Employer-Based Health Coverage and the Law of Unintended Consequences

May 07, 2010
11:50 am

Robert Jordan’s book, The Path of Daggers, has one of the best descriptions of the Law of Unintended Consequences.  He wrote, “Whether or not what you do has the effect you want, it will have at least three you never expected, and one of those is usually unpleasant.”

An article in today’s Fortune magazine and also available on CNNMoney.com delves into detail on one of the potentially unpleasant consequences of the new health reform law.  The new healthcare system that may emerge from health reform, according to the article, may cause many large U.S. employers to stop providing health coverage for their employees and, in so doing, radically change the healthcare landscape.

This information emerged when companies like Caterpillar, John Deere and AT&T went public, after Congress passed health reform legislation, with comments about how the significant financial losses they would absorb as a result of the new law.  The comments prompted Congressman Henry Waxman (D-CA), chair of the House Energy and Commerce Committee, to demand that these companies turn over their confidential financial documents and be prepared to send their top executives to Capitol Hill for hearings.

Those hearings were never held.  After seeing the information in the documents the companies provided to Congress, we understand why.

Large employers at AT&T and Verizon, while they have not acknowledged any immediate plans to change their practices, are conducting their own analyses that show they will generate significant savings by dropping their employee health coverage and sending their workforces into the new health exchanges to find their own insurance plans.  Even with paying the financial penalties for violating the new employer mandates, they will still save a great deal of money.

An AT&T PowerPoint slide indicates that 2009 medical costs for company employees and retirees totaled $4.7 billion, a total that will continue to escalate.  Paying penalties for not offering coverage to its 283,000 employees would cost $600 million.  Looking at similar numbers for his own company, the vice president of labor relations for John Deere wrote in an internal e-mail provided to Congress that the company should look at the option of “denying coverage and just paying the penalty.”

Of course, if these developments occur, that would result in more burden placed upon American taxpayers.  Fortune calculated that, if 50 percent of workers currently on company-sponsored health plans have to begin getting coverage through the federally-sponsored health exchanges, federal health costs will rise by $160 billion a year by 2016.

These revelations spotlight two serious flaws in the new health reform law that need to be addressed when Congress revisits this issue.  First, mandates don’t work if they don’t provide an adequate incentive for acquiring or maintaining health coverage.  We’ve already expressed concern in this space that the relatively low penalties tied to the individual mandate may lead many healthy households to decide it’s cheaper to pay the fine and wait to buy insurance when they get sick.  Now we’re seeing that the employer mandate also may lead companies to the logical conclusion that paying the penalty is the more sensible alternative.

More importantly, though, more needs to be done to address the cost and value issues tied to American healthcare.  If costs continue to increase at a rapid rate, dropping employee coverage or not purchasing coverage in the first place becomes a more desirable option for many individuals and employers.  Congress needs to take bolder action in advancing delivery and payment reforms to make healthcare more cost-effective and value-driven.

The good news is we still have time to prevent these unintended consequences from taking effect.  Not that much time, though.  The next Congress will need to make the next steps in health reform a major priority on its agenda.

2 Responses to “Employer-Based Health Coverage and the Law of Unintended Consequences”

  1. Tweets that mention Prognosis Blog » Blog Archive » Employer-Based Health Coverage and the Law of Unintended Consequences -- Topsy.com Says:

    [...] This post was mentioned on Twitter by MS Activism- Georgia, HealthInFocus. HealthInFocus said: New HLC Prognosis Blog Post: Employer-Based #Health Coverage & the Law of Unintended Consequences http://bit.ly/cxk42S #hcr @FortuneMagazine [...]

  2. John R. Graham Says:

    You’ve described the consequence of the new law very well, but I don’t think that it’s “unintended”. President Obama, Sec. Sebelius, Speaker Pelosi, and many others who made it happen are supporters of government-monopoly, single-payer health care. They could not achieve this explicitly: They didn’t even have the votes for a “public option.”

    It’s not reasonable to expect these politicians to legislate an employer-based, social-insurance, health system that “works”. Instead, they want one that falls apart as quickly as possible, so that they can keep moving towards single-payer.

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