Employers Will Beat Obamacare

For many employers, it will be much cheaper to pay the penalties than cover full-time workers.

Back in the summer of 2011, McKinsey released results of a survey they’d done of employers showing that many would drop health insurance coverage when Obamacare* takes full effect. The liberal establishment united in loud criticism of the consulting firm’s report — but it’s looking like they were right. I wrote up the original report (“Bye-bye employer health insurance”) and experienced some of the loud criticisms, prompting a follow-up (“McKinsey: more right than wrong”) based on reading the full survey, something that some of the critics, including apparently Paul Krugman, hadn’t done.

Ah, vindication. Today’s Financial Times has has a front-page piece (“US business hits out at ‘Obamacare’ costs”) confirming the central point of the McKinsey survey: for many employers, it will be much cheaper to pay the penalties than cover full-time workers, and cut the hours for others so they fall under the definition of full-time and then don’t have to be covered. Retailers and fast-food chains are the most likely to do that, but there’s no reason that many other employers wouldn’t join in.

David Dillon, CEO of Kroger, put it succinctly: “If you look through the economics of the penalty the companies pay versus the cost to provide coverage, the penalty’s too low, or the cost of coverage is too high.” The penalty for not covering a worker is $2,000 a year — less than half the cost of covering a single worker ($4,664, according to the Kaiser Family Foundation), and less than a fifth the cost of covering a family ($11,429). Uncovered employees will be forced to buy coverage on the new insurance exchanges — with a government subsidy if their income is low enough— or pay the penalty themselves. You don’t need an MBA to figure out the math on that one.

As I said in my first post on the McKinsey survey:

In the short term, this could provoke a real social emergency, as scores of millions are thrown onto the private individual insurance market and forced to pay $1,000 a month for crappy coverage. But this could vastly increase the constituency for a single-payer scheme, such as Medicare for All — assuming our rulers don’t destroy Medicare first.

Still true.

*Usage note: Liberals hate the term “Obamacare,” given its prominence in the right-wing playbook. But he’s the one responsible for this monstrosity. Obamacare. Obamacare. Obamacare.