We know that Obamacare will significantly increase the cost of individually-purchased health insurance in nearly every part of the country. But weve generally assumed that disruptions in the market for employer-sponsored health insurance will be less severe. In particular, large employers who self-insure should be exempt from most of Obamacares most onerous regulations. It turns out, however, that even Americas largest companies face higher costs due to the health law. A recently-leaked letter from Delta Air Lines to the Obama administration states that the “cost of providing health care to our employees will increase by nearly $100,000,000 next year,” much of it due to Obamacare.
Executives from several large Atlanta-based companies met with a member of the Obama administration in Atlanta in early June. There, the executives explained to the administration official how Obamacare was affecting their businesses. Robert Kight, Deltas vice president for global human resource services and labor relations, wrote a follow-up letter to the official, detailing Deltas concerns. Apparently, Delta then circulated the letter among its employees, who then sent it to Erick Erickson of RedState.com. The full text of the letter is appended to this article.
“Make no mistake,” writes Kight. “The costs imposed on Delta and our employees are very real and they are escalating. [Obamacares costs], when combined with normal medical inflation and the end of the [Early Retiree Reinsurance] program mean that the cost of providing health care to our employees will increase by nearly $100,000,000 next year.”
Self-insurance vs. normal insurance
Its important understand how self-insurance works. Traditional insurance works this way: you and others pay premiums to an insurance company. The insurance company collects those premiums, and pays for the contracted-upon health expenditures incurred by you and other policyholders. The insurer keeps an additional amount of money in reserve, in case the amount it has to spend on health claims exceeds what it collected in premiums. The insurer has overhead expenses—lets say 15 percent of premiums—which include its labor costs and perhaps a small profit margin.
Self-insurance works a different way. Many large employers, instead of paying premiums to an insurance company, cut out the middleman and pay directly for the health costs that their workers incur. This involves additional financial risk for the employer, but the company saves money that would otherwise go to an insurers overhead.
And theres an additional benefit. Under Section 514 of the Employee Retirement Income Security Act of 1974, or ERISA, companies who directly fund their workers health benefits, instead of purchasing health insurance on their behalf, are not bound by state insurance regulations. Because state insurance regulations often act to drive up the cost of health insurance, many companies—especially large ones with a broad risk pool—are better off if they self-insure their workers.
ERISA plans are also exempt from a number of Obamacares regulations. But the new health law does impose a number of mandates on self-insuring employers. Firms with more than 200 full-time workers must “automatically enroll new fulltime employees in one of the plans offered.” ERISA plans must pay a fee to fund “patient-centered outcomes research” and cover a number of mandated health care services. Their ability to install annual or lifetime limits is constrained, as is their ability to expand deductibles, co-pays, and other cost-sharing mechanisms.
Several Obamacare provisions are increasing Deltas costs
The Delta letter specifies a number of Obamacare provisions that are increasing their costs. The law charges Delta a “reinsurance fee” that goes toward funding the laws subsidized insurance exchanges. But Delta employees get coverage from Delta, not from the exchanges; hence, the fee is effectively a $10 million tax on Delta for other government purposes.
The oft-noted provision of the law that requires employers to cover “adult children” up to the age of 26 has also driven up Deltas costs, according to the letter. “More than 8,000 children [have been] added to our rolls resulting in a permanent increase in our overall costs of about $14 million per year.” According to Delta, these added children have higher-than-average health costs, which has had the added effect of increasing premiums for other employees.
In addition, the individual mandate—the provision in the law that requires most individuals to purchase health coverage—means that a number of Delta employees who turn down the firms offer of coverage will now accept it. That will add another $14 million to Deltas costs.
Delta doesnt like Obamacares “Cadillac tax” on high value insurance plans. But thats because the tax is doing exactly what it should do: motivating employers to pare down on costly plans that drive premiums upward.
Delta says that its health care costs will increase by $100 million next year. Thats a staggering sum, even for a large company like Delta. Its not clear exactly how much of that sum is due specifically to Obamacare, and how much is due to health inflation and the end of Obamacares Early Retiree Reinsurance Program, a $5 billion fund used to encourage employers to continue providing health benefits to early retirees in the near-term. But the three provisions described above amount to $38 million, and that doesnt include increased cost of insurance due to Obamacares benefit mandates, which should amount to a significant additional sum.
Regulatory uncertainty is a significant problem
The letter also complains about other aspects of the law, such as the employer mandate, which “may unnecessarily impose HR information systems changes that will be costly to build and maintain” due to their complexity. “There are many unsettled principles surrounding this provision of ACA,” Kight writes, “and based on the fact that it is already June, employers will not have time to react should final regulations be issued this year. This puts employers at risk of being assessed these penalties in innocent situations (such as when employees take voluntary leaves of absences) and imposes additional costs, even in those situations where the vast majority of employees are offered affordable, comprehensive coverage.”
This is one of the most problematic aspects of Obamacare: the fact that the Obama administration has missed dozens of deadlines to issue important regulations related to the law. Employers sit around waiting for these regulations to drop, knowing that they must reorganize their businesses to comply, or pay steep penalties. But as the clock ticks, and we get closer to 2014, companies have less and less time to adapt to new regulations, increasing the potential for disruption and higher costs.
President Obama keeps insisting that, “for the 85 percent of Americans who already have health insurance,” life will be even better than it is today. But thats patently untrue. The so-called “Affordable Care Act” will make health care less, not more, affordable.
Original Source: http://www.forbes.com/sites/theapothecary/2013/08/22/delta-air-lines-next-year-our-health-care-costs-will-increase-by-nearly-100-million/