Thursday, May 6, 2010

qotd: Will businesses drop their health benefit programs?

May 6, 2010
Documents reveal AT&T, Verizon, others, thought about dropping employer-sponsored benefits
By Shawn Tully

The great mystery surrounding the historic health care bill is how the corporations that provide coverage for most Americans -- coverage they know and prize -- will react to the new law's radically different regime of subsidies, penalties, and taxes. Now, we're getting a remarkable inside look at the options AT&T, Deere, and other big companies are weighing to deal with the new legislation.

Internal documents recently reviewed by Fortune, originally requested by Congress, show what the bill's critics predicted, and what its champions dreaded: many large companies are examining a course that was heretofore unthinkable, dumping the health care coverage they provide to their workers in exchange for paying penalty fees to the government.

That would dismantle the employer-based system that has reigned since World War II. It would also seem to contradict President Obama's statements that Americans who like their current plans could keep them. 

AT&T produced a PowerPoint slide entitled "Medical Cost Versus No Coverage Penalty."

A document prepared for Verizon by consulting firm Hewitt Resources stated, "Even though the proposed assessments [on companies that do not provide health care] are material, they are modest when compared to the average cost of health care," and that to avoid costs and regulations, "employers may consider exiting the health care market and send employees to the Exchanges."

Kenneth Huhn, vice president of labor relations at Deere, said in an internal email that his company should look at the alternatives to providing health benefits, which "would amount to denying coverage and just paying the penalty," and that he felt he already had the ability to make this change under his company's labor agreement.

Caterpillar felt it would have to give "serious consideration" to the penalty option.

AT&T revealed that it spends $2.4 billion a year on coverage for its almost 300,000 active employees, a number that would fall to $600 million if AT&T stopped providing health care coverage and paid the penalty option instead.

(Caterpillar) could reduce its bill by over 70%, by Fortune's estimate. 

It's these analyses -- which show it's a lot cheaper to "pay" than to "play" -- that threaten to overthrow the traditional architecture of health care.

The full article contains links to documents supporting some of these assertions:

Comment:  Yesterday's qotd message described measures in the Patient Protection and Affordable Care Act (PPACA) that would motivate employers to downgrade their health benefit programs to an actuarial value of 60 percent (the employees would pay an average of 40 percent of actual health care costs, in addition to their share of the insurance premium). Today's message reveals that major employers are considering the option of dumping their health benefit programs altogether.

The government subsidies for plans purchased in the state exchanges are large enough to shift a major portion of the costs of the health benefit programs from the employers/employees to the taxpayers. Further, the subsidized Silver-tier plans in the exchanges provide an actuarial value of 70 percent, resulting in greater benefits than the downgraded plans would have, at a net lower cost for the employers.

Unfortunately, neither is a great deal for the employees and their families. Employer-sponsored plans currently have a typical actuarial value of 80 percent, and sometimes as high as 90 or 95 percent. PPACA exchange plans will shift more costs to those who need health care by reducing the effective actuarial value to 70 percent for those with incomes over 250% FPL (federal poverty level), and those with incomes over 400% FPL would have no out-of-pocket limits to protect them.

Regardless, the complex structure of PPACA will result in worse coverage for employees than many of them currently have. This was the result of Congress and the Obama administration insisting that reform be built on our existing employer-based system, while facing the complex logistical problems of balancing the flow of money between individuals, employers, the government, the insurers, and the providers of health care.

It would have been far simpler, less expensive, and much more effective to establish a single financing pool, equitably-funded through the tax system, while providing significantly greater value in health care purchasing for all of us through a publicly-owned, publicly-administered, beneficent monopsony - an improved Medicare for all. We can still do it.

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