Tuesday, May 17, 2011

Rising Costs — and the Risk of Employers Dropping Coverage

Amidst the news created by the Medicare trustees report at the end of last week, it’s worth pointing out that another report was also issued demonstrating the continued rise in health spending, and the impact it places on both employers and families.  Actuaries at the consulting group Milliman released their annual medical index, and the results were not encouraging.  Their report – which quantifies the total cost (employer and employee, premiums and out-of-pocket expenses) for preferred provider organization (PPO) plans – showed a $1,319 increase in the total cost of health care for a family of four compared to 2010.  That’s a 7.3% rise in health expenses for families and employers in just one year.  Remember that candidate Obama promised repeatedly his bill would CUT costs by $2500 for the average American family, and that those reductions would occur within Obama’s first term.  The Milliman report once again demonstrates how the President’s promise is NOT being kept.

The impact of rising health spending on employers was further quantified by a paper released by analysts at Lockton, a privately owned HR benefits consulting firm.  The report notes that “employers are burdened and frustrated by aspects of the health reform law that add costs to their health plans,” and that “some employers WILL eliminate group health insurance and full-time jobs in 2014 because of the law.”  The analysis found that across all industries, the mandates instituted in the past year will raise employer premiums by an average of 2.5%, and that other mandates taking effect in 2014 – such as auto-enrollment provisions and shorter waiting periods – could raise premiums in some industries by up to 40%.  On the other hand, employers could save an average 44% of their health insurance costs by dropping coverage and placing their employees in government-run Exchanges; some industries could save more than 80% of premium costs by “dumping” their employees.

Both these reports illustrate the convergence of disturbing trends.  Rising health spending, plus the perverse incentives included in the law, could easily compel employers to place their workers in Exchanges – causing taxpayer-funded insurance subsidies to skyrocket.  At a time when families are struggling to afford health coverage and America is struggling to finance its existing entitlements, neither development should come as welcome news.