Tuesday, June 21, 2011

Democrats’ Assault on McKinsey’s Inconvenient Truths

The White House and other Democrats continue to take aim at the McKinsey consulting study released two weeks ago and its conclusions that as many as half of all employers are considering dropping coverage as a result of Obamacare.  The criticisms of the survey fall into three general characteristics, each of which can be easily rebutted:

The Study Was Flawed

McKinsey’s release of the survey questions, methodology, and data has put to rest many questions about the objectivity and subject matter in the study.  Other folks have analyzed these points at greater length, but to summarize: The study was paid for by McKinsey and not any of its clients; the survey was administered by an internationally-recognized survey firm; the survey’s descriptions were largely fact-based and generic in nature (i.e., no “push polling” occurred); and the study surveyed a large, representative sample of the nation’s employers.

In releasing their full survey questionnaire, McKinsey has now been FAR more transparent than the Congressional Budget Office, which has yet to release the underlying economic assumptions behind their health insurance model.  Democrats wrote multiple letters to McKinsey asking for details about their study; will they now write CBO asking Congress’ budgetary scorekeeper to make its assumptions public?  Put another way, are Democrats interested in full transparency of ALL health insurance studies – or will they only demand details regarding studies with which they disagree?

The Study Studied the Wrong Topic

After McKinsey released the survey data yesterday, the White House last night said that the study was “not a prediction;” other liberal bloggers have assailed “its lack of predictive value.”  Implicit in these statements is a belief by those on the Left that computer-driven models created by academic economists are a better predictor of employers’ future behavior than surveys of the actual employers themselves.

The “dismal science” has long been criticized for the limitations of its predictive value – hence the old saying that economists have predicted 12 of the last 10 economic recessions (or, more appropriately under this President, economists have predicted 12 of the last 0 economic recoveries).  If Democrats want to make the assertion that economists’ models are more predictive of employers’ behavior than surveying employers themselves, then why did the Administration’s economic models showing that the trillion-dollar stimulus would keep unemployment below 8 percent fail?  Or, for that matter, why has the health care law has failed to deliver the $2,500 per family reduction in premiums candidate Obama promised based on economic assumptions by his campaign advisors?

The Study Is An “Outlier”

Democrats have relied on this mantra, in an attempt to marginalize the import of the McKinsey findings.  But the reality is far from accurate, as multiple studies – and Administration officials themselves – have acknowledged that Obamacare’s perverse incentives will encourage employers to drop coverage:

  • A PWC survey of employers found that nearly half of all employers “indicated they were likely to change subsidies for employee medical coverage” thanks to the law.
  • Former Congressional Budget Office Director Doug Holtz-Eakin’s analysis confirmed that many more firms than originally projected will have a rational economic basis for dropping their plans come 2014 – resulting in up to $1 trillion more in new federal spending on insurance subsidies than official estimates.
  • An Associated Press story from last fall, titled “Employers Looking at Health Insurance Options,” included quotes from a Deloitte consultant saying that “I don’t know if the intent was to find an exit strategy for providing benefits, but the bill as written provides the mechanism” and from the head of the American Benefits Council claiming that the law “could begin to dismantle the employer-based system.”
  • Former Tennessee Governor Phil Bredesen – a Democrat – wrote an op-ed explaining very succinctly why employers will drop their existing coverage options.  Gov. Bredesen noted that Tennessee could drop coverage for its state employees, pay the $2,000 per employee penalty to the federal government, give their workers cash raises to compensate for the loss in health benefits, and STILL come out at least $146 million per year ahead.
  • An April paper previously released by HR benefits consultants at Lockton discussed the costs for businesses, and confirmed the financial incentives for employers to drop coverage.  The report noted that “some employers WILL eliminate group health insurance and full-time jobs in 2014 because of the law.”  The analysis found 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.
  • Joel Ario, head of the health insurance Exchange office within HHS, admitted in March that if “the Exchanges work pretty well, then the employer can say ‘This is a great thing.  I can now dump my people into the Exchange and it would be good for them, good for me.’”

To summarize: The McKinsey survey followed usual rigorous methodological standards; the survey of what employers say they are thinking about doing in 2014 should actually be of GREATER use to policy-makers than what computer-driven models say they will do; and the McKinsey study is far from the first to point out Obamacare’s incentives for employers to drop coverage.  Given all this, Democrats’ continued obsession with undermining the survey seems far more like an attempt to intimidate anyone who dares speak politically inconvenient truths rather than a serious attempt at scientific scrutiny.