As More Companies Drop Insurance, Consumers Get Stuck with the Bills
The White House has tried to keep its chin up in the face of ever-increasing hostility to the Affordable Care Act. On Tuesday, President Barack Obama laughed off the concerns of Americans that have driven approval for the ACA to their lowest levels ever as the start date for the individual mandate approaches on October 1st.
Asked whether “everybody” is wrong to oppose Obamacare in an interview with Telemundo, Obama chuckled and replied, “Yes, they are.” He insisted that the law has delivered “the lowest increase in healthcare costs in 50 years over the last several years,” and that “there is no evidence at all that this is somehow making healthcare more expensive.”
Maybe he should tell that to his partners in the program. Walgreens, one of the nation’s largest retailers, surprised its 160,000 employees by ending employer-provided health insurance. Instead, the company will provide a fixed stipend for use in a private exchange. The Wall Street Journal reports that rapidly-increasing costs from the implementation of Obamacare forced their hand. “Aside from rising health-care costs, the company cited compliance-related expenses associated with the new law as a reason for the switch.”
Walgreens is hardly alone in this change. In its report on the surprise announcement, Bloomberg notes that two other large retailers have shifted employees out of employer-provided plans and into private exchanges. Sears and Darden Restaurants – parent of Olive Garden and Red Lobster, among other chain restaurants – have contracted with Aon Plc to create the private exchanges, and more than a dozen more large employers are expected to join. Other employers have moved retirees off of their health-plan rolls and into similar private exchanges, including IBM and Time Warner, to protect against skyrocketing costs.
The actions of these other employers don’t detract from the unique nature of Walgreens’ decision. Two months earlier, the retailer announced its partnership with the Department of Health and Human Services to extol the benefits of Obamacare to its employees and its customers.
Their website still features the effort, and brochures continue to be distributed even while the corporation itself realizes that compliance must force it to abandon employer-provided health insurance for the people in the stores distributing the brochures to customers.
Awkward! Still, it’s hardly as awkward as Obama’s forced cheeriness and dismissal of the damage done by his signature legislative achievement.
The outcome won’t be nearly as awkward for employers, although selling this to employees might be. Walgreens and other employers aren’t doing this to benefit their employees, but to indemnify themselves against a much more unpredictable healthcare market than existed pre-ACA. CBS News noted as much in a report on Walgreens’ decision, with reporter Jill Schlesinger commenting, “I can’t see how this is going to be good for the employee in the future.”
With the CBO predicting that rising health-care costs would increase at twice the rate of other federal spending, the same increase in costs will now be borne almost entirely by employees. Finally, it appears that the private-exchange option will satisfy the employer mandate, which means that the employees cannot bail out of these private exchanges in order to qualify for federal subsidies, which prevents the employers from having to pay increasing fines for non-compliance.
The rise of the private exchanges is a direct result of the destabilization of the marketplace by Obamacare. The rapid increase in costs, especially compliance, made it easier for businesses to end their status quo and look for creative alternatives.
Outsourcing compliance costs is a popular option in any instance, and the sudden distortion of the market with the ACA’s ambiguous and shifting mandates made it even more attractive to push the entire mess out of the Human Resources departments of corporate America. While this won’t be a welcome change to hundreds of thousands or perhaps millions of workers, it might be another option for real reform.
Ironically, the private exchange concept has been proposed before. It most closely resembles Rep. Paul Ryan’s proposed Medicare reform from 2011-2, and has the same purpose: to limit the liability of the third-party payer. With Medicare, the principle was to limit both the control of government over private health-care choices and the cost of funding them to the government.
Ryan proposed issuing annual subsidies (called “vouchers” by the media) for Medicare recipients to use in a federal exchange to buy approved levels of coverage from private insurers. Ryan argued that this would limit the growth of federal health-care costs in a very predictable and non-interventionist manner, as opposed to the Independent Payment Advisory Board and its “death panel”-like power.
Both Ryan’s rejected reform and the private exchanges have their benefit to consumers, however. First, both expand choices to the end user; retirees had a lot more options than just government-run insurance, and now employees will get more than just one or two options at open enrollment, with twenty-five plans available in the Aon exchange.
Second, the exchanges should allow employees to keep their plans even if they leave their current employer. That option already exists through COBRA, but that is limited to only one year, as the law requires the employer to manage the plan. This arrangement makes the consumer the customer of the exchanges from the very beginning. A termination would only impact the subsidy, which the consumer/employee could negotiate as part of his compensation package with his next employer.
In short, this model provides complete portability if handled properly, a goal cited by many reformers but never delivered. Even more importantly, this provides a step in the right direction for true reform, which is to restore price signals on health care back to the consumer through the elimination of third-party payers and middlemen.
Disconnecting employers from that transaction will eliminate much of the obstruction on price signals by forcing consumers to deal with the true costs of insurance based on the choices that they make. The next step would be to reduce insurance back to its original purpose – indemnifying against significant loss – by encouraging the return of high-deductible, low-cost policies and health-savings accounts for routine care. All of this will encourage more competition among providers, better price transparency, which in combination will actually bend cost curves downward.
President Obama might laugh this off, and workers will understandably feel trepidation at the prospect of change. This, however, is a path of real reform, and perhaps the White House might take an example from its PR partner and revamp the misguided ACA before it does even more damage to job markets and the business climate.