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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:


[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.
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?):

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.
Deloitte puts it in numbers and nifty scenario charts. My quick discussion of their findings below That Weird Thing.

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.

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Comment Preferences

  •  Ummm (0+ / 0-)

    If corporations do start dumping job lots of employees off health care the ACA is going to instantly collapse, isn't it?

  •  Your job should have nothing to do with your (5+ / 0-)
    Recommended by:
    TJ, cskendrick, Mary Mike, Linda1961, annan

    medical care. An insurance adjuster is for your auto body not for your God given body. Your employer does not belong in the DR's office with you. Your body does not belong on a profit and loss statement. Medical care cannot be for profit. That is a perversion of the highest order.

    Now they have the 2nd (safety net for sloppy) Amendment, and can't be infringed to actually treat their gun like a gun and not a video game controller.

    by 88kathy on Sat Jan 18, 2014 at 08:15:46 AM PST

    •  And we agree completely. And corporations agree (4+ / 0-)

      too, as they see the benefits of getting out of the employer sponsored racket.

      US companies don't want to pay your health care at all, anymore than Canadian or European ones. ACA makes it possible for them to not worry about it ever again.

      That's what I am talking about.

      •  They are right. Employer sponsored health care was (2+ / 0-)
        Recommended by:
        cskendrick, Sharon Wraight

        leverage to keep people in jobs they hated.  A way to keep people from going into business themselves.

        They are seeing it differently now.

        Now they have the 2nd (safety net for sloppy) Amendment, and can't be infringed to actually treat their gun like a gun and not a video game controller.

        by 88kathy on Sat Jan 18, 2014 at 11:17:40 AM PST

        [ Parent ]

    •  Unfortunately a lot of people (voters) like this (1+ / 0-)
      Recommended by:
      88kathy

      set up.  In my family, this way is great.  We have very good insurance, and we pay very little for it.  If it were taken away and the company did not give us the equal in pay raises (very,very unlikely....and this will be the norm, most will not offer to just raise pay if they decide to dump insurance because they get deals and group rates etc with the insurance, hence the reason they offer it instead of pay)....if they don't raise our pay equally, then it would be a huge set back for us.  Going on the exchanges would cost us way more, offer us much less than we get now, lose my son's doctors with are essential to his medical care (special needs) and also hurt our paycheck with less pay.  So, for us, it works and always have.

      We are different, however, in the fact that we support the ACA and its goals, we understand the need, and we would willingly still support it even if it hurts us directly in the above mentioned ways.....because we agree politically with ultimate goal.  That's us though...

        Other people (voters) might not be as willing to do so.

      We need single payer!  But to get there, we have to make people understand that they MIGHT have to pay more....especially the middle and higher middle class.  The may lose a little pay and/or pay more in taxes but in the end it is better for society.

      •  I was very lucky, I had the very best insurance. (0+ / 0-)

        All I ever had to do was sign my name. I remember when we started fighting for MOB. (maintenance of benefits) An acronym my business agent found cute. OK he wasn't perfect, but my loyalty to him was.

        Right now the revenue stream on medical care looks like a boa constrictor that just ate a cow. The insurance companies take the money out of the system.

        I firmly believe that without the lump in the middle it will cost less. I know how much that paper which I get in reams from the insurance companies costs as much to generate as much actual medical care would. Figuring all the ways to not give medical care is not cheap.

        But then you are talking to someone who really hates going to the DR and has always been a real cheap person to cover. But could it be that I have been able to maintain that notion because my health care has always been top rate and my union was into MOB in the 1980s.

        Now they have the 2nd (safety net for sloppy) Amendment, and can't be infringed to actually treat their gun like a gun and not a video game controller.

        by 88kathy on Sun Jan 19, 2014 at 10:19:04 AM PST

        [ Parent ]

  •  Wow. This is final nail in the coffin kind of info (2+ / 0-)
    Recommended by:
    Linda1961, cskendrick

    More of this, and the info about insurance companies laughing all the way to the bank, and the Republicans' goose will surely be severely singed, if not altogether cooked.

    •  Everywhere else in the developed world but here (2+ / 0-)
      Recommended by:
      Mary Mike, Linda1961

      corporations are 100% out of the health plan business.

      This isn't a FLAW of ACA, or a Republican talking point, but a logical and welcome consequence of Obamacare.

      The answer to Republicans whining about a faster migration from employer-sponsored group plans is: You say it like it's bad for business and America.

      It's just not. It's emancipation from having to work a horrid job because health care.

      I'm not pitching this effectively. I'm not getting through.

  •  Here's a fly in the ointment ... (1+ / 0-)
    Recommended by:
    cskendrick

    Thanks for a very interesting diary. What you say makes sense, however I'm hearing an interesting twist on this right now and it's coming from the upper echelon management types.

    They are scared to death that they will lose their platinum benefits and have to adjust to lower quality, poor-people's health care which is how they view the new ACA policies.

    Unfortunately, in many states (Indiana is one) the insurers have been allowed to create narrow network ACA plans that look more like Medicaid than full benefit private insurance plans.

    There are only 2 providers in the Indy Metro area and the one that includes the major medical center is offered by the non-profit that provides all the poverty health care programs in the state. The other offers absolutely zero out-of-network coverage, even to the IU Med Center.

    Not all states are doing this but it's happening here so that's what I'm hearing about. Up-scale types are appalled that they may be lumped in with the unwashed masses if their companies shift their employees to }}Obamacare{{ (ugly sneer).

    The bean counters will see the logic, but there will be continued resistance from management unless the insurers wise up and start offering a full menu of options.

    "Let us not look back to the past with anger, nor towards the future with fear, but look around with awareness." James Thurber

    by annan on Sat Jan 18, 2014 at 02:45:43 PM PST

    •  Those are the managers that will be replaced (2+ / 0-)
      Recommended by:
      myboo, annan

      because even in purely self interested terms they weren't intelligent enough to ask their companies to comp them some high-octane individual coverage.

      Or, absent that, higher base pay and richer performance bonuses to offset their out-of-pocket.

      These are profoundly solvable problems, even in a world that simply MUST have 400-to-1-ish CEO versus Working Schmoe compensation ratios.

      And CEOs who can't figure out how to crack this nut to their liking will be asked by the shareholders to become ex-CEOs...or CEOs at inferior organizations.

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