The Agenda

The Great Coverage Shift

Many supporters of PPACA insisted that employers would not drop coverage once the exchanges and subsidies went into effect. I found this argument pretty unconvincing at the time, for the obvious reason that employees, ceteris paribus, like receiving higher cash wages. If one firms offers lower cash wages and benefits and another offers higher cash wages you receive benefits regardless — more generously subsidized benefits at that — well, the particular awesomeness of your particular job-sponsored plan isn’t necessarily your highest priority.

It turns out that a number of large U.S. firms have been thinking along similar lines, according to a new report from Fortune. The story, by Paul Smalera, is extremely interesting and well worth reading. We have the tenacity of Representative Henry Waxman to thank for the new revelations. The upshot is that firms have decided, as many of us expected, that they’re far better off paying penalties and allowing their workers to purchase subsidized coverage on the exchanges. Of course, this has fiscal consequences, as Salera explains in his conclusion.

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.

This is one reason I was so surprised when PPACA advocates proved so sanguine about the prospect of firms dropping coverage. All this would mean, many argued, is that we’d have something more like the Wyden-Bennett model. And that might be true. But the long-term budgetary impact of the legislation was central to the debate. The political case for PPACA rested on the notion — the dubious notion, in the view of many critics — that the revenue-raising measures were enough to pay for the coverage expansion, and indeed that the legislation would meaningfully improve the broader fiscal picture. We now have even more reason to believe that this happy outcome will not come to pass.

Reihan Salam is executive editor of National Review and a National Review Institute policy fellow.

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