By Terry Connelly, Dean Emeritus of the Ageno School of Business
Employer-based health insurance has been a mainstay of the American economic scene since World War II, when it provided an added benefit for workers denied any increase in wages to match their wartime productivity by Federal wage-price controls. And it is at risk of disappearing without much, if any, public debate. For decades it was provided on a voluntary basis, as a product of employer-employee bargaining and job market forces.
The Affordable Care Act signed by President Obama made such coverage mandatory for most enterprises in the US except those with fewer than 50 full-time employees. The Act also specifies the required core elements of such coverage in line with the essential insurance coverage set for the Obamacare Exchanges. It has been a central promise of the Republican Party to end the employer mandate (as well as the individual mandate to purchase some form of insurance). The GOP has made that promise a core part of every form of legislation they have on offer to repeal President Obama’s signature legislation.
Yet, the working assumption of the media seems to be that most large-scale employers would not take advantage of the opportunity to terminate the health insurance benefits of their employees. Even the Democrats have not raised the issue of folks losing their workplace health care policies under the GOP plans, presumably because of the same lazy assumption. But these assumptions fly in the face of basic economic consideration that should lead any sensate CFO to put pencil to paper and “go figure.”
First of all, there are no wage/price controls in place today that would prevent them from giving employees a raise in their pay packet in exchange for ending the insurance benefit. Both are deductible business expenses under the Federal and state income tax laws. Indeed, the only threat on the horizon in terms of benefits is the risk that some health insurance plans may be so generous as to lose part of their tax deductibility!
This trade-off could well be a win-win for employees, especially at the lower segments of the national pay scale, who could buy health insurance on the private market using their expanded paychecks together with both the GOP expansion of tax-advantaged, expanded Health Savings Accounts and Federal premium support subsidies (both part of the GOP proposals to replace current Obamacare tax credits).
If any state were to take advantage of GOP proposal to waive essential insurance benefits mandated by Obamacare on its Exchanges and the individual market…all employers nationwide would be immediately authorized by law to drop their employer coverage down to this new “lowest common denominator” range of coverage.
Replacing workplace-based health insurance policies and forcing the entire US employee base to enter the individual marketplace could have the benefit of radically reducing premiums for most insured families as a result of the massive influx of basically healthy workers to that market which is now gravely tilted to the sick and people with pre-existing conditions (and let’s remember, a pre-existing condition before Obamacare included not just cancer, diabetes, and heart disease, but also simply having ovaries or just having once taken a prescription antacid).
If CFOs discover the magic of replacing rapidly escalating health insurance costs with much more controllable pay increases and letting the US taxpayer foot the bill through the GOP’s federal insurance tax breaks and subsidies, surely employees’ personal contributions to health insurance payments would quickly be made tax deductible by any sensate Congress. (And why not: why should such costs be deductible if paid by an employer, but not if paid by employees if there is no longer an available employer-based plan in their workplace?)
It would be one thing if this rosy transition scenario would be worked out in advance; however, that is hardly the likely base case of what would happen if any of the GOP replacement plans were to be enacted and signed by President Trump. It is much more likely that the first wave of employee insurance terminations would come from small scale, non-unionized “mom and pop” businesses and non-profit entities. Given their vociferous opposition to the mandate all along, they will logically stop providing employee health insurance as soon as the ink is dry on
Remember that as we get closer to businesses of 500 or so employees, we would be dealing with a very big source of jobs in America in an aggregate sense. So it is no wonder that the CBO has estimated that millions would lose their employer-based insurance in the early years following enactment of the GOP proposals. At the same time, there will be rolling chaos as other millions lose their Medicaid coverage and flood the emergency rooms, which are now increasingly staffed by high-cost outsourcing firms. Separate from a hospital’s doctor and nursing workforce, these firms are known for laying the highest maximum ER charges onto working poor patients, thus forcing many thousands into additional medically induced bankruptcies.
This outcome, in turn, would bring increased calls for higher Federal insurance subsidies which will only make it more attractive for major corporate CFOs, CEOs and boards to begin thinking the unthinkable about “repealing” corporate insurance benefit expenses and “replacing” them with equally or even more fully deductible pay increases. Nobody in media is doing such scenario analyses now, in part because they are not paying close enough attention to the CBO scoring of the GOP bill beyond the headline coverage loss numbers largely due to the obvious cutbacks to Medicaid coverage.
The media is also not paying a lot of attention to another aspect of certain GOP proposals that would have another profound effect on employer-based health insurance. If any state were to take advantage of GOP proposal to waive essential insurance benefits mandated by Obamacare on its Exchanges and the individual market — like maternity care, mental health, drug rehab or cancer care — all employers nationwide would be immediately authorized by law to drop their employer coverage down to this new “lowest common denominator” range of coverage, regardless of how those with pre-existing conditions would be left to the mercy of the marketplace, and that Obamacare’s ban on lifetime limits of coverage would likewise disappear also for those conditions.
This sneak attack on employer-based insurance may or may not make it into whatever the GOP manages to pass in Congress or adopt by regulation, if they pass anything at all. But it is worth paying far more attention to than the mainstream media (perhaps cowed by President Trump’s incessant attacks on their bias and “fake news” reports) is willing to report. As Arthur Miller wrote in Death of a Salesman: “Attention must be paid.” — especially when we are confronting the possibility of a slow, insidious attack on workplace health insurance.
This article appeared on the Huffiington Post on July 27, 2017.
About Terry Connelly
Terry Connelly is an economic expert and Dean Emeritus of the Ageno School of Business at Golden Gate University. With more than 30 years experience in investment banking, law and corporate strategy on Wall Street and abroad, Terry analyses the impact of government politics and policies on local, national and international economies, examining the interaction of global financial markets, the U.S. banking industry (and all of its regulatory agencies), the Federal Reserve, domestic employment levels and consumer reactions to the changing economic tides. Terry holds a law degree from NYU School of Law and his professional history includes positions with Ernst & Young Australia, the Queensland University of Technology Graduate School of Business, New York law firm Cravath, Swaine & Moore (corporate, securities and litigation practice in New York and London), global chief of staff at Salomon Brothers investment banking firm and Cowen & Company’s investments, where he served as CEO. In conjunction with Golden Gate University President Dan Angel, Terry co-authored Riptide: The New Normal In Higher Education (2011). Riptide deconstructs the changing landscape of higher education in the face of the for-profit debacle, graduation gridlock and staggering student debt, and asserts a new, sustainable model for progress. Terry is a board member of the the Public Religion Research Institute, a Washington, DC think tank and polling organization, and the Cardiac Therapy Foundation in Palo Alto, California. Terry lives in Palo Alto with his wife.