Game On: Part II (How Obamacare will cause employers to Game the system, and opt out of offering group plans to their employees.)

So....if you own a business, and your employee could purchase a benefit with HIS MONEY for around $4,000/year,  would you ever spend $12,000 of YOUR MONEY  to purchase that benefit for your employee?    I highly doubt it.

Sounds crazy doesn’t it.

But this huge disparity between what an employee can do on his own via the new Exchange, vs. how much an employer will need to pay if they purchase through the private markets is at the heart of Obamacare.

In 2014, employees who do not have access to employer-sponsored plans will be able to purchase plans with government subsidies via the government health exchange. People with a family income of up to 400% of federal poverty will receive subsidies.  The maximum amount that they can pay, as a percentage of family income, has been defined by law.

The Kaiser Family Foundation has developed a very simple calculator that allows anyone to plug in their age and region to determine how much they would have to pay, and how much the taxpayer would subsidize.   (http://healthreform.kff.org/SubsidyCalculator.aspx)U

sing some basic information we are able to determine the parameters for a 40 year old person:

Table A: Single Coverage 40 Year Old                        

Take a look at Table B:  Family Coverage.

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Source:  Kaiser Family Foundation Calculator 8-2010

http://healthreform.kff.org/SubsidyCalculator.aspx

ASSUMES COVERAGE OFFERED VIA EXCHANGE, WITH NO EMPLOYER OPTION

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Note that if a family makes an income of $55,000 / year (not far off of the national average), they could purchase coverage through the exchange for $4,135/ year, while the taxpayer subsidizes the balance of $7,995.   Compare that to Kaiser’s projected total premium in of $12,130 (which seems low to me).  If purchased directly by the employer, the employer would need to pay the entire $12,130.

As an employer, would you be tempted to tell your employee, “I am going to give you a one-time raise of $4,135”, while you quietly pocket nearly $8k.

Oh yeah, Obamacare also includes a penalty on employers with more than 50 employees who do not offer a plan.  The maximum penalty is a whopping $2000/employee per year.  So if you net the penalty out of the equation, the employer still saves $6k per employee per year.

What do you think an employer is going to do?  What would you do?

Further, employers will soon realize that employees who make up to $88,000/family or $35,000/single, will receive significant subsidies ONLY IF the employer drops coverage and the employee purchases through the exchange.

In most companies,  virtually all of their employees will receive subsidies if the employer does not offer coverage.

Some employers will be glad to “make the employee whole” by providing a one-time raise to pay the subsidized, lower cost.  Other employees will simply say “I’m Done” and point their employees at the exchange.

President Obama always said he is a “proponent of the Single Payer System”.   But he also said that it was just not practical to get there all at once.

As employers drop their employer-sponsored plans, and as employees have no choice but to enroll in plans through exchanges, America will be taking a giant step toward the President’s ultimate goal.

Game, Set, Match