

The folks at the Kaiser Family Foundation were exceedingly gracious when I approached them to discuss this issue.

KFF/HRET Survey Part II: Isn’t This Good News, Too?

As I blogged earlier, yesterday the Kaiser Family Foundation and the Health Research & Educational Trust released their survey of employer-sponsored health benefits in 2010.

For most of this survey’s history, it included a very useful graph of the average growth rate of employer-sponsored insurance premiums.  Here’s the graph from their 2007 survey:


(The grey and light-green lines represent year-to-year growth in overall inflation and wages, respectively.)

Unfortunately, 2007 was the last year that KFF/HRET included that graph in their annual survey.  Had they included that graph this year, it would have shown an even more heartening moderation of premium growth:

A lot of things can drive premium growth.  I discussed a couple of them in my last post.  Some factors that could cause premium growth to moderate might not be all that welcome; if insurers dumped all their sick enrollees, for example.  But absent dramatic evidence of that, isn’t this good news?  And isn’t good news worth highlighting?

KFF/HRET Survey, Part I: Some People Don’t Know Good News When They See It

Every year, the Kaiser Family Foundation and the Health Research & Educational Trust produce the leading survey of employee health benefits.  Yesterday, KFF and HRET issued their survey of health benefits in 2010 with a news release that begins:

Family Health Premiums Rise 3 Percent to $13,770 in 2010…

Premiums rose by just 3 percent?  Great news!  Last year, KFF/HRET guesstimated that the average cost of family coverage could hit $14,539 in 2010.  Working families saved hundreds of dollars!

Not so fast, says KFF/HRET.  The main reason premiums rose less than expected is that “businesses have been shifting more of the costs of health insurance to workers through … deductibles and other cost-sharing,” said KFF president and CEO Drew Altman.  Actually, deductibles and other cost-sharing do not shift health insurance costs; they reduce the amount of insurance.  What they shift is the cost of health care, from the insurance pool to individual members of the pool.

Nevertheless, greater cost-sharing does appear to be a significant factor behind the minimal growth in premiums:

Many employers are … raising the annual deductibles workers must pay before their health plans begin to share most health care costs.  A total of 27 percent of covered workers now face annual deductibles of at least $1,000, up from 22 percent in 2009, the survey finds.  Among small firms (3-199 workers), 46 percent face such deductibles…

Among other plan types, only consumer-driven plans (which are high-deductible plans that also include a tax-preferred savings options such as a Health Savings Account or Health Reimbursement Arrangement) saw growth in their market share.  Such plans now enroll 13 percent of covered workers, up from 8 percent last year…

“Consumer-driven plans have clearly established a foothold in the employer market, tripling their market share from 4 percent in 2006 to 13 percent today,” said study lead author Gary Claxton, a Kaiser vice president and director of the Healthcare Marketplace Project.

“This may be helping to stem the rapid rise in premiums that we saw in the early 2000s, but it also means employer coverage is less comprehensive,” says Altman.

Yes, and that’s generally good news too.  Federal tax law encourages workers to increase their consumption of employer-sponsored insurance at the expense of other stuff they value more.  In a 2004 study for the Cato Institute, Christopher Conover estimated the tax preference for employer-sponsored insurance leaves Americans more than $100 billion worse off each year.  That same tax preference also fuels the “relentless” rise in health insurance premiums.  The trend toward greater cost-sharing shows that private markets are responding to rising prices the way they should: by limiting consumption of low-value items.

Maulik Joshi, who is “president of HRET and senior vice president for research at the American Hospital Association,” worries, “High out-of-pocket expenses … affect health care decisions for patients… [H]ouseholds will face difficult choices, like forgoing needed care, or reexamining how they can best care for their families.”  Exactly.  Someone needs to choose between health care and other uses of money.  Avoiding those difficult choices is not an option.  The best available evidence suggests that consumers do a remarkably good job with those decisions.  The only lamentable part is that employers are deciding how to make health insurance less comprehensive (greater cost-sharing vs. managed-care controls), instead of workers making those decisions for themselves.

But isn’t this generally good news?  Apparently not to the folks at KFF and HRET.  In a subsequent post, I’ll explore the negative spin they put on what their survey found.