Posted by: Doug Henwood | June 21, 2011

McKinsey: more right than wrong

Administration apologists, from the White House official blog to Paul Krugman (“McKinseyGate”), have all lined up to denounce the McKinsey survey I wrote up here the other day (“Bye-bye employer health insurance”). McKinsey found that a large share of employers who now offer health insurance benefits will drop them once ObamaCare comes into effect in 2014. At first, McKinsey didn’t release the questions or the methodology, prompting reactions like Krugman’s:

It’s hard to escape the conclusion that the study was embarrassingly bad — maybe it was a skewed sample, maybe the questions were leading, maybe there was no real data at all. Whatever [sic].

A few days of criticism of this sort was more than the consulting firm could take, so it released the full survey and the underlying data. Turns out the sample was not skewed, the questions were entirely reasonable and factual, and there’s plenty of data.

At the core of it is this: McKinsey gave the surveyed employers details on what would happen if they dropped coverage—how much it would cost their employees, after government subsidies, to buy insurance on the new exchanges (e.g., $4,437 for a family of four with an income of $55,125), and what it would cost them in penalties for not insuring employees ($2,000 per worker after the first 30 workers). McKinsey presumably did not have to tell employers what their present coverage cost them, but the numbers are stunning. According to the Kaiser Family Foundation, typical coverage costs almost $14,000 a year, with employers paying about $10,000 and employees about $4,000. No wonder a third to half of employers would seriously contemplate dropping coverage—their cost savings would be enormous. And their workers might not have to spend all that much more than they’re contributing today. But their coverage is likely to be a lot crummier than what they’ve got now.

Forbes blogger Avit Roy—who appears to be rather conservative, but also smart and serious—has written some convincing defenses of the McKinsey survey (like“The McKinsey Health Insurance Survey Was Rigorous, After All”). One of his commenters, Heritage Foundation economist Paul Winfree, notes that studies like the Congressional Budget Office’s, which show many fewer employers likely to drop coverage than McKinsey does, are based on extrapolations from minor, year-to-year changes in the cost of health insurance that may not be relevant to an enormous transformation of the sort that ObamaCare represents. This seems like a sound point: a massive institutional change like this is more likely to produce a major rethink than minor twiddling.

Single-payer advocates should be embracing the McKinsey results, not jumping on the Democrats’ apologetics bandwagon.

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Responses

  1. Mr. Henwood, I do not view the ACA as the best of both worlds, but it seems to me that rollback of the ACA would be much worse – I don’t see what kind of reasonable “center” solution there can be for healthcare between what the Republicans propose now (which seems to be “die”) and a very conservative piece of policy that was the ACA. I also view the ACA as a step in the right direction and a way of “growing” the govt.’s role in healthcare via policy drift, etc. so that we can eventually get healthcare in a form that we would like.

  2. The PPACA forces people to buy insurance from private companies that have failed at cost control. Meanwhile, Democrats are trying to cover their asses by defining health reform down to mere insurance, regardless of what care is actually covered. Fortunately, we can dispense with their moral relativism by applying a simple test for “patient protection” and “affordable care”: does the Rube Goldberg of ObamaCare slash the number of personal bankruptcies that are due to health care being too damn high?

  3. I agree that McKinsey’s data are as good as any other out there but I’m not so sure that a massive dropping of insurance coverage will hasten single-payer. My guess is that many large and mid-size employers currently utilize commercial health insurance carriers mainly as claims administartors and self-insure. I think what may happen is that the “group” rates in these plans will continue to escalate/accelerate such that high-risk workers (families, pre-existing diseased younger workers, and older workers) will move/be pushed into the Obamacare plan. So employer-based insurance will benefit from “positive selection” and Obamacare will become one big “assigned risk” pool (anyone recall NJs “JUA” of the 1980s?) Or it may be a replay of Oxford’s foray into the NY metro healthcare market that crashed and burned because of incompetence, complexity, and greed. Just working out the reimbursement rates for Obama’s complex system will be one huge admin nightmare. Trying to get a new insurance plan at the state level is incredibly difficult – doing this on some sort of shared federal-state basis is just not going to work. My sense is that any type of high-risk worker will be scared to purchase Obamacare insurance because of uncertainty about coverage, premiums, etc. A monumental train wreck with a gridlocked Congress and House only too eager to watch the Dems screw this up. A bad time in health insurance is a comin!

  4. [...] McKinsey: more right than wrong from LBO News from Doug Henwood by Doug Henwood [...]


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