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Thursday, October 31, 2013

Those with employer provided health care will suffer WORSE under Obamacare than individual purchasers

O-care news coverage has so far focused on the extreme price hikes for people who buy health insurance for themselves. Good to see Avik Roy at Forbes today noting that what is happening to individual purchasers of health insurance will also happen to everyone who gets health insurance through their employers, its just that the employer side cancellations are being delayed by a year through non-enforcement. In the short term, according to the government's own 2010 preditions, 50% will lose their existing health care plans because the plans don't meet the Obamacare requirements and because Obama's rules for grandfathering existing plans are intentionally so restrictive that few plans are covered (dropping in a few years to no plans covered). These lost plans will be replaced with Obamacare-compliant plans that will often cost twice as much.

The harm in the case of individual plans is limited because the affected individuals can resist by refusing to buy the hugely more expensive plans. They'll have to pay a penalty, and they will be going without health insurance, but that's the extent of the damage. Most people would be better off paying for health care out of pocket anyway. For anyone who has substantial assets self-insurance is much more efficient than a low deductible plan. Only the most major major-medical insurance (very high deductible) makes any sense at all.

But with employer provided health care (mandated by Obama for all employees who work more than 29 hrs/week for all companies of over 50 employees) there is no way for individuals to escape the full damage wreaked by Obamacare. Basic economics says that the imposition of this employer mandate will not and cannot lead to an increase in total compensation for employees, who either will see their wages fall by the increase in the cost of their health insurance or will lose their jobs. The actual result is certain to be a combination of the two.

The best outcome would be for wages to fall by the full amount of the Obamacare price increases (many hundreds of dollars a month for most people). This would create the least disruption in the labor market, but wages are famously sticky in the downwards direction (as those with seniority in their various enterprises gang up to heap the economic pain on those with less seniority). Thus the more likely scenario is that wages will at first only stagnate for those who keep their jobs, but there will be huge layoffs and huge decreases in profitability for most companies, who will then have no choice but to belatedly whack the wages and salaries of their remaining employees. No one will escape unscathed.

Basically, the entire economy is screwed, and employees are going to realize it in 2014 when their existing health care plans are cancelled and they are either told by their employers to pony up for the more expensive Obamacare plans or they are sent packing. Obama cannot force companies to raise total compensation and under his powerfully recessionary policies total compensation as driven by market forces will be falling, not rising. It's just a question of how people are going to take the fall: in their wages or on the sidewalk. Hope for the former, but either way, its going to be big and its going to be bad.

UPDATE:  O-mouth Jay Carney has been heaping scorn on all the attention being paid to cancellations when they only affect "5% of the population." Yeah, but that's only because the employer mandate was pushed back a year. Next year the majority of all pre-existing plans will be illegal. 

That link is to Ace of Spades, who has done a nice job of countering the fraudulent media meme that prices are going up under Obamacare because the coverage is better. No. In many cases it is worse. Far higher premiums with far higher deductibles. The price increase is because those who pay for their own health insurance, either directly or through their employers, are being forced to pay for those who don't. The primary driver of higher prices is redistribution.

This point was nailed emphatically by the Obama-voting Democrat Kirsten Powers in an interview with Bret Baier on Fox. Powers just had her own health insurance policy cancelled and doesn't like the pretense that it is because her previous insurance plan was "substandard":
“My blood pressure goes up every time they say that they’re protecting us from substandard health insurance plans... All of the things they say that are not in my [now cancelled] plan are in my plan,” Powers lamented. “All of the things they have listed — there’s no explanation for doubling my premiums other than the fact that it’s subsidizing other people. They need to be honest about that.”

On the employer side, Megan McCardle analyzes survey data on how many companies will continue to offer health care coverage, finding that the news is worse than it is being spun, but the truth is actually much worse because what employers say now about whether they will continue to offer health insurance is colored by all the lies they have been told about costs not going up. Once the one year delay of the employer mandate ends and employers get hit with the same enormous price increases that individual purchasers are getting hit by now the best case scenario is that they will start dropping coverage en masse, choosing to pay the Obamacare penalties instead, as individuals are doing.

As noted above, the alternatives are even worse. If employers provide the more expensive insurance then they will either have to lower wages accordingly (Obama can't raise the market determined price for labor, which is the price for total compensation, not wages alone), or they will just lay off workers until labor supply and demand are equilibrated at the new higher total compensation level. Given that nominal wages are notoriously sticky downwards the most likely outcome is massive layoffs, so hope that employers choose instead to drop coverage and pay the penalties.

These penalties will still add to total compensation, prompting a combination of wage decreases and layoffs, but it can't be as bad as participating in O-strap-a-bum-to-your-back-care.

New website where people upload photos of their health insurance cancellation letters:

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