The Affordable Care Act and Employer Provided Health Bennies

Paul Krugman and Greg Sargent are following a report from McKinsey that says up to 30% of employers are planning to drop health insurance for their employees as a result of the Affordable Care Act.  As you can imagine, Democrats are quite concerned with the validity of this study and whether the predictions are true.  While the jury is still out on whether the study is true or just a carefully planted right wing talking point, let’s look at some unsettling trends that many of us in the R&D industry are starting to see.

A lot of us are getting laid off and can only find jobs as contractors.  Contractors do not usually receive benefits like health insurance from their employers.  If they work for a CRO, they can sometimes buy health insurance coverage but this is typically more expensive than employer provided health care.  Bennies come out of the pockets of the employee contractor, not the corporation that is hiring them.  That saves big companies a lot of money in the end even if they have to pay a fee to the contracting company, which also comes off of the employee’s salary.  It sounds like a sweet deal for everyone but the employee.  Companies get out of those tiresome obligations and the middle man gets a cut of the employee’s salary.  Awesome.

Now, suppose there is a healthcare bill that comes along that mandates universal coverage.  Actually, universal coverage is something you want in a successful national health program but that assumes that costs are controlled elsewhere, otherwise it’s hugely expensive for the insured.  Ok, so universal coverage is mandated.  The burden of covering healthcare is now shifted to the employee.  An employer mandate might be necessary to make sure the group rates are affordable but if an employer can shed their employees and hire them back as contractors, doesn’t that circumvent the employer mandate?  So, should we be surprised that we are seeing a shift from regular full time employment with bennies to contracting work without bennies?  The companies are not incentivized to retain full time workers but to shed them and to do it as quickly as possible.  It’s nothing personal.  It’s just the way the laws are written.  If there’s nothing to stop you from taking advantage of the system, why wouldn’t you?  In a way, the new law gives them a free pass that they might not have considered before.  The new law makes it legal and profitable to ditch your bennies.  And if your primary obligation is to increase shareholder value, what would *you* do?

It’s not a bug.  It’s a feature.

So, if it turns out that the McKinsey study results are real, color me unsurprised.

Disclaimer: I am not a Republican and generally despise right wing talking points.  But you don’t have to be a right wing lunatic to have a problem with Obamacare.

More on the employer mandate: This Time article discusses the employer mandate of the Affordable Care Act and cites San Francisco as an example where the employer mandate has been adopted successfully.  The difference between San Francisco’s plan and what we got with the Affordable Care Act is a public option.

But according to the new report co-authored by Dube, 61% of San Francisco restaurants are very or somewhat supportive of the mandate. This may be because restaurants in the city have found a way to pay for their increased benefit costs without absorbing the expense: many have added a 3% to 4% health care surcharge to customers’ bills. In addition, at the same time that the mandate was passed, a de facto public option was implemented. Employers that opt not to provide coverage must pay $1.23 to $1.85 per hour per worker to help fund the public plan. This public option, which only covers care from some doctors and facilities in the city of San Francisco, has proven popular with employers, with 21% using it for workers. Already the San Francisco public option has enrolled a majority of the city’s previously uninsured residents, more than 50,000 people. And according to a survey conducted by the nonpartisan, nonprofit Kaiser Family Foundation, 94% of those participating in the program are satisfied with the results.

Um, we didn’t get a public option in the Affordable Care Act.  So, the high price of insurance will be borne by the person forced to buy insurance on the open free market.  Technically, I don’t think that’s the employer’s problem anymore as long as it can get by with contracted employees. I think it’s possible to legislate social responsibility but our Congress didn’t do it in the Affordable Care Act. So, expect a lot more layoffs and a lot fewer bennies.

Yet another reason to get rid of incumbents in 2012.