Report: Companies Are Better Off Dropping Insurance Under Obamacare

Posted: May 01, 2012 2:10 PM

Here's further proof that "Patient Protection and Affordable Care Act" was a grand misnomer: the House Ways and Means Committee has released a report revealing that the healthcare reform law provides financial incetives for companies to drop insurance coverage. The employer mandate -- requiring that companies with over 50 employees either offer insurance of a certain value or pay a fine -- actually makes it cheaper for these companies to pay the fine. 

The promise that you can keep your plan if you like it? Well...that's not up to you, is it?

In total, the 71 Fortune 100 companies that responded to this inquiry could save an estimated  $28.6 billion in 2014 alone by eliminating health insurance coverage for their more than 5.9  million U.S. employees (impacting more than 10.2 million employees and dependents covered by  those plans) and instead paying the $2,000 per full-time employee fine created in the Democrats’ health care law.  From 2014 through 2023, these employers could save an astounding $422.4 billion if they took this action.

Individually, these employers could save, on average, $402.3 million ($4,821 per full-time and part-time U.S. employee) – on an after tax basis – in 2014 alone by eliminating their health insurance coverage and instead paying the employer mandate’s $2,000 per full-time employee fine.  From 2014 through 2023, the average employer responding to the survey could save $5.9 billion if they dropped coverage in favor of paying the mandate penalty.

Now, clearly the government understands that businesses won't provide insurance on an altruistic basis; executives tend to do what's best for the company's financial health. That's what the employer mandate is for, after all. It was intended to create a financial incentive for companies to provide insurance. Otherwise, they'd have to pay a penalty. Repugnant to liberty, but sound in theory.

In practice, however, not so much. If companies must pay something, they'll pay whatever is cheaper, and as it happens, the penalty costs less than insurance. For the penalty concept to work, it must be greater than the cost of insurance. But of course, this is entirely impractical (after all, small businesses are already struggling to comply with the employer mandate). Businesses and employees both lose out: the company is paying the equivalent of a salary in fines to the government for not providing insurance, and the employees are forced to seek policies elsewhere. The fines also discourage growth, as small businesses are disincentivized from expanding beyond 49 employees, lest they incur the unaffordable cost of insurance or the fine. It's a no-win situation, and further proof that the "Affordable Care Act" is anything but.