John Goodman's Prediction Coming True
By David Henderson
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. 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.
This is from Shawn Tully, “Documents reveal AT&T, Verizon, others, thought about dropping employer-sponsored benefits,” Fortune, May 6, 2010.
Here’s what health economist John Goodman wrote on April 15:
The Bizarre Subsidies. Look at it from the employee’s point of view. The new law says that an employee must have insurance costing, say, $15,000 for family coverage in 2016. Remembering that employee benefits are a dollar-for-dollar substitute for wages, that implies that a previously uninsured $30,000-a-year worker will get a 50% cut in pay. Further, the only help this worker will get from Uncle Sam will be the ability of the employer to pay the premiums with pretax dollars. That’s worth about $2,000. (See the chart here.) On the other hand, if this worker can get the same insurance through the newly created health insurance exchange, the federal government will pay almost all the premium and reimburse most out-of-pocket expenses to boot. That’s a total subsidy worth more than $19,000.
It follows that every worker in his right mind at this income level is going to want to work for a firm that does not offer health insurance and pays cash wages instead. Yes, this employer will have to pay a $2,000 fine. But the fine is well worth the opportunity to obtain a $19,000 benefit.
Goodman wasn’t the first to make the point, but he’s beaten the drum hard on this. It looks as if what he predicted might well happen.
The documents that Fortune reviewed were ones that the companies had sent to Congressman Henry Waxman’s House Energy and Commerce Committee. Remember how that happened? Waxman had scheduled hearings because he was upset that the companies were reporting the effect of the health care bill on their earnings. He wanted to bring them to Washington and lambaste in front of the cameras.
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.
HT to Ross Douthat.