It’s not just McKinsey suggesting Obamacare is a mess
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.
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.
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%
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.”