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McKinsey Redux: The Problem With The Latest ‘Employers Will Drop Coverage’ Report

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"McKinsey Redux: The Problem With The Latest ‘Employers Will Drop Coverage’ Report"

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Former CBO head Douglas Holtz-Eakin appeared on Fox News this morning to hawk a National Federation of Independent Businesses (NFIB) study, which found that some small businesses would drop coverage if their employees purchase insurance coverage through the state-based exchanges:

HOLTZ-EAKIN: Number one, every time an employee takes advantage of the exchanges, it means the taxpayers are forking out a lot of money. The subsidies are quite generous, as much as $7,000 to a person making $70,000, 10 percent of their income. So that’s a real taxpayer burden. The second is it means employers are dropping coverage. There are insurance arrangements that they already have, and they’re going to go away. One of the central promises of the Affordable Care Act was if you like your insurance, you get to keep it, and that’s increasingly not true.

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Holtz-Eakin forgot to mention that tax payers are already “forking out a lot of money” — some $200 billion a year — to encourage employers to continue providing health insurance to their employees, most of whom would not be able to apply for subsidies within the exchanges. That’s because “subsidies aren’t available to anyone whose company offers a healthcare plan that costs less than 9.5 percent of his or her income.” So the NFIB survey and Holtz-Eakin have it backwards “employees would head to the exchanges if their companies quit offering healthcare, rather than employers dropping coverage because their employees aren’t taking it.”

And despite Holtz-Eakin’s claims to the contrary, there is very little evidence to suggest that employers would benefit from eliminating the health care benefit and making up the difference in higher wages (an added cost, particularly for higher-paid employees). As NFIB senior fellow Denny Dennis, who wrote the report, admitted on a conference call with Politico’s Jason Millman, there’s no “slam dunk” evidence that that businesses will dump coverage are a result of the law.

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