Short form: Obamacare will save Corporate America tens of billions in 2014 and hundreds of billions a year by 2020, no matter how rough the rollout.
And it's not just me saying it. Deloitte is making the board room rounds, letting concerned corporate citizens know what's up with ACA... and that this is potentially an opportunity to make some serious coin. PDF of report here, and it's a good one, really
Moving right along...
About a week and a half back I wrote a diary, Health Insurers Whining About Socialism All The Way to the Bank, to illustrate that health insurer stocks have bee massively outperforming the overall stock markets since the Senate starting having hearings on so-called Obamacare back in summer 2009.
ACA as constituted is a gold mine for individual health insurance carriers, not just because corporate entitlement (though that's part of it), not just because subsidies help millions of currently uninsured get coverage (it does that too) but primarily because it gives American corporations a freedom that ALL of its overseas competitors enjoy:
A Get Out of Health Care Free Card.
The gist of the earlier diary:
A bit further down in the same diary, I made a rough estimate of what the stakes were for Corporate America to get behind Obamacare (just don't tell anyone at the country club, ok?):
[N]ot only the voters, not only common decency but ruthless pursuit of returns isn't on the side of 'repeal and replace'. My theory on why: Once ACA is in place, companies will no longer have to manage in-house health packages for employees. The large companies, exempt in theory from Obamacare, will voluntarily phase out their benefits on the premise that, like in every other developed country on Earth, health insurance is a conversation between the people and their public servants.
Deloitte puts it in numbers and nifty scenario charts. My quick discussion of their findings below That Weird Thing.
ACA is here to stay, because it takes a LOT of risk off Corporate America's books in the long run and saves shareholders trillions, perhaps many trillions, in the bargain.
The Get Out of Health Care Free Card
American companies on average subsidize roughly 3/4ths of the insurance of approximately 156 million Americans. More, the average cost of an individual in these group plans is roughly $1,500 a year more than on individual plans. We can quibble as to why (the employer insurance has better deductibles, group plan members less likely to stiff policyholders because their employers will sue on their behalf, etc) but thanks to ACA those most such differentials are going away.
In other words, going forward Americans with access to exchanges can potentially get coverage that's just as good without any involvement by their employer whatsoever.
Many big companies are already kicking the tires at giving their associates defined contribution plans so they can shop for the plan of their choice. Otherwise, Deloitte wouldn't bother assigning staffers to write the linked report above. And if Deloitte didn't do it, KPMG or Grant Thornton or another consulting outfit would.
A little simple math: Multiply 150 million people by $1,000 a year.
Employers would save $150 billion bucks a year by switching completely to funding employees' individual insurance premium accounts. For talent recruitment and retention (Deloitte's wording, and a stock phrase in CorporateWorld) the costs don't just vanish.
How big a savings is that? It's about two percent real return on assets across the board. It's an extra full percentage point on GDP growth, for keeps, on the American economy.
It's a LOT of loot - call it $15-30 billion in 2014, phasing up to the larger figure by the 2020s. That's about $500 billion in pretax savings. The better the accountants on staff, the more of that loot the corporations get to keep... and last I looked, effective tax rates for major corporations weren't exactly onerous.
Again, we're talking some serious coin here, just for getting out of the employer-sponsored group plan game.
The coinage gets much bigger if employers drop having health plans at all, though Deloitte cautions its readers against rushing that particular judgment call if it plans on keeping key talent...and hints they should make an appointment with their consultant today. (Work the contact, all contacts are sales contacts. You know the drill.)
But Corporations Won't Maximize Shareholder Value If It Helps Obama, Because Socialism
Companies that don't play ball sooner or later will find their C-suites gutted and replaced with leadership teams that know the difference between Fox News sound bites, Republican talking points and orthodox business sense.
And on an individual achievement basis, a 200 basis point bump makes making benchmark return goals a LOT easier. Of course it means the benchmark will get bumped up two percent in 2015 but that's four quarters hence. The year 2015 might as well be the year 2525 as far as the C-suiters are concerned. (Mandatory song link, because I went there).
Companies Did This Already With Pensions, Health Plans Are No Different.
American firms have all but dropped defined benefit pensions since the 1980s. Dropping employer-sponsored group health is coming, regardless of the various scenarios that may play out. The financial risk involved is called 'longevity risk' - the uncertainty about how long former staff will live, and therefore receive pension payments in retirement, with the headache (sorry, this is HOW it's approached) that all their former people will live well past average life expectancy (at age 65, which in the USA can be 19 for males and 21 years for females).
Thanks to steady, steady longevity improvements in the overall population since, well, the year 1800 at least, this long-term liability tends to grow, grow and grow. That is why you have defined contribution 401Ks and not defined benefit pensions: Companies don't want to be in the uncomfortable position of fearing you'll outlive them.
Employer sponsored health plans are another long-term (but not quite so long term) liability. The principle is the same, in that to the extent that companies' income streams and balance sheets are exposed to morbidity risk. That's the risk that their peeps and their peeps' family members will get sick, perhaps expensively so, and for rather long periods of time).
Since health insurance plans reset rates rather frequently a considerable amount of that risk stays with the payor of premiums (the employer and the employee). What this means is that pensions tend to impair the balance sheet (bc long term uncertainties and risks) but employers' group health subsidizes now put a serious ding in the quarterly and annual income statements, and that sort of thing is on radar in the C Suite.
Then along comes Obamacare, and now employers can say, well, hey. We can get out of this racket, today, if we can hedge out the risks of telling out staff, congratulations: We're giving you ACA premium funding accounts instead of group health. Isn't that cool, because freedom?
And this is where this story ends, as far as Corporate America is concerned, because you can't maximize shareholder value and NOT take advantage of the exchanges. ACA gets rid of a de facto 'corporate mandate' to subsidize employees' health care.
And companies that don't take advantage of that Get Out of Health Care Free card will either find themselves with new managers, new owners or new shareholders at much reduced share prices because their investors will take their capital elsewhere.
And that's what's got Republicans howling....and howling impotently. They can't stop it by any rationale, not even that of the holiest of holies, the free market.
Strangest of strange, the same GOP that decries the ACA individual mandate wants to maintain the default practice of the corporate mandate.
Problem is, for Republicans to have their way American business has to pony up $150 billion a year.
For Republicans to have their way, shareholders have to surrender two percent of their annual returns a year.
And even in the strictest, most orthodox of views in free market economics that's just crazy talk.
Thus my title: You can't be both pro-business and anti-Obamacare, the way it's set up.
And that, not any noble altruistic value, not any political or procedural acumen, is why the Affordable Care Act is here to stay.