Flawed study?

From Truven Health analytics, here’s the bottom line:

Through our research, we examined five key industries — financial, manufacturing, pharmaceutical, retail, and university — and found that, across the board, there is no short- or long-term advantage to employers dropping group health plans in favor of carrying fines.

But we know this must be wrong, since the subsidies in the exchange are higher than the value of the tax exclusion for below-average income workers. Here is the ever-vigilant, Chris Jacobs:

There’s only one problem with this analysis, and it’s a huge one: At no point does it consider the thousands of dollars of federal insurance subsidies that most workers will be eligible to receive if their firms drop coverage…

According to the Census Bureau, there are 266.5 million individuals under age 65. Of those, 169.2 million, or 63.5 percent, have incomes under 400 percent of the federal poverty level — the threshold under which individuals can receive insurance subsidies.

Comments (7)

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  1. Ken says:

    Sounds very flawed.

  2. Alex says:

    Not only is it financially better to drop your employees, but you get the added benefit of feeling reassured that they will have government subsidies waiting for them.

  3. Don Levit says:

    I have to say I am relatively ignorant about the ACA, but what I think I know is this: as you wrote, the subsidies are higher than the tax exclusions, particularly as we wind down from 400% of poverty to 100%.
    People seem to think the adverse selection problem is dealt with by having the mandate.
    I am wondering how you guys feel about people selecting against the insurer when they switch plans?
    It seems to me if that a person can save, say $1,000 a year by switching insurers, with pre-existing conditions covered, this seems to encourage selection against the insurer.
    Don Levit

  4. John R. Graham says:

    I hate to say it, because Mr. Justice obviously put a lot of work into this paper, but it does appear clear that he did not account for the tax credits that individuals will receive in the exchanges (if Obamacare persists through 2014).

    Mr. Justice’ model estimates what happens if the employer drops coverage and then “makes whole” (i.e. monetizes) the value of the health benefits. The employee then take the extra money to the exchange to pay for a health plan chosen by the political appointees who run the exchange (not, as the media insist, to “comparison shop” like on Amazon).

    But this is very close to “six of one and half dozen of the other”.

    In fact, the employer will not have to make the employees “whole” if they have household incomes between 133% and 400% of the Federal Poverty Level (FPL). The taxpayers will make the employees whole!

    I recommend a paper by Peterson & Gabe of the Congressional Research Service (“Health Insurance Premium Credits Under PPACA,” April 6, 2010, at http://tinyurl.com/7k5j4bv). They estimate that at the low end of the income scale (133% of FPL), individuals would only pay 3% of the premium, i.e. $824 annually.

    So, the employer only has to increase the employee’s money wages by approximately $34 per paycheck in exchange for dropping health benefits and avoiding all the hassle of Obamacare. Even when you add the employer’s “pay or play” penalty of $2,000, it’s peanuts relative to the status quo.

  5. Ali says:

    Sounds like a lot of people are going to get subsidies.

  6. Devon Herrick says:

    In the long run, employee health benefits are merely a form of (non-cash) compensation that substitutes for cash wages. Workers pay for their health coverage indirectly through reductions in take home pay. The reason this is common is because there is a tax subsidy worth 40% to 45% of the cost of coverage.

    In a perfectly competitive labor market, employers would largely be indifferent to whether they provide cash wages or the equivalent in health benefits. But, in reality, offering employee health plans is a little bit of a hassle. But they tend to provide health benefits because employers know workers aren’t indifferent; most workers prefer a portion of their compensation in health coverage because it’s a way to buy health coverage tax free. Employers put up with the hassle of administering health benefits as a competitive advantage to attract workers.

    However, for low- to moderate-wage workers, the subsidies in the exchange are up to five times greater than the tax subsidy they would get through work. Thus, it will be to an employer’s advantage to understand that they can offer low-income workers a much better deal if the employer drops the employee health plan and directs employees to the exchange. An employer dropping the employee health plan could boost low-wage workers total income by 50%. Firms that don’t understand this will be at a disadvantage to those that do. This will lead to a major restructuring of the labor market into low-wage and high-wage firms.

  7. Don Levit says:

    Thanks for your insight.
    Do you have any statistics at what income level. it behooves the employee to “be on the fence” regarding the tax advantages of using the exchange or staying on the group plan.
    I do not think current law would allow employers to keep those above that “threshold” on the group plan, unless it somehow could be a “class” of employees.
    Are you suggesting the employer drop the group plan altogether?
    Don Levit