The following is an excerpt from OpinionJournal.com’s “Best of the Web” written by the editor, James Taranto.
Ezekiel Emanuel, Rahm’s elder brother, is a physician who helped design ObamaCare and has been one of its most intense champions. So you may be surprised to learn that in his new book, “Reinventing American Health Care,” he predicts that tens of millions more Americans will lose their medical plans in the coming decade.
In its “You’re the Boss” small-business blog, the New York Times quotes his prediction that by 2025, “fewer than 20 percent of workers in the private sector will receive traditional employer-sponsored health insurance.” As of March 2013 such benefits were available to 85% of full-time private-sector workers, according to the Bureau of Labor Statistics. If Emanuel is right–and especially if, as he implies, ObamaCare was designed to produce such an outcome–the president’s repeated pledge that “if you like your plan, you can keep your plan” was a far more widespread fraud than has yet been realized.
In the next two to three years, Emanuel predicts, “a few big, blue-chip companies will announce their intention to stop providing health insurance. Instead, they will raise salaries substantially or offer large, defined contributions to their workers. Then the floodgates will open.” Small businesses will be even more eager to drop coverage.
The main reason Emanuel expects this result is the so-called Cadillac tax, which takes effect in 2018 and has nothing to do with the bailout of General Motors. Rather, it is a levy on what the Times calls “especially generous health plans.”
Yet one cannot say ObamaCare was designed with the clear purpose of discouraging employer coverage. It leaves in place the tax exemption for such plans, which Emanuel understatedly acknowledges, in the Times’s words, “is a big obstacle to this vision.” It also imposes a fine on companies with more than 50 employees that don’t insure enough of them. Although the fine for not insuring a worker is considerably less than the cost of insuring one, it’s still an incentive to continue coverage.
There are plenty of reasonable criticisms of the prevailing practice of employer health insurance. The tax exemption that makes it such a popular benefit is an artifact of World War II wage controls. It puts the self-employed at a disadvantage, because they may deduct health-insurance costs only in years when they turn a profit, and only from income (not payroll) taxes. It discourages cost-conscious consumption of medical services by insulating employees from the cost not only of services but of insurance. It constrains individual choices in the labor market, since leaving or losing a job can mean the additional blow of losing insurance or having to pay expensive Cobra premiums.
The trouble with Emanuel’s vision, though, is that if it comes true, it will undermine the ObamaCare goal of insuring more Americans. That isn’t just a prediction but an arithmetic truism. No previously uninsured person will end up insured as a result of employers’ dumping plans. Some but not all will buy insurance in the individual marketplace.
Emanuel seems optimistic that most will. He tells the Times in an interview: “If you have good options in the exchange, and a lot of competition to keep prices down, I think a good marketplace could work well.” That’s what clinicians call “an enlarged ‘if.’ “
In marketing to consumers who are thrown off company plans, officials and insurance companies will face the same problems as they do with the previously uninsured: ObamaCare’s mandates drive costs up for everyone; its price controls ensure that young people, especially young men, are overcharged relative to their risk profile; the narrow networks created for cost-cutting purposes diminish the quality of the product; and young, healthy people often have illusions of immortality and thus have little interest in health insurance.
For all the objections to employer-sponsored health insurance, it deals very effectively with some of these problems. By insuring its workforce as a group–younger and older employees, those in good as well as faltering health–it avoids adverse selection. Since the company picks up most of the premium, the employee has the illusion that the insurance isn’t costing him much–which is a virtue if the overriding goal is to make sure as many people are insured as possible.
It also overcomes the apathy problem. The Atlantic’s Olga Khazan has an article titled “How to Make Your Friends Buy Insurance” in which she attempts to apply the findings of behavioral economics to the problem of persuading reluctant consumers to buy ObamaCare policies. One of her suggestions: “Sign them up automatically.”
The insight behind this proposal is a useful one: that “opt-out” systems are more effective than “opt-in” ones. If you have to check a box on your driver’s license application to become an organ donor, chances are you won’t. If you have to check a box not to become an organ donor, chances are you also won’t. So the better way to get organ donors is to make “yes” the default choice. Similarly, Khazan cites a study of 401(k) plans, which found that “enrollment spikes from 30 percent to 90 percent when employees are signed up automatically, and then given the option to cancel.”
“But aside from certain Medicaid patients,” she writes, “there’s no auto-enrollment in Obamacare,” That’s because the idea of “auto-enrollment in ObamaCare” is completely fanciful. Americans find the mandate to purchase insurance vexatious enough, and the Supreme Court’s recasting it as a tax doesn’t seem to have made it any easier to swallow. Would anyone find it acceptable for the government to authorize insurance companies to “auto-enroll” customers?
Imagine getting a bill from an insurance company for the first month’s premium on a medical plan you never ordered. Even if you had the option to cancel, you’d have every right to be furious at a business practice that in any other context would be viewed as fraudulent.
But employer-sponsored health insurance does have what amounts to auto-enrollment. You go to the human resources office on your first day of work, and you get a package of paperwork (at least that’s how it worked the last time we started a new job; perhaps it’s gone online since then), and it includes a form to select your health plan. Hardly anybody minds, because you’re not “buying a product,” you’re “signing up for a benefit.” It’s behavioral economics at work, in more ways than one.
If Emanuel is right and large numbers of workers are dropped from employer-sponsored medical plans, does he really think the 27-year-old who got the HR nudge onto the plan is as likely to buy an ObamaCare policy as his 60-year-old colleague with diabetes or a heart condition?
Over at the Puffington Host, Robert Kuttner worries that “Emanuel could well be right.” He also doubts whether companies would make up for the lost benefits by offering raises, which “in the real world, corporations are loath to grant.” The one bright side, from his standpoint, is that “the long-term effect could be more demands from Americans for a comprehensive single-payer system”–i.e., a government monopsony on medical services, as in Canada. By Kuttner’s lights “that would be swell,” but he acknowledges that as a political matter it’s far from a sure thing.
It’s also quite possible that Ezekiel’s prophecy will prove incorrect. The high cost and low quality of ObamaCare policies may cause employees to value their company plans even more than they do now. That in turn could make the “Cadillac tax” one of the most politically vulnerable ObamaCare components.
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