Minnesota Public Radio reports, “A loophole in the federal health care overhaul would allow many employers to game the system by dumping their sicker employees [into] public health insurance exchanges, according to two University of Minnesota law professors.” Such “targeted dumping” of sicker employees would cause Obamacare’s taxpayer-subsidized exchanges to cost more — potentially far more — than the Congressional Budget Office (CBO) has projected.
The CBO has already badly misjudged the number of employees who would lose their employer-sponsored insurance under Obamacare. The CBO projected that, from 2010 to 2011, a net of 6 million Americans would gain employer-sponsored insurance in the wake of Obamacare’s passage (see table 4). But Gallup has found that, since President Obama signed Obamacare into law in March 2010, 4.5 million Americans have lost their employer-sponsored insurance. In other words, the CBO’s estimate is off by about 10 million people already.
In their study, published in the Virginia Law Review, authors Amy Monahan and Daniel Schwarcz write,
“[T]here is a substantial prospect that ACA [Obamacare] will lead some, and perhaps many, employers to implement a targeted dumping strategy designed to induce low-risk employees to retain ESI [employer-sponsored insurance] but incentivize high-risk employees to voluntarily opt out of ESI and instead purchase insurance through the exchanges that ACA establishes to organize individual insurance markets. Although ACA and other federal laws prohibit employers from excluding high-risk employees from ESI, these laws do little to prevent employers from designing their plans and benefits to incentivize high-risk employees to voluntarily seek coverage elsewhere. If successful, such a targeted dumping strategy would allow employers and low-risk employees to avoid the costs associated with providing coverage to high-risk employees….”
The authors note that employers who did this “would avoid any financial penalties under the so-called individual and employer ‘mandates.’”
The authors add that “despite its extensive regulation of individual insurance markets, ACA grants self-insured employers tremendous freedom in designing the terms of their plans.” (“Grants…tremendous freedom” is the authors’ way of saying that this is one of the few areas under Obamacare in which the natural and customary freedom of private individuals and organizations to make their own choices like free men and women, is preserved.) The authors continue:
“Such employers are consequently free to design plans that appeal to relatively young and healthy employees but are unattractive to high-risk employees. For example, an employer plan might provide very generous coverage of preventive, wellness, and health maintenance services, while imposing large cost-sharing requirements on those services that high-risk individuals are likely to utilize, such as hospitalization. The plan could even exclude from coverage certain high-cost conditions….
“[E]mployer dumping of high-risk employees could undermine the exchanges [in] which individual markets are expected to operate by rendering the pool of policyholders seeking coverage in exchanges disproportionately risky relative to the general population. Such adverse selection, in turn, would simultaneously increase premiums, lower coverage rates, and increase the cost to the federal government [i.e., taxpayers] of subsidizing coverage for low- and moderate-income individuals. Ultimately, these forces could render insurance exchanges unsustainable.”
The authors’ solution? Even more regulation and mandates. The sensible solution? Repeal.