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What Happens If Employer-Based Health Insurance Goes Away?

|Includes: iShares U.S. Healthcare Providers ETF (IHF)

According to a recent survey of large companies (median size: 5,600 employees) by Towers Watson, 94% of companies expect health reform to increase costs.  While most expect to continue offering health insurance, 43% of those offering retiree benefits expect to reduce or eliminate them.

88% plan to pass cost increases on to employees, and 74% anticipate reducing health benefits and programs. 20%, moreover, expect to pass increases on to customers. Read more here.

Writing in the Lyceum newsletter Perspectives, Steve Hyde argues that employer-based health insurance will continue its decline at an accelerating pace, as health reform progresses.  He states:

      The reform law, with its universally available insurance exchanges and generous middle-class premium subsidies (and free Medicaid for many earning $10-15/hour), effectively removes both barriers to exit. And the $2,000/employee play-or-pay penalty, according to Medicare’s actuary, “would not be a substantial deterrent to dropping or forgoing coverage.”
Read Steve Hyde's article here.

If the pace does in fact accelerate, expect commercial and government health plans to shoulder the extra burden, which will manifest in higher premiums and tax rates.  Most impacted could be the state Medicaid programs. 

And while Mr. Hyde believes group-based coverage is inherently flawed to begin with, the alternative of a government-sponsored individual market does nothing to rectify the economic misalignment of payers not consuming and consumers not paying—at least not in a direct and transparent fashion.

Access to care is also likely to suffer as hospitals will find it increasingly difficult to offset declining Medicare and Medicaid reimbursement with higher charges to private payers. Hyde argues:

      Hospitals must anticipate the risk of losing their ability to shift growing government losses onto private payers. For most, responding will require nothing less than replacing the standard business model that has sustained them for decades. Those that don’t could find themselves in mortal jeopardy.

If costs do rise as employers expect, public and private payers experience worsening budgets, and access to care deteriorates, expect a severe consumer backlash.  But this isn't the stuff of years to come.

Depending on how the global economy navigates the current economic recovery, including the challenges Europe now presents, any sustained increase in capital costs will exacerbate these negative trends. 

Consumer response would be immediate.

Disclosure: "No positions"