OBAMASCARE AUGUST 23, 2013
The latest Obamacare story getting everybody’s attention is about the United Parcel Service. On Wednesday, Kaiser Health News and USA Today reported that UPS was making a change in its employee health plan—and that, as a result, 15,000 spouses of UPS employees would lose access to company insurance. One reason for the change, according to the company, is that UPS faces higher insurance costs from Obamacare. Eliminating coverage for these spouses is one way the company can reduce its employee benefit costs.
The headlines certainly don’t look good. And, sure enough, Senate Minority Leader Mitch McConnell on Thursday cited the decision as more proof that Obamacare is a fiasco. But like so many Obamacare stories, this one is more complicated than it seems at first blush. Spousal coverage was becoming less common even before the Affordable Care Act became law. At most, Obamacare is hastening a trend that was already underway—quite possibly for some good reasons.
Employers have been trying to control or cut employee benefit costs for a long time, and it's no surprise they eventually started looking at spousal coverage. The idea is a relic from an era when dual-income couples were still relatively uncommon. In those years, employers had every reason to offer (mostly male) employees spousal insurance, since the (mostly female) spouses usually had no other source of coverage. But in the last ten to twenty years, as more women have entered the workforce and two-income families have become more common, companies have started asking why they should subsidize coverage for spouses who could just as easily get insurance from their own employers. “Two income families changed everything,” says Paul Fronstin, a senior research associate with the Employee Benefits Research Institute. “They changed the rules.”
Today, spousal coverage is still the overwhelming norm: More than 90 percent of large employers offer it, according to separate surveys by Mercer and Towers Watson. But the percentage is declining and even those companies who still offer spousal coverage are increasingly attaching financial disincentives—like charging extra fees for spousal coverage or offering rebates to employees whose spouses find insurance elsewhere. Among the companies that have taken such action are Xerox and Teva Pharmaceuticals, according to the New York Times. Now UPS is joining their ranks. And the company is not alone. The University of Virginia this week announced that it, too, was reducing spousal benefits.
Exactly what role did Obamacare play in these latest decisions? It plainly wasn’t irrelevant. In the memo to employees (which Jay Hancock of Kaiser Health News obtained) and then in interviews with reporters, UPS officials said that the company's actuaries expected overall employee health costs to rise by about 12 percent next year—and that about a third of that increase was in reaction to Obamacare. The officials cited, in particular, the law’s requirement that employers offer insurance to employee dependents under the age of 26. The provision has proven popular but, because of that, it’s also costing companies more than they expected. UPS officials also pointed to the likely effects of the individual mandate: Because workers face a financial penalty if they remain uninsured, UPS officials indicated, they expected more employees to enroll in the company health plans next year.
But those are basically one-time increases—the result of changes that will take place only as Obamacare gets underway. And even by company calculations, those increases account for a minority of next year’s higher costs. The rest reflect the normal, year-to-year rise in health care spending. That increase has nothing to do with Obamacare, except in the good sense: Many experts believe Obamacare has been helping to keep those year-to-year increases lower than they might be otherwise.
So what's the bottom line? The economists and industry representatives I interviewed on Thursday mostly thought the new Obamacare requirements were one factor large employers like UPS might be weighing—but only one factor and, most likely, a modest one at that.
“It’s not unimportant, but it’s not the majority of driver of costs,” said Helen Darling, president of the National Business Group on Health, whose members include 66 companies that are also in the Fortune 500. Paul Ginsburg, an economist and president of the Center for Health Systems Change, had a similar take. “The Affordable Care Act has had some marginal effects on large employers, through coverage of young adults and through the potential of higher take-up of insurance among employees,” Ginsburg said. “But overall I’d say it’s a small effect.”
Gary Claxton, a vice president at the Kaiser Family Foundation who specializes in the private insurance market, is even more skeptical that Obamacare regulations are putting serious pressure on employers. “To point to the cost of the ACA is a real stretch,” he told me, “because those provisions are trivial compared to the types of contributions that employers make toward family coverage.” An editorial from Bloomberg raised one other possibility: "That UPS is using the health-care law as a smokescreen for cutting costs it wanted to cut anyway."
Of course, none of these people speak for UPS or have spent time examining the company's books. But even UPS officials caution that Obamacare’s role in this decision isn’t as big as some are making it out to be. “One way of saying this is that we are restructuring our benefits ‘because of the ACA’—but that’s not accurate,” Andy McGowan, a UPS spokesman, told me. “We are doing this because we are looking at many different factors adding to our costs, and ACA is one of them.”
None of this means that employees losing spousal coverage will like it. They quite obviously aren't getting to keep their insurance, as Obama famously promised. But it's hard to come up with a sound policy reason why employers should subsidize insurance for spouses when other coverage sources are available. And it's virtually impossible to think up a system that would preserve spousal benefits indefinitely, at least without creating other perverse incentives. By and large, Obamacare really does leave most existing insurance arrangements in place. But the law can't guarantee nobody's coverage ever changes. No reform could.
Meanwhile, it’s not like UPS is simply kicking spouses to the health care curb. The new exclusion applies only to spouses who have jobs that offer insurance. (At UPS, that’s about half the spouses who get coverage now.) As a result, nobody is actually becoming uninsured because of this change. On the contrary, even as some spouses get coverage elsewhere, more employees and young adult dependents will be getting coverage from UPS. It's a trade-off, for sure, but not necessarily a bad one.
Jonathan Cohn is a senior editor at the New Republic. Follow him on twitter @CitizenCohn