Side Effects: Now Even Democrats Are Voicing Concern About Obamacare’s Consequences

Kathryn Nix /

Imagine that one day, your boss takes you out to coffee.  You offer to pick up the tip as a contribution. The two of you head down the street and are faced with quite the conundrum: two coffee shops to choose from! Both offer a delicious cup of joe for the same price, but in front of one, a benevolent gentleman who calls himself Uncle Sam (weird, right?) offers you a coupon for 50 percent off, so both you and your boss will save. Which coffee shop do you think your employer would take you to?

This is not a trick question. The scenario described above captures how employers are likely to react to incentives created by Obamacare to dump employer coverage, as Governor Philip Bredesen (D–TN) explained recently in The Wall Street Journal.

Bredesen went against his party, again. Obamacare creates generous, taxpayer-funded subsidies for low- and middle-income Americans to purchase insurance in the state exchanges. To keep employers from dumping coverage, the new law includes a “firewall”: a penalty of $2,000 for employers who don’t offer coverage and the requirement that individuals have no offer of adequate employer coverage to qualify for a subsidy. But the subsidies are so generous that in many cases, employers could dump coverage, pay employees extra to make the switch cost-neutral, pay the penalty, and still save. If enough employers do this, the fiscal effects will be severe. Bredesen explains:

Our federal deficit is already at unsustainable levels, and most Americans understand that we can ill afford another entitlement program that adds substantially to it. But our recent health reform has created a situation where there are strong economic incentives for employers to drop health coverage altogether. The consequence will be to drive many more people than projected—and with them, much greater cost—into the reform’s federally subsidized system. This will happen because the subsidies that become available to people purchasing insurance through exchanges are extraordinarily attractive.

Bredesen uses his state, which employs 40,000 employees, as an example. If Tennessee dropped health care coverage but raised salaries by enough for employees to purchase coverage in the exchanges and come out even, after paying the $2,000-per-employee penalty, Tennessee would save $146 million.

Savings don’t come from reductions in the cost within the health care system. The new health law will actually drive insurance premiums higher. Instead, “savings” are solely attributable to the taxpayer-funded subsidies. Obamacare won’t make insurance any cheaper—someone else will just be picking up part of the tab.

There are approximately 170 million Americans whose employers provide them health insurance. If a significant portion of them lose their employer coverage, the subsidies could cost taxpayers approximately $1.4 trillion over 10 years.

This post was co-authored by Charlie Adair.