Since the Affordable Care Act became law four years ago, healthcare experts have warned of sweeping changes to the U.S. healthcare system.
But here’s one thing they didn’t expect. Instead of weakening the existing system of employer-provided health insurance — which many analysts predicted — the ACA so far seems to have strengthened it. And that could make Obamacare, as the ACA is known, far less revolutionary than advocates promised and critics feared.
The major provisions of Obamacare only went into effect this year, yet many businesses — and big employers in particular — have been preparing for it since the Supreme Court upheld the law in a landmark 2012 case. Since rising healthcare costs have been a nettlesome and unpredictable business expense, it seemed logical that some companies, at a minimum, would cancel insurance plans for employees, forcing them to buy coverage on one of the new public exchanges. Some experts even predicted Obamacare would doom the employer-based system that’s been in place since the 1950s, eventually forcing most Americans onto a government-run exchange.
Nothing of the sort is happening. A recent survey of employers by consulting firm Towers Watson found that 95% of companies say offering subsidized healthcare coverage to workers will be a key part of the compensation packages they offer for the foreseeable future. That’s just one point lower than said so a year ago. Employers are taking steps to reduce healthcare costs and shift more of the burden to workers, but they’ve been making those kinds of adjustments for years. “A surprising number of organizations are continuing to maintain and support employer-provided healthcare,” says Randy Abbott, a senior consultant at Towers Watson. “The exit phenomenon has not turned out to be anywhere near as great as people predicted.”
A rush of big firms abandoning their health insurance plans was one of the scary scenarios propagated by Obamacare critics eager to see the huge health reform plan fail. But many business experts also argued that there are perfectly rational reasons for firms to drop coverage if they can. The United States is the only major nation in which a heavy burden for healthcare coverage falls on businesses. In most other developed countries, the government provides healthcare, which puts U.S. firms that must grapple with ever-rising healthcare costs at a disadvantage against global competitors that bear no such burden.
A way out, not taken
Obamacare provides a way out for firms that don’t want to deal with healthcare. Companies with 50 or more full-time workers can choose to pay an annual penalty of $2,000 per worker if they don’t want to offer insurance. Their employees would get coverage through one of the new government-run public exchanges, or elsewhere in the private market. But virtually no big companies have made this move.
If anything, it seems likely that more Americans, not fewer, will end up covered by employer-sponsored plans in coming years. That’s partly due to a couple of factors having nothing to do with Obamacare. First, hiring has picked up, with the economy now adding nearly 250,000 new jobs each month. More people with full-time jobs means more people with employer-provided health insurance. Second, corporate profits have been strong, which gives companies a bit more wiggle room when dealing with costs.
The rocky rollout of Obamacare, ironically, may have strengthened the appeal of employer-based plans, even to employers themselves. In the Towers Watson survey, 77% of companies said they’re “not at all confident” in public health exchanges. The penalty for individuals who don’t have insurance also seems to be pushing people who do have jobs into insurance plans offered by their employers. The New York Times recently pointed out, for instance, that Walmart’s (WMT) insurance plans have been swelling with new enrollees, many of them long-time employees who simply chose not to pay their share of the premium in the past.
A lot of workers assume employers care only about profits and aren’t particularly concerned about the well-being of their workers. Even if that were true, it could be bad business to cancel workers’ insurance and force them onto an exchange, no matter how much the savings. Such a move would amount to an immediate pay cut for employees, which would generate bad publicity and might cause turmoil in the ranks. Companies could make up the difference to workers by boosting their pay. But the accounting gets tricky because health insurance is tax deductible, whereas pay isn’t. Factor in intangibles, such as morale and attrition, and the decision to cancel insurance becomes far more fraught than armchair analysts may have appreciated.
Smaller businesses could end up more likely to cancel insurance than big conglomerates. The ACA protects companies with fewer than 50 employees, which are essentially exempt from the requirements of health reform law. Medium-sized businesses, however, may be more vulnerable to the costlier provisions of the ACA, although they’re also more vulnerable to the rising cost of healthcare in general, since they don’t get the lowest group rates that big companies tend to get. Some people who work for medium-sized companies could even end up getting better insurance, cheaper, through an exchange.
Still, workers everywhere will continue to face rising healthcare costs and cutbacks in coverage. More employers are cutting back on coverage for spouses or charging more for dependents, for instance. There’s some evidence companies are hiring fewer full-timers and more part-timers — for whom they’re not required to provide insurance. And in 2018, a new Obamacare tax on high-cost plans will go into effect, which is likely to lead to even more benefit cutbacks and price hikes. Healthcare will probably never be cheap. But it doesn’t have to be ruinous.
Rick Newman’s latest book is Rebounders: How Winners Pivot From Setback To Success. Follow him on Twitter: @rickjnewman.
Readers: Did you buy a health plan on the health care exchange this year? Is it better or worse than your previous plan? Share your Obamacare experience by emailing us at YFmoneymailbag@yahoo.com.