An increasing number of businesses are figuring out that continuing to offer health benefits puts them at a competitive disadvantage versus firms which socialize the costs of health care by shifting their employees onto Obamacare exchanges.
However, these employers are handing their employees a risk that they likely do not appreciate. If they are operating in one of 36 states where Obamacare might come to a screeching halt in the second half of 2015, their employees could lose their subsidized Obamacare plans as early as July.
This is what will happen after a Supreme Court decision in favor of the petitioner in the Obamacare case of King v. Burwell. This case addresses the question of whether the Administration can pay Obamacare subsidies to insurers in states that did not establish their own Obamacare exchanges.
The Court will hear oral arguments on March 4, and is expected to announce its decision in June or July. If the Supreme Court finds in favor of King, tax credits to health insurers via the federally operated exchanges in 36 states will likely stop within a few weeks. As a result, enrollees will be exposed to the true premiums of their policies for the first time. Many will not be able to afford them.
Enrollees are likely unaware of this, because the exchanges were designed to camouflage the subsidies. The Obama Administration likes to pretend that it has actually lowered the cost of health insurance in the individual market. So, the exchanges are designed only to present to applicants only the premiums net of subsidies.
According to a recent report published by the Administration, the average Bronze plan for a single person in 2015 is $265 per month. Silver, the most popular plan, has an average premium of $336 per month. Platinum, the most expensive, costs $439. However, the Administration also notes that 8 of 10 returning enrollees will be able to get a plan for less than $100, regardless of the metal level they selected in 2014 (emphasis in the original).
According to an example in the report, a 27-year old single woman earning a little over $25,000 would pay a maximum of $148 for the second lowest cost Silver plan. However, the actual premium of that plan is $222. So, if the Supreme Court knocks out the subsidy, her premium will jump by $74, an increase of 50 percent!
Because the subsidy is the same for less expensive plans, the people who were the best shoppers will suffer the worst shock. Suppose, for example, the woman had bought the least expensive Silver plan for a premium of $99 net of subsidy. In that case her premium will jump by three quarters, to $173. If she had bought a Bronze plan for $74 net of subsidy, her premium would double to $148.
According to recent reports by the RAND Corporation and the Urban Institute, millions will drop coverage. Even if our woman accepts this hike, she is unlikely to be happy with the employer who told her months earlier that she would save money by enrolling in Obamacare instead of the company’s now cancelled health plan.
Further, even if she could find the extra $74, she will be dealing with a very frustrated health plan. The health plans know that, after such a sticker shock, healthy patients will stop paying premiums, and the sickest will stay with the plan. The plans will rush for the exits as quickly as they can.
The Obama Administration is neglecting to inform people of this risk. A privately owned corporation is obliged to disclose the risks of pending litigation to interested parties. Apparently, this constraint does not apply to the federal government. Indeed, Team Obama is cheering the fact that millions of people are bailing into Obamacare exchanges, putting their health coverage at risk, and pretending that everything is going swimmingly.
This needs to change. The Administration needs to disclose fairly and fully on the exchange website the exact nature of the legal risk that people are taking when they apply for Obamacare coverage in one of the 36 states. And it needs to insure that “navigators” and others who are signing people up do so only after ensuring that applicants have given their informed consent to this risk.
(A version of this Health Alert appeared in The Hill.)
John R. Graham is a Senior Fellow at the Independent Institute as well as NCPA.
As an expert on individual choice and limited government control over medicine, Graham speaks frequently on health reform on radio and television, and at meetings in the United States, Canada, and Europe.