Workers Nudged to Health Exchanges Seen Costing Taxpayers

Workers Nudged to Health Exchanges Seen Costing Taxpayers

U.S. retirees being pushed out of company-sponsored health plans may prove a harbinger for existing employees as well. About $6.7 billion in taxpayer money may be at risk if companies raise premiums by as little as $100 a month. That may spur as many as 2.25 million people to drop company coverage and enroll in plans under the Affordable Care Act, Stanford University researchers said.International Business Machines Corp. (IBM) and Time Warner Inc. (TWX) have said that they’ll give retirees a stipend to move to coverage in private health exchanges. Rising health-care costs and the availability of new government coverage options may spur companies to similarly shift active workers out of employer-sponsored insurance.

The cost of Obamacare “is much more sensitive than people previously appreciated” to employers’ decisions to drop coverage, Jay Bhattacharya, an economist and Stanford associate professor of medicine, said in an interview. He published a study in the journal Health Affairs today that shows about 37 million workers would get a better deal in the taxpayer-subsided exchanges next year than through their companies as employers raise or redistribute health costs.

“The taxpayers are going to get hammered,” said Douglas Holtz-Eakin, a former Congressional Budget Office director who is now president of American Action Forum, a Washington-based advocacy group that opposes the health law. “It’s going to be extraordinarily expensive.”

Company Fines

The health exchanges established under the 2010 Affordable Care Act are set to open Oct. 1. They are being created to provide medical coverage for most of the 50 million Americans who currently are uninsured. Enrollees will be able to select from a menu of private health plans and in some cases will receive federal tax credits to defray the cost.

Companies with 50 or more workers must pay a fine of as much as $3,000 for every employee who obtains a subsidy for exchange plans, though the penalty in most cases will be less than what the company now pays for health coverage. The Obama administration’s decision in July to delay the penalties until 2015 may encourage more companies to drop coverage next year, Bhattacharya said.

The Congressional Budget Office estimated in May that about 7 million workers will lose employer-sponsored coverage by 2018, either because their companies stop offering it or people choose to go to the exchanges. Tax credits will cost $26 billion next year, rising to $118 billion by 2018, according to the CBO.

Employment Lock

A separate analysis of the issue, also published today in Health Affairs, argues that labor markets may be improved if more workers than expected enroll through the exchanges. People who otherwise feel locked into their jobs for health coverage may be freed to start businesses or retire early, said Thomas Buchmueller, a professor of risk management and insurance at the University of Michigan’s Ross School of Business.

“We, at a minimum, should not be concerned if people make that transition,” Buchmueller said in a telephone interview. “It just means there’s more good options for people.”

Independent estimates of the number of Americans who may leave their employer-sponsored health plans because of the Affordable Care Act vary widely. A July study by Craig Garthwaite of Northwestern University’s Kellogg School of Management predicts as many as 940,000. That number is an estimate of how many adults without children are working because of what the researchers call “employment lock.”

“That speaks to what we might see in January,” Garthwaite said. “One of the risks to starting a business is that it’s really hard to get benefits when you’re just a one- or two-person firm and Obamacare is going to change that.”

Changed Relationship

Workers can opt out of their companies’ health plans if premiums cost more than 9.5 percent of their incomes, under the law. The test is based on the cost of an individual plan, not the more expensive family coverage, a policy that will hold down eligibility for exchange subsidies, Bhattacharya said

American Action Forum predicts 43 million workers will lose their employer-sponsored plans. That would make exchanges the dominant source of U.S. insurance coverage, Holtz-Eakin said.

“You’d get different insurance-provider relationships and different care models,” he said in a phone interview. “You certainly wouldn’t get the interference from labor markets we have now with health insurance. Those would be benefits.”

Buchmueller doesn’t expect that many workers to lose their coverage or opt for exchange plans, pointing to results in Massachusetts, where employer-sponsored insurance increased after 2006, when the state enacted a health-care overhaul that later served as the model for the federal Affordable Care Act.

Workers, looking to avoid paying a penalty for not carrying insurance, pressured their employers to provide it, an effect Buchmueller’s study calls “crowd-in.” That may happen under the national health law as well, he said.

To contact the reporter on this story: Alex Wayne in Washington at

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (, the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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