Theory, Practice, Smoke, and Mirrors

Note: I’m just beginning to look in to this. The following may be way way way off base. More to come when/if I have more time. Stop by if you find anything supporting or contradicting (though I won’t be around this week)…

It’s fascinating to read the opinions and testimony of various economists regarding Obama’s healthcare plan. A long and distinguished list have weighed in on numerous aspects, in particular, the money saving features.

A big chunk of the ‘savings’, as much as 3/4’s, is described thus.

Under the plan companies will, according to economists, do one of 3 things:

1 – Larger companies, those with more than about 250 employees, will hold the value of ‘Cadillac plans’ (the health plans provided to nearly all employees, including union employees in large companies qualify as ‘Cadillac plans’) to just below the level that triggers the proposed excise tax. In other words they will reduce coverage. Initially this tax will be triggered on any amount spent on healthcare and insurance in excess of $10,200*. The difference, approximately $4,200 per employee will be paid in additional salary to the employees.

2 – Many smaller companies will cease providing health insurance, encourage employees to purchase insurance through the government marketplace, and elect to pay the proposed $2,000 fine. The difference between what they are currently spending (approx $7,000) and the $2,000 fine will be paid to employees as additional salary.

3 – Some smaller companies will make no change and will continue with their current health plan.

Nice theory, won’t happen in practice. And I’d think they know it.

Competition, locally and globally, is fierce. Few employees will see any increase in salary as the economists predict. That is simply not reality. This theory though does seem to do a good job of hiding the true costs of Obama’s plan.

Despite theory being wrong, all is perhaps not so bad. One way large employers will reduce the costs of their plans (to keep them under the $10,200 excise tax limit) will be to place employees with risky, and thus more expensive, health behaviors in a separate plan with severely limited coverage. This will include employees who are overweight, smoke, drink heavily or are a drug abuser. If you get a speeding ticket or are otherwise documented as a high health risk you could find yourself in this pool as well. This will allow low risk and healthier employees to have better coverage for the $10,200 companies will be allowed to spend. Theoretically, this will encourage employees to make healthier choices so that they can join the healthy plan that offers better coverage.



* Note that on average these companies spend about $14,400 per employee per year on heathcare and, with few exceptions, every full-time employee from bottom to top receives the same plan (many companies also offer these plans to part-time employees at a pro-rated cost). Glenn Beck and a couple of others have said that government employee healthcare costs are considerably more, perhaps as much as twice. Employee benefits industry reports that I have studied have not supported this.