It’s not just McKinsey suggesting Obamacare is a mess

June 20, 2011

Editor’s Note: This piece has been updated. Please see the update below.

Consulting firm McKinsey kicked up a hornet’s nest with these recent findings:

The Congressional Budget Office has estimated that only about 7 percent of employees currently covered by employer-sponsored insurance (ESI) will have to switch to subsidized-exchange policies in 2014. However, our early-2011 survey of more than 1,300 employers across industries, geographies, and employer sizes, as well as other proprietary research, found that reform will provoke a much greater response.

· Overall, 30 percent of employers will definitely or probably stop offering ESI in the years after 2014.

· Among employers with a high awareness of reform, this proportion increases to more than 50 percent, and upward of 60 percent will pursue some alternative to traditional ESI.

· At least 30 percent of employers would gain economically from dropping coverage even if they completely compensated employees for the change through other benefit offerings or higher salaries.

· Contrary to what many employers assume, more than 85 percent of employees would remain at their jobs even if their employer stopped offering ESI, although about 60 percent would expect increased compensation.

As I have written, there was pressure on McKinsey to release its methodology, which it finally has.

Yet missed in all this was another consulting firm which also found some worrisome Obamacare trends (as explained by the Heritage Foundation):

PricewaterhouseCoopers (PWC) recently released its annual report on medical cost trends for 2012, and it is revealing.

1) The report shows health care costs and premiums continuing to rise—and uncertainty increasing for employers who offer insurance to their workers. Health care spending increased by 7.5 percent in 2010 and will grow by 8 percent this year.

2) In 2012, it will rise again by 8.5 percent. This is exactly the opposite of the President’s promise that his health care plan would reduce premiums by $2,500 per person.

3) Perhaps most concerning are the findings of a survey also released by PWC divulging how employers are likely to react to Obamacare.  The survey showed that nearly half of employers will drop their coverage, dumping employees into the government-run exchanges. Individuals who qualify would then receive generous federal subsidies to purchase insurance. If more employers than expected dump coverage, as other experts have predicted, the cost of the subsidy program will explode deficit spending. The results of the PWC survey indicate this is likely to be reality.

4) Even if employers do not dump coverage entirely under the new law, according to the survey, five out of six employers will completely re-evaluate their benefits strategy. Four out of five employers will make changes to help cover new costs under Obamacare, including raising premiums, deductibles, and co-payments.

5) Employers who offer coverage to their workers face growing uncertainty regarding costs under the new law. The negative consequences of Obamacare’s changes will be threefold: higher costs for those with employer-sponsored coverage; a greater debt burden on current and future taxpayers; and slower growth in job creation and the overall economy.

Update:

The folks at PricewaterhouseCoopers disagree with Heritage’s interpretation of its report:

As you will see, the Heritage Foundation’s statement that PwC’s survey found that nearly half of employers will drop their coverage and dump employees into government-run exchanges is false.

In fact, PwC asked about “employer subsidies” not “coverage.” These are different. Employers can decrease the level at which they subsidize employees premiums and still retain health insurance coverage. Furthermore, PwC found that employers’ subsidy level has not changed. The question PwC asked was: “As a result of the new healthcare reform PPACA provisions, how likely is it that your company will significantly change or eliminate company subsidies for employee medical coverage? “

Very likely: 11%

Somewhat likely: 34%

Unlikely 55%

It would be inappropriate and inaccurate to interpret that employers who answered “very likely” or “somewhat likely” would eliminate coverage, and it is impossible to allocate which employers are consider which option to take. Furthermore, PwC found that fewer than 7 percent of employers (not half) said they were very likely to cover employees through state-run health insurance exchange pools. Interestingly, the primary approach that employers intend to take in the future is to increase health and wellness programs to improve the health and productivity of their workforce.

Furthermore, PwC clearly clarified in both its report and news release dated May 18, 2011 that “The health reform law will have minimal effect on the medical cost trend in 2012. Provisions of the Patient Protection and Affordable Care Act that took place prior to 2012 were small changes that employers already have fully accounted for.”

 

 

15 comments

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Wow, Heritage huh! Next up, a study by the GOP themselves that “proves” healthcare reform is a nightmare.

