As a candidate in the 2008 presidential election, President Obama initially favored shifting to a single payer (government paid) system of universal health coverage but later altered his stance. Instead, Obama favored what he described as a less disruptive brand of health care reform that retains the current system of private insurance sponsored by employers that covers the vast majority of working age Americans.
Ironically, Obama’s Patient Protection and Affordable Care Act could have the opposite effect, according to one of the chief drafters of the law. Ezekiel Emanuel, former Obama administration official, foresees a shift away from employer-based coverage over the next decade, with few private employers offering health coverage by 2025. Amplifying Emanuel’s prediction was a Kaiser Health News report last week on a new paper by the Urban Institute strongly suggesting that one of the linchpins of the ACA to ensure the continuance of employer-sponsored coverage – the mandate that employers of 50 or more offer coverage to most of their workers – ultimately won’t have much of an impact in terms of expanding coverage and keeping people medically insured.
The reason: Adam Smith’s law of rational economic self-interest could trump any penalties these employers will face starting in 2015 if they don’t offer coverage. Some large employers could conclude it will cost them less to pay the penalty than provide coverage through a group health plan or self-insuring employee medical costs. Not only that, the Affordable Care Act ironically cuts against employer sponsored coverage by imposing a large excise tax beginning in 2018 on employers who sponsor overly generous plans.
Even without this tax on so-called “Cadillac” plans, the federal government stands to reap a triple fiscal benefit from increased revenues from any major shift away from employer-sponsored coverage. First, employers not offering coverage would of course be unable to take an income tax deduction for offering coverage. Second, any additional amount of money they provide employees as higher compensation or stipends to purchase individual coverage would generate higher individual tax revenues since they would be taxable to employees. Third, the large employer mandate penalties plus increased individual employee tax liability could also benefit the federal government by offsetting advance tax credit subsidies for plans sold in the public exchange marketplace to workers with household incomes below 400 percent of federal poverty.
Need a speaker or webinar presenter on the Affordable Care Act and the outlook for health care reform? Contact Pilot Healthcare Strategies Principal Fred Pilot by email