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.Unintended consequences? Ya think? You pass a huge bill that most haven't even read and find out later that there are unintended consequences? Imagine that.
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. And as we'll see, it would hugely magnify the projected costs for the bill, which controls deficits only by assuming that America's employers would remain the backbone of the nation's health care system.
Hence, health-care reform risks becoming a victim of unintended consequences.
Well, Henry Waxman, one of the Democrats chief demagogues, got these documents because he was so horrified that any company would dare say that ObamaCare would adversely affect their health care coverage and planned to call the CEO's in before his committee. And he got more than he planned for. And when he found out what was in those documents, he had to cancel his hearings because he didn't want the CEOs to come out in the public and explain how ObamaCare was fulfilling the predictions of the plan's critics.
But Waxman didn't simply request documents related to the write down issue. He wanted every document the companies created that discussed what the bill would do to their most uncontrollable expense: healthcare costs.All the Democrats' sweet promises that their marvelous health care plan wouldn't harm people who already have insurance would have been revealed as totally false.
The request yielded 1,100 pages of documents from four major employers: AT&T, Verizon, Caterpillar and Deere (DE, Fortune 500). No sooner did the Democrats on the Energy Committee read them than they abruptly cancelled the hearings. On April 14, the Committee's majority staff issued a memo stating that the write downs were "proper and in accordance with SEC rules." The committee also stated that the memos took a generally sunny view of the new legislation. The documents, said the Democrats' memo, show that "the overall impact of health reform on large employers could be beneficial."
Nowhere in the five-page report did the majority staff mention that not one, but all four companies, were weighing the costs and benefits of dropping their coverage.
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." (Under the new bill, employees who lose their coverage will purchase health care through state-run exchanges.)In the real world, not the world of politics, businessmen have to weigh costs and benefits. And when the penalty for not providing health care is much less than the costs of providing that health care, it is rational of them to seriously consider dropping their health insurance plans.
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.
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.
ndeed, companies are far more likely to cease providing coverage if they predict the bill will lift rather than flatten the cost curve. Deere, for example said, "We do expect double digit health care increases as most Americans will now have insurance and providers try to absorb the 15% uninsured into a practice."Here's another surprise that critics predicted. The new taxes in the ObamaCare plan on expensive plans that are supposed to kick in starting in 2018 are going to cause businesses to reconsidered their insurance plans.
Both Caterpillar (CAT, Fortune 500) and Verizon believe the requirement to allow dependents to remain on their parents' policies until age 26 will prove costly. Caterpillar puts the added expense at $20 million a year.
First, there is the "Cadillac Tax" on expensive plans. This is a 40% excise tax on policies that cost over $8,500 for an individual or $23,000 for a family. Verizon's document predicts the tax will cost its employees $255 million a year when it starts in 2018, and rise sharply from there. Hewitt also isn't sure that Verizon can pass on the full tax to its employees; so it could impose a heavy weight on the company as well. "Many [have] characterized this tax as a pass-through to the consumer," says the Verizon document. "However, there will be significant legal and bargaining risks to overcome for this to be the case for Verizon."Once companies start dropping their coverage their employees will be thrown into the needing to buy the public plans through the pools that the government is supposed to provide. This will vastly increase the cost of ObamaCare way beyond what the CBO predicted because the CBO assumed that companies will keep or even expand their coverage of their employees.
What does it mean for health care reform if the employer-sponsored regime collapses? By Fortune's reckoning, each person who's dropped would cost the government an average of around $2,100 after deducting the extra taxes collected on their additional pay. So if 50% of people covered by company plans get dumped, federal health care costs will rise by $160 billion a year in 2016, in addition to the $93 billion in subsidies already forecast by the CBO. Of course, as we've seen throughout the health care reform process, it's impossible to know for certain what the unintended consequences of these actions will be.Unintended consequences indeed. And that is why Henry Waxman canceled the hearings. He didn't want the public to know what he and his fellow Democrats have wrought.