Heritage is a hopelessly and shamlessly biased BS factory.

Posted by Wisco | Report as abusive

[...] disclosed how they …The McKinsey Health Insurance Survey Was Rigorous, After AllForbes (blog)It's not just McKinsey suggesting Obamacare is a messReuters Blogs (blog)McKinsey releases methodology; firm concedes study not predictiveWashington Post [...]

[...] Pile On McKinsey, Calls Firm's Defense Of Health Care Survey 'Unjustifiable'TPMDCIt's not just McKinsey suggesting Obamacare is a messReuters Blogs (blog)Wall Street Journal (blog) -Forbes (blog) -Washington Post (blog)all [...]

“In 2012, it will rise again by 8.5 percent. This is exactly the opposite of the President’s promise that his health care plan would reduce premiums by $2,500 per person.”

Uh, no it’s not. Healthcare costs rising and premiums rising are separate issues. But what’s the alternative to universal healthcare? What solutions was the GOP offering? Get real.

Posted by willeadie | Report as abusive

WOW!! The comments heading on this site should actually read “2 liberal, main stream media, cannot think for themselves comments so far”. Fool you once, shame on him. Fool you twice, shame on you.

Posted by almostheaven | Report as abusive

[...] = Obamacare+is+a+mess;reddit_newwindow='1'  ;Sharehttp://blogs.reuters.com/james-pe tho…are-is-a-mess/ [...]

[...] = 'wpp-260'; var addthis_config = {"data_track_clickback":true,"ui_languag e":"en"};Via Reuters PricewaterhouseCoopers (PWC) recently released its annual report on medical cost trends for 2012, [...]

US Healthcare is a mess. Obamacare is attempting to clean it up, and is hopefully just the beginning. We in the US spend far more for our healthcare, and we get far less than in other countries. Our taxes are lower, but our total out of pocket expenses are far higher.

Republicans/Conservatives have dominated US politics (White House & Congress) for more than 2/3 of the last 40 years, and in that time we’ve seen the US rankings for healthcare, education and lifespan sink from top 5 in the world to below 20 in all those categories. It’s not working, and Obama is the only one with the balls and the brains to make any significant progress in the last 40 years– let him fix it.

Posted by toneitdown | Report as abusive

It is particularly pungent GOP bullshit to blame rising healthcare costs on Obama. Nasty, lying, dirty and evil– no room for meaningful debate with that kind of mentality. They will drag the country down, down, down until eventually enough of their voters sink into poverty, and stop putting them in office. Then the US will enable reforms and begin a long climb out of the GOP toiliet…

Posted by toneitdown | Report as abusive

[...] volinbham Looks like Price Waterhouse Coopers better get ready for a Congressional investigation James Pethokoukis | Analysis & Opinion | Reuters.com I am pretty sure that was posted a week or so ago. Something similar, anyway. [...]

Obama and Democrats rammed Obamacare down the throats of the American people. Tort reform? Obama didn’t want that. Buy insurance across state line? Obama didn’t want that. Listen to Republican ideas? No way. And it goes on and on. Most innovations and advances in health care (treatments and prescription drugs) originate in the US. This adds to our overall health care spending as a percentage of GDP. Many countries get a free ride on these innovations, thereby lowering their overall spending as a percentage of GDP. Relative comparisons don’t necessarily compute!

Posted by dwhilgen | Report as abusive

To all the libs on here defending the President and ObamaCare: Defend this:

I pay out of pocket for my child’s healthcare policy through Group Health. He has the best plan they had to offer. It was only $200 a month with only a $1,000 deductible before ObamaCare passed.

it has risen three times in premium cost since then to $260. The deductible has gone up form $1,000 to $1,750.

And every time a letter sent to me said the increase was because of the new “Affordable Care Act” (ObamaCare).

now, come July 2011, my “child-only” policy will be eliminated. the letter sent to me explained it was because of limitations and costs associated with “the Affordable Care Act’ (Irony alert!).

I am not alone. 20 states have now stopped selling “child-only” policies.

In order to get a new policy from them, I have to get my own policy and include my son as a dependent child. Cost? $820 for the both of us.

