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Obama's Affordable Care Act Looking a Bit Unaffordable

The exchanges present a savings for some employers but a rate hike for their employees.

Republicans have long blamed President Obama's signature health care initiative for increasing insurance costs, dubbing it the "Unaffordable Care Act."

Turns out, they might be right.

For the vast majority of Americans, premium prices will be higher in the individual exchange than what they're currently paying for employer-sponsored benefits, according to a National Journal analysis of new coverage and cost data. Adding even more out-of-pocket expenses to consumers' monthly insurance bills is a swell in deductibles under the Affordable Care Act.

Health law proponents have excused the rate hikes by saying the prices in the exchange won't apply to the millions receiving coverage from their employers. But that's only if employers continue to offer that coverage--something that's looking increasingly uncertain. Already, UPS, for example, cited Obamacare as its reason for nixing spousal coverage. And while a Kaiser Family Foundation report found that 49 percent of the U.S. population now receives employer-sponsored coverage, more companies are debating whether they will continue to be in the business of providing such benefits at all.

Economists largely agree there won't be a sea change among employers offering coverage. But they're also saying small businesses are still in play.

Caroline Pearson, vice president at Avalere Health, a health care and public policy advisory firm, said there's a calculation low-wage companies will make to determine if there's cost savings in sending employees to the exchanges.

"The amount you have to gross up their wages so they can get their own insurance and the cost of the penalties may add up to less than the cost of providing care," she said.

It's a choice companies are already making. The number of employers offering coverage has declined, from 66 percent in 2003 to 57 percent today, according to Kaiser's study.

The new variable is the penalty employers will face for not providing coverage, which will start in 2015 after it was delayed earlier this year. The Health and Human Services Department argued that any increase in the number of employers that drop benefits would not deviate from the historical trendline. And, HHS said, employer decisions to drop coverage might have nothing to do with the ACA. HHS spokeswoman Joanne Peters said previous health care reform measures have, in fact, reversed that trend.

"As we saw in Massachusetts," Peters wrote in an email, "employer coverage increased when similar reforms were adopted."

But others aren't as confident. The drop-off in employer coverage paralleled an increase in premiums, which rose 80 percent for families and 74 percent for singles in the last 10 years, the Kaiser study found.

"To any small employer, it's a no-brainer," said Devon Herrick, a senior fellow at the National Center for Policy Analysis, a conservative policy research organization. "If workers can get better coverage that's subsidized, it makes sense for the employer to stop providing health insurance."

Whether the quality of care in the new market is comparable to private offerings remains to be seen. But one thing is clear: The cost of care in the new market doesn't stack up. A single wage earner must make less than $20,000 to see his or her current premiums drop or stay the same under Obamacare, an independent review by National Journal found. That's equivalent to approximately 34 percent of all single workers in the U.S. seeing any benefit in the new system. For those seeking family-of-four coverage under the ACA, about 43 percent will see cost savings. Families must earn less than or equal to $62,300, or they, too, will be looking at a bigger bill.

Those numbers include the generous tax subsidies designed to make the new system more attractive to consumers.

"In 16 states that HHS studied, premiums were on average almost 20% lower than what the Congressional Budget Office projected," Peters wrote in an e-mail.

Premiums may be lower than predicted, but they're not competitive with what workers are now paying for employer-sponsored care.

On average, a worker paid in places where the median family income is higher, the number of people who benefit from cost savings will be even lower. It's a tough reality for California, which is home to the largest number of uninsured people in the country (6.7 million) and therefore viewed as the most important test for the success of the new federal health law.

The truth is, Obamacare is doing what it was intended to do: make health care affordable for the nation's lowest earners by spreading out the costs among taxpayers.

The trap is that the exchanges also present a savings for some employers but a rate hike for their employees.

And shifting employees to the exchanges also is just logistically easier than trying to meet the law's employer mandate.

As of August 2013, 50 percent of employers report being "somewhat prepared" to implement the provisions of the ACA, and an additional 22 percent report being "not prepared," according to a Deloitte report to the National Conference of State Legislatures.

The report also indicates that, overall, 81 percent of employers "do not anticipate dropping coverage." Cheryl Smith, senior practitioner at Deloitte, said that number is likely to change as employers learn more about the exchanges.

"We're not going to know who is coming into the exchanges for the next few years," Smith said. "We also don't know for whom the subsidies will be most enticing."

The Deloitte report found several factors that will feed into employer decisions about dropping coverage. Among them is an assessment of better benefits in an exchange, a penalty for not providing coverage that is less than the cost of that coverage, and a continued trend of premiums rising faster than inflation.

Employers are also likely to drop coverage if they have a great diversity in plan offerings in their market. The study found that 71 percent of small businesses would be more likely to join the exchange in that scenario, compared with 49 percent of large companies.

Of less importance was what competitor companies choose to do with their health benefits, Deloitte found.

"Will the exchange feel the same as receiving health benefits from an employer?" Levitt said. "No. For middle and higher income they would be paying more than they would with a job with health benefits. But it's hypothetical, because they don't have a job with health benefits."

Unless they did, before their employer cut it.

Perhaps the biggest obstacle Obamacare faces today isn't getting people in the system, but making sure those who do get in actually receive affordable care. between $862 and $1,065 per year for single coverage in 2013, according to Kaiser's numbers. For the average family plan, defined as a family of four, insurance cost between $4,226 and $5,284.

Fewer than half of all families and only a third of single workers would qualify for enough Obamacare tax subsidies to pay within or below those averages next year.

The cost of Obamacare will vary by state. But early numbers from state exchanges--including California, Minnesota, Washington, and Rhode Island, in addition to those found on Kaiser's online cost calculator--provide similar estimates, all of which indicate a wide disparity between workers' contributions to premiums under employer plans as opposed to Obamacare.

Looking at single versus family-of-four coverage against the federal poverty line, low-income households benefit most from Obamacare and the tax subsidies that defray costs. Those eligible for tax subsidies can make up to 400 percent of the federal poverty line, equivalent to $45,960 for one person and $94,200 for a family of four. The data in the graphic is based on the Covered California calculator, which Senior Vice President Larry Levitt of Kaiser said is a market "roughly in the middle of the pack."

(Image via mayamaya/Shutterstock.com)

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