Thursday, May 27, 2010

Employers’ Financial Incentives to Drop Coverage

The new American Action Forum is out today with a study highlighting how the perverse financial incentives in the health care law could lead many employers to drop their existing coverage – because both firms and their workers will financially benefit from doing so.  Specifically, firms may decide to pay the $2,000 penalty for not offering coverage, and give their workers raises to offset the value of the foregone employer contribution towards insurance.  In the case of a family insurance plan costing approximately $12,000 where the firm pays 75% of costs, workers with incomes under two-and-a-half times the federal poverty level could receive MORE in federal subsidies and raises from their employers than under their current employer plan, and the firms would come out ahead financially too.  For these reasons, the study concludes that up to 35 million individuals could lose their coverage as a result of the law’s enactment – violating President Obama’s promise that “If you like your current plan, you can keep it.”

While the scenario might represent a win for the employer and/or employee – both could come out ahead financially, even if the individual would be forced to change his health coverage involuntarily – it would be a definite loss for federal taxpayers, who would be forced to assume the burden instead.  It’s one of many reasons why Democrats’ government takeover of health care will ultimately prove fiscally unsustainable.