THE BLOG
06/27/2011 12:10 pm ET | Updated Aug 27, 2011

"Not Intended as a Predictive Economic Analysis"

If you happened to be reading the Washington Post opinion pages last week, then you likely came across an op-ed co-authored by Republican Senator Rob Johnson (WI) and Republican pundit and former advisor to the McCain campaign, Douglas Holtz-Eakin.

At first glance, the piece, entitled "Coming Soon: A Bigger, Costlier Obamacare," certainly seems alarming. In fact, if you read the first paragraph, you'd note that the authors claim (falsely) that our health care law will lower our quality of care and greatly increase our national debt.

Before I address these false claims, I'd like to quickly note that Mr. Holtz-Eakin is also a former director of the Congressional Budget Office (CBO). This is important because, as a former director, he presumably respects CBO estimates (more later).

OK, now that that's been said, let's take a look at what's really going on here.

A major provision included in the Affordable Care Act involves the creation of health insurance exchanges. Think of exchanges like the orbitz.com for the uninsured. The idea is, if you don't receive health coverage through your employer, you can purchase it as an individual through the exchanges.

But, in their op-ed, these opponents of health care rely on a "study" produced by the firm McKinsey and Company, which implies that many employers will eliminate benefits to employees, pay a penalty, and dump their workers into the new health insurance exchanges.

Citing the misleading study, Holtz-Eakin and Sen. Johnson say:

A recent employer survey by McKinsey & Co. found that more than half of all American companies are likely to "dump" their workers into the government-run exchanges. If half of the 180 million workers who enjoy employer-provided care wind up in the exchanges, the annual cost of Obamacare would increase by $400 billion by 2021.

This is pretty powerful stuff. Except of course for one teeny, tiny, little detail: It's not true.

Don't believe me? Take a look at the statement McKinsey released when pressed to share their methodology:

The survey was not intended as a predictive economic analysis of the impact of the Affordable Care Act. Rather, it captured the attitudes of employers and provided an understanding of the factors that could influence decision making related to employee health benefits.

The study -- according to McKinsey's own belated statement -- actually tells us nothing about how the Affordable Care Act will affect employer behavior.

But worse than that, the survey failed to even fairly measure the factors that might influence employer behavior. The survey first "educated" the respondents about the Affordable Care Act, then asked questions. Obviously, if the "education" is incomplete and biased, the survey results are unreliable. Just as one example, the survey failed to point the following out to respondents: if employers drop coverage, employees will be unhappy because they will lose an important tax break (the value of employer-based insurance is not taxed).

So what's actually true?

Late last week, Avalere Health released an analysis citing research from the CBO, the Lewin Group, RAND, and the Urban Institute that shows most employers won't, in fact, suspend health benefits to employees. They provide a few main reasons:

  1. Employers offer health benefits to recruit and retain employees. The presence of exchanges does not change this motivation.
  2. Employers offer health benefits to boost worker productivity.
  3. There are many intangible reasons why employers offer coverage to employees, such as the value employees assign to the benefit, and the feeling amongst some employers that offering health benefits is the "right thing to do."

By the way, the co-author of the January 2011 Urban Study? Bowen Garrett. Senior expert and chief economist at McKinsey's Center for U.S. Health System Reform. Here's what McKinsey's own leading expert on the Affordable Care Act wrote about the impact of the ACA on employer-based coverage:

Some have claimed that the ACA will greatly increase health care costs for employers and that many employers would drop ESI coverage as a result. Our results show the opposite -- the ACA has little effect on overall ESI coverage and overall spending on health care would be slightly lower under the ACA... [W]e believe claims that ACA would cause major declines in ESI coverage are exaggerated.

Consider this analysis provided in the Avalere study from Booz & Company:

Employers that consider dropping coverage and paying the associated penalty will need a significant cost-value differential to offset the risks to employee morale and retention. Although some employers might save money by dropping coverage and paying penalties, many report that the savings may not be worth the potential downside. Many large employers, particularly those with more than 500 workers, and jumbo-sized companies also report a moral obligation to retain employee health insurance coverage.

So, what's the point of all this? It seems when it comes to discussing health care, Senator Johnson and Mr. Holtz-Eakin are taking a page from the conservative playbook: Cite a misleading and inaccurate study, share it far and wide in the media, and try to scare the American people.

It's something we've come to expect from politicians who are looking to score political points with the right-wing base, but it's not something we'd expect from a self-proclaimed economist and a former director of the CBO.