Friday, May 21, 2010

Updated Analysis on Employer-Sponsored Insurance

In a previous post, I opined that employers would not necessarily drop coverage of health insurance for employees despite weak mandates. I was responding to a column by W.C. who felt the weak mandates would have that result. I still think I am right, but not in the way I originally thought. It is very possible,even likely, that the structure of employment will be changed by Obmacare. John C. Goodman of the National Center for Policy Analysis has a very insightful piece in today's WSJ. What did I miss? I didn't understand the structure of the subsidies the government will pay lower wage earners to participate in the new exchanges.

The incentive become easier to understand, once you understand the subsidies. Bottom line:

In general, anyone with a family income of $80,000 or less will get a bigger subsidy in the exchange than the tax subsidy available at work.
The subsidies, explained in the previous post, have to do with the fact that no taxes are paid on the employer sponsored benefits. Given the subsidies under Obamacare, employers of people making less than the $80,000 are better off letting those folks go on the government exchange. However the law requires no discrimination in the offering of health coverage. So what's a profit seeking CEO to do? It makes very good sense for the bottom line to restructure the employment situation, so that workers at the lower end of the wage scale get outsourced as contractors to companies that do not provide the health insurance benefit.

Take a hotel with maids, waitresses, busboys and custodians all earning $10 or $15 an hour. These employees can qualify for completely free Medicaid coverage or highly subsidized insurance in the exchange.

So the ideal arrangement is for the hotel to fire the lower-paid employees—simply cutting their plans is not an option since federal law requires nondiscrimination in offering health benefits—and contract for their labor from firms that employ them but pay fines instead of providing health insurance. The hotel could then provide health insurance for all the remaining, higher-paid employees.

Ultimately, we could see a complete restructuring of American industry, with firms dissolving and emerging based on government subsidies.

BTW, I have a little experience with this personally. I am a manager in the federal government. A little over half of my work force consists of contractor employees. Many of them are in the very lowest paid, basic positions in my organization. This keeps my budget down, because I know that the contractor pays very little in the way of health benefits to its employees, especially when compared to the benefits paid by the federal government. It makes no sense to fill those positions with government employees. I find that as I move up the salary scale, the health and other benefits tend to equalize, but contractor profit starts to dominate. So for the middle tier employees, I have more of a government work force. Then at the high end, I find that I cannot pay some of the most experienced, technically qualified employees enough, because of government salary caps, so those employees tend to be contractors again.

Despite the Democrats supposed dedication to helping the lower wage earners, they are actually hurting them, because the government exchanges are unlikely to provide the quality of coverage that employers do. Ironically, the end result of Obamacare may be an exacerbation of a have vs. have-not situation.

Definitely read the whole article, there are also good points about emergency rooms and the shortage of doctors.

W.C. also has some local dirt about what's going on at Qualcomm in response to Obmacare. Too many reports from corporate America are trickling not to believe that huge swaths of the public are going to lose their employer coverage.


  1. Better if you know the basic insurance principle and benefit.Try to find here :

  2. Eva,
    Thanks for commenting. To be honest, I am not sure how the link provided addresses the issue at hand.