Do you remember when Mike Duke, CEO of Wal-Mart, in early 2009 became a big supporter of Obamacare? His endorsement was co-signed by, among others, Andy Stern of the SEIU. This was really no more than Wal-Mart throwing a bone to the unions. But, now, that bone has been taken back. Read more
You will be happy to know that we are now, as of the end of February, up to 1040 waivers from Obamacare, covering some 2.62 million people. And, we have a spiffy new federal agency handling said waivers. The Center for Consumer Information and Insurance Oversight, recently created by the Department of Health and Human Services, will now be granting dispensations from Obamacare, and you can find its home page here.
But, this is what you may not know, and what does not bode well for any employee who now has group insurance through his or her employer.
The primary reason these waivers have been granted is that a very small piece of Obamacare has driven up group premiums dramatically. As of September, 2010, all group policies must provide annual benefits of not less than $750,000 per employee. That figure will rise to $1.25 million in September, 2011, $2 million in September, 2012, and after January, 2014, no annual limits will be permitted.
In order to receive a waiver, an employer must demonstrate that this new requirement will either result in a large premium increase, or that a large number of enrollees would lose access to coverage. As the waivers are only granted for one year, expect to see more companies apply for waivers each year as the higher limits take effect.
Let’s look at the future. If a $750,000 annual benefit limit has caused 1040 employers to prove to the government that their premium increase is large, and, perhaps unaffordable, what will no annual limits do?
I doubt we will ever find out the answer to that question as, beginning in January, 2014, there will be no further waivers granted. Consequently, for most, if not all employers, it will be far less expensive to drop group coverage and simply pay the per employee tax. This will have the effect of dumping tens of millions of people into the newly formed government subsidized insurance exchanges. And, this will be expensive.
The former director of the Congressional Budget Office, Douglas Holtz-Eakin, says that the costs of ObamaCare are set to explode when employers opt to drop coverage and send their workers to the new, federally subsidized health exchanges for coverage. He estimates that this will drive up the cost of the law by $1 trillion or more in the first 10 years. [emphasis supplied]
Whether you believe that insurance policies should have no annual limits or not, the fact of the matter remains that unlimited benefits cost money, and, someone has to pay for that.
But, the real losers here are the employees…first, when they find out what even “subsidized” insurance will cost them compared to what they are paying now, and, second, when they get the tax bill for that additional $1 trillion.
We’ve already explained Obama’s promise that “you can keep your private health insurance if you like it” is pure rubbish. But, you say, what if I have insurance provided by my employer? Surely, I can keep that, can’t I? For most Americans the answer will be a resounding no. And here’s why.
Obamacare requires that all employers with 50 or more employees must provide health insurance or pay a fine of $2000 per employee. Many companies, including AT&T, Caterpillar, John Deere and Verizon, are now figuring out how much money they could save if they just paid the fine.
AT&T, for example, paid $2.4 billion last year to cover medical costs for its 283,000 active employees. If the company dropped its health plan and paid an annual penalty for each uninsured worker, the fines would total almost $600 million. But that would leave AT&T with a tidy profit of $1.8 billion.
Let’s say, however, that AT&T, instead of keeping that profit, decided to spread it equally among all employees in the form of a pay raise. What would that mean to you if you were employed by AT&T?
Today, the cost of providing insurance is about $8500 per employee. And, the employee does not pay any income tax on the value of that insurance. Should AT&T drop their group coverage, and, should they decide to use the savings to increase salaries, each employee would receive approximately $6400 in increased wages. However, unlike insurance benefits, increased wages are taxable. When the Bush tax cuts expire at the beginning of 2011, the lowest income tax bracket will rise from 10% to 15%. So, of the $6400 pay raise you get, approximately $950 will have to be used to pay federal income taxes. This will leave you with approximately $5450 in your pocket to buy insurance. Not only will you not be able to afford the type of coverage AT&T provided without digging further into your own pocket, but, the CBO estimates that by 2016, as a result of Obamacare, the yearly premium for health insurance will rise to approximately $15,000 for a family of four.
Of course, no employer would use the entire “savings” on employee wage increases. So, the picture becomes even bleaker. Once again, this administration is encouraging the wrong behavior. And, as in the past, it’s middle class America that will have to pay for it.