Obamacare's Hidden Penalty That Could Wallop Your Wallet

Think there isn't an Obamacare penalty that affects you because you're covered at work? Think again. This hidden penalty could cost you plenty.

Jan 12, 2014 at 1:35PM

Got health insurance through your employer? You might think you're off the hook from being smacked by Obamacare penalties. If we were talking about the individual mandate that requires most Americans to obtain insurance or pay a financial penalty, you would be right -- as long as your employer is in compliance with the health reform act's minimum benefits requirements.

But there's a good chance that you will be affected financially by another consequence of Obamacare. And this hidden penalty can be even more painful to your wallet than the individual mandate levy. 

Stack Of Cash

Consequences of following the law
What is this pervasive Obamacare hidden penalty? Higher deductibles. While technically a penalty means punishment for breaking a law, in this case the penalty stems from insurers and employers that comply with the law.

Granted, the text of the Affordable Care Act doesn't have a clause that tells health insurance companies or employers that they must raise their deductibles offered in plans offered to workers. Actually, the law puts a cap on deductibles for small group plans. But for individual and larger employer insurance plans, the language in the health-reform legislation has led directly to higher deductibles.

According to The Wall Street Journal, the average deductible for a bronze plan on the Obamacare exchanges for individual insurance is a whopping 40% higher than the average deductible before implementation of health reform. Deductibles jumped so much in large part because of the added benefit requirements under Obamacare.

These requirements are also driving many employers' health plan costs higher. With those costs rising, companies are being forced to raise premiums dramatically, cut benefits, and/or resort to other options. Bumping premiums up is one of the most likely of those other options.

Getting creative
No employer in its right mind wants to tell its work force that they're going to have to pony up lots more money for health insurance premiums. It's basically the equivalent of saying, "Here's a nice pay cut for you." What many organizations are choosing to do is increase deductibles to keep premiums from going up too much. Employees still end up paying more -- but it's not as obvious.

UPS (NYSE:UPS) took another approach to help control insurance costs. The big shipping company kicked around 15,000 working spouses off employees' coverage in 2012. Big Brown attributed the move largely to the impact of the Affordable Care Act.

Other employers opted to move employees to private exchanges, where they are given a fixed amount of money and allowed to shop for insurance from multiple insurers. Darden Restaurants (NYSE:DRI) took this route. The company joined Aon Hewitt's corporate health exchange last year, stating that the move gave workers "the flexibility to choose the level of coverage that best meets their needs at a price they could afford."

This creativity helps somewhat. However, many organizations across the country could adopt the mind-set of businesses in Wisconsin. A recent Wisconsin Manufacturers and Commerce survey of employers in the state found that 54% will pass higher health costs along to employees in some form. Another 22% said they would cut benefits. 

Winners and losers
Who wins and loses as a result of the hidden Obamacare penalty resulting from higher deductibles? The easy answer is that employees lose, since they're paying more out of their pockets. However, there are also less obvious losers.

When individuals pay more of their health-care costs, consumption of services can go down -- especially if those services are considered to be too expensive. That could hurt providers such as hospitals and their suppliers.

Intuitive Surgical (NASDAQ:ISRG), for example, sells robotic surgical systems to hospitals. Some skeptics have raised doubts about whether the value of surgical procedures performed by Intuitive's da Vinci system justifies the high cost of the technology. Price-conscious consumers could ask to have laparascopic surgery rather than robot-assisted surgery to minimize the financial hit. If this happened, Intuitive would ultimately feel the pain.

There are potential winners as well, though. Pharmacy benefits managers, or PBMs, encourage individuals to think about the costs of the prescription drugs that they take. Express Scripts (NASDAQ:ESRX), the nation's largest PBM, reaps the rewards when patients use less-expensive generic drugs and minimize waste of costly drugs -- actions that would be more likely with higher deductibles. 

Another possible long-term winner is the U.S. taxpayer. Health-care programs account for around 21% of the federal budget. Over time, consumers exercising more control over how they spend their money on health care could lead to more competition -- and more competition at least in theory should result in lower medical costs that help control Medicare and Medicaid spending.

Such hypothetical benefits, though, are likely of little comfort for most Americans. These possible positive macroeconomic effects wouldn't kick in until down the road. That wallop to your wallet from increased deductibles stemming largely from Obamacare will be felt in the here and now.

How can you lessen your Obamacare hidden penalty pinch?
The trend of higher deductibles is just one of the many ways that Obamacare is impacting Americans' finances. If you want to know how the health reform legislation affects your pocketbook, we've got answers for you. In only minutes, you can learn the critical facts you need to know in a special free report called "Everything You Need to Know About Obamacare." This free guide contains the key information and money-making advice that every American must know. Please click here to access your free copy.

Fool contributor Keith Speights owns shares of Express Scripts. The Motley Fool recommends Express Scripts, Intuitive Surgical, and UPS and owns shares of Darden Restaurants, Express Scripts, and Intuitive Surgical. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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