That being said, since there is no way I can afford that, as of next month, my child will be uninsured.

The president said “if you have an insurance policy you like, you can keep it”. Was that a lie?

Can you see why I do not believe him?

Can you see why I am pissed off at this “ObamaCare” bill?

How would you feel if because of this bill, your kid was no longer insured/

Posted by gooms | Report as abusive

Those 30 percent of employers who think it best to drop ESI and pay the fine should consider another option. What most employers don’t understand is that current US tax code allows employers to pay the employee for healthcare without the employer buying insurance and letting the employee purchase their own policy. A group called Lyfebank has figured a way to do this within the current tax structure avoiding tax. Additionally, family members or part time workers may pool money from each job to buy health insurance from these employee-owned accounts.

Posted by commonsense10 | Report as abusive

Lol!! The liberal posts above are making this article a GOP conspiracy?? These are McKinsey and PWC studies. You don’t get much better and skilled analysis than from these two firms. You guys are flying blind.

Posted by MoBill | Report as abusive

“Republicans/Conservatives have dominated US politics (White House & Congress) for more than 2/3 of the last 40 years, and in that time we’ve seen the US rankings for healthcare, education and lifespan sink from top 5 in the world to below 20 in all those categories. It’s not working, and Obama is the only one with the balls and the brains to make any significant progress in the last 40 years– let him fix it.”

Seriously? What are you smoking? What a misleading statement this is. The House controls spending. Before the 2010 elections, Democrats had controlled the House for 38 out of the past 50 years. Dem’s also controlled the Senate for 37 out of the past 53 years.

Posted by liberty59 | Report as abusive

Same story- family of 4- EPO-

2009- $1,200 $5K deductible
2010- $1,415 $5K deductible
2011- $1,650 $7.5K dedcuible

Now yes idiot in chief did say the costs would go up in the short term, but 2012 will be over $2k a month as a premium?

And these so called 30 million additional people that will be added to the rolls of healthcare thanks to this wonderful plan- how is the system going to absorb them? Doctors, clinics, nurses, beds, hospitals? Just curious or will that be magic?

Posted by Nikso | Report as abusive

Wow Wisco- jump on the one word of Heritage foudation huh? I guess Price Waterhouse and the CBO is also tainted as well- and we all know all the democratic groups and foundations are on the up and up.

Also when does the statute of limitations run out on balming bush for everything? Just curious?

Posted by Nikso | Report as abusive

I will make a guess about the PRO Obamacare supporters. They are employed by the government or a union employee. They just want to protect their FREE health insurance. My insurance increase 900 dollars this year along with a 3000 deductable. So where is my savings ?? The issue with high premiums is the states limit who can sell insurance and most states have few choices. Laws do not allow groups (like realtors) to pool together to get a group rate. And why would anybody trust a unread 2000 page bill passed by congress. If Obamacare was so great then why did the members of congress exempt themselves from participation? Someone answer that question !!!

Posted by KHG | Report as abusive

remember liberals use the S I N tactic when debating

Switch the subject

Ignore the facts

Name calling

Posted by KHG | Report as abusive

[...] the need for health care reform in the United States? You can focus on the highly speculative and inflammatory “findings” of a recent McKinsey study about what employers may do, down the road, when health care reform is [...]

when the “worlds greatest” nation fails to provide medical care for its most needy and they are forced to something similar to this: www DOT guardian.co.uk/world/2011/jun/21/verone- one-dollar-robbery-healthcare, just to get basic medical care. you really need to consider what is wrong with your country.

This heathbill can only spell good for America and should be heralded as a genuine change for the better, advancing medical care and taking money away from Corporations who aren’t looking out for your interests (ie health), only their profits.

The right wing media (read Bill O’Reilly, FOX etc) would like to make you believe this is bad, but really, open your damn eyes… Countries in Europe have a healthy balance of State and Private medical care, why doesnt the US?

Posted by Ameriderp | Report as abusive

[...] who are arguing that Stimulus I was too small and we need to spend more for Stimulus II. The recent McKinsey report on Obamacare (if Obamacare survives) notes that unfunded liabilities under this legislation will drive [...]