“Our actuarial modeling of more than 130 employee benefit plans
shows that last year’s health reform law imposes additional costs on
employers’ health plans. The study also shows that the law will create
a financial incentive for some employers to terminate health benefit
plans in 2014 when new Insurance Exchanges take effect.”
Another reminder that the Congressional drafters of what’s come to be called ObamaCare shaved fiscal corners came early this month in a notice published in the Federal Register. The news: after May 5, 2011, no more applications will be received for the Early Retiree Reinsurance Program. Why? The applications already received plus those expected to be received by May 5 will blow through the money available.
This small program—less than one percent of all the spending in ObamaCare’s first decade—was, like subsidies for state high risk pools, one of the “early implementation” provisions of the law. It would show somebody getting something during the period when most of the action would be bureaucratic rumbling getting ready for the “Big Bang” on January 1, 2014. All sorts of new subsidies take effect on that date.
It would have been more than one percent if Congress funded the whole thing. Instead, the Congressional drafters opted for an installment plan. They would put up a defined amount of money for the whole program, and then close enrollment once enough companies had signed up.
It is an odd approach to an odd program. The money does not go to provide health insurance to people who are without. Instead, it is a subsidy for coverage for people who already have it. And it isn’t a subsidy for people. It is a subsidy for the former employers. And it isn’t a per retiree subsidy. It is reinsurance, an agreement by one insurer (here the government) to take on some of the risk of another insurer. And it isn’t full reinsurance, it is reinsurance over a particular risk corridor. The program makes payments to employers for 80 percent of their costs for services covered by Medicare for costs that fall between $15,000 and $90,000.
A total of $5 billion is available until 2014. Rather than accepting what the Congressional Budget Office (CBO) would say a program that lasts until 2014 would cost, it only lasts until the money runs out. And rather than make the reinsurance fit with the money they had, something they could do by saying we’ve got so much money each year and we’ll vary the percentage paid or the risk corridor according to the money available, they wrote a range into the law, $15,000 to $90,000 and decided to make how long the program lasts the margin of adjustment. At the time the money runs out, the program is over. At least that’s the story they told CBO, taking advantage of CBO’s dedication to the proposition that the stories Congress tells us are all true. Applying the programs rules, CBO projected the money would run out about half way through 2012.
The history of this proposal seems to go back to the 2004 election. The Democratic presidential nominee, Sen. John Kerry, embraced reinsurance as a way to subsidize retiree health insurance costs. In a different era, many employers, particularly those with unionized workforces, added health insurance benefits for retirees as an additional inducement for older, more expensive workers to leave voluntarily. Without health insurance, retiring before reaching age 65 and Medicare eligibility meant taking on a lot of risk. By offering to continue health benefits, employers would have a better chance of getting employees younger than age 65 to leave.
A lot of reality intervened between the time when those commitments were made and the present day. Health care costs turned out to be higher than expected. Employers made promises but did not put aside the money to make good on them. As employers wised up, the share of workers who had retiree health benefits or could look forward to getting them when they retired fell. Estimates of the share of the workforce who can look forward to getting health benefits from their current employer say about one in five will get them.
Two groups were distinctly less nimble in getting out of their retiree health benefit commitments—unionized employers, particularly in the automobile industry, and public sector employers. And now that there is a government program to subsidize employers’ cost for their retirees, where are the funds going in greatest concentration? Unionized employers and public sector employers.
General Motors would have been the biggest beneficiary had it lived to cash the check. As part of old GM’s demise, its health insurance obligations have gone over to the United Auto Workers Retiree Benefits Trust. A report from the Department of Health and Human Services identifies that entity as the largest source of claims in 2010 and presumably it is also the recipient of the largest payment, $108.6 million, made to an unnamed entity.
If the idea was to help out the UAW and the auto industry, the program has worked. The likely UAW payment was one-fifth of the $535 million paid out by the end of 2010. While the political muscle might have been the UAW’s, the largest amount of payments is going to state and local governments. They received 55 percent of the 2010 payouts.
After the UAW, the next six largest claimants, measured as number of retirees with costs high enough to trigger a payout, are all state governments or their pension funds (California, New Jersey, Kentucky, Georgia, Texas and Louisiana.) Only after them is there a private employer, Alcatent-Lucent USA, successor to the old AT&T’s Western Electric.
Relative to other people who have retired, retirees with health benefits are better off. This is not a program for the truly needy. And while the program’s rules require that sponsors raise their right hands and swear or affirm that they are using the money to reduce retiree costs or otherwise help retirees, the anecdotes about what they are doing sound like things they would have done anyway in the name of controlling costs: disease management programs, case management for high cost cases, etc.
The question is: what happens when the music stops? As that Federal Register notice reminded us, $5 billion won’t last as long as the retiree health commitments employers have made. The UAW’s health benefits trust fund will still be just as underfunded when the federal funds run out as it is today. States and local governments will still have crushing amounts of unfunded retirement liabilities. It could be that it was fun while it lasted. It will also be an opportunity for employers and retirees to bang the tin cup and ask for more.
The story Congress told its budget office was that when the money runs out, the spigot shuts off. Whether that’s a promise they will keep likely depends on who controls Congress when that happens.
Hanns Kuttner is a visiting fellow at Hudson Institute
“Supporters of ObamaCare acknowledge it will have some unintended consequences. Yet surprisingly little attention has been focused on the law’s most problematic provision: government subsidies to help individuals and families purchase health insurance.”
“President Barack Obama signed a bill repealing a tax-compliance mandate in last year’s health- care law, giving a victory to business groups that led a campaign against the requirement.
The repealed provision, under which companies would have had to report more transactions to the Internal Revenue Service, was included in the law as a revenue-raising measure. It was to have taken effect in 2012.”
“After a months-long battle, the Senate voted Tuesday, 87 to 12, to repeal the 1099 tax-reporting requirement in Democrats’ healthcare reform bill. The measure now goes to the president, who is expected to sign it, making it the first part of his party’s signature reform bill to be scrapped.”
“President Obama’s signature health care reform law just passed its one year anniversary, but many companies have yet to come to terms with what the new law will mean for their operating costs and bottom lines. Large firms flush with low-wage workers will get hit hard because their bare-bones, low-cost employee health insurance policies don’t comply with the new law, which takes effect in 2014. These companies will have two choices: offer an unlimited insurance minimum, or reduce their workforces.”
“There’s ample evidence in the literature that physician productivity declines when doctors become owned employees rather than entrepreneurs. How then will the new marketplace that ObamaCare creates deliver efficiencies is downright quizzical.”
“Today, the argument is that ObamaCare is good for American business. Though there are sure to be those who experience some benefit under the new law, its overall effect will be to cause great harm to job growth and the economy at large. By and large, ObamaCare will also fail to remove the obstacles that smaller employers face to provide health insurance for workers.”
“Starbucks chief executive Howard Schultz says the health overhaul law’s employer requirements will impose “too great” a pressure on small businesses.
Schultz supported the law as he watched his company’s health insurance tab — $250 million as of last year — surmount its coffee bill. But he told The Seattle Times in an interview published Tuesday that he’s now worried about what happens when it takes full effect in 2014.”
“House Democrats held a birthday party last week for passage of the health-care law. Just as we looked at Senate Minority Leader Mitch McConnell’s floor speech noting the milestone, we will now examine some of the claims made by Democrats…
By contrast, House Democrats appear to show little hesitation about repeating claims that previously have found to be false or exaggerated. So let’s take a tour through the numbers.”