By Thomas Buchmueller, Colleen Carey and Helen G. Levy
Health Affairs, September 2013
Abstract
Since the passage of the Affordable Care Act, there has been much speculation about how many employers will stop offering health insurance once the act’s major coverage provisions take effect. Some observers predict little aggregate effect, but others believe that 2014 will mark the beginning of the end for our current system of employer-sponsored insurance. We use theoretical and empirical evidence to address the question, “How will employers’ offerings of health insurance change under health reform?” First, we describe the economic reasons why employers offer insurance. Second, we recap the relevant provisions of health reform and use our economic framework to consider how they may affect employers’ offerings. Third, we review the various predictions that have been made about those offerings under health reform. Finally, we offer some observations on interpreting early data from 2014.
Summing Up And Looking Ahead
For an employer, deciding whether or not to offer health insurance already requires a complex calculus that takes into account a host of factors—including employees’ preferences, wages, taxes, and regulations. The Affordable Care Act throws new taxes, subsidies, requirements, and insurance markets into the mix. But it does not fundamentally change the economics of the firm’s decision. Microsimulation models built on sound economic principles have for the most part predicted relatively small declines in employer-sponsored coverage as a result of health reform, and we believe that these predictions are likely to be correct.
If we are wrong, though, how will we know? Inevitably, reports will come in that some employers are dropping coverage. Although it will be tempting to attribute such reported changes to the Affordable Care Act, it is important to interpret new data on employer-sponsored coverage in the context of the basic economics of firms’ behavior and preexisting trends. The combination of rising health care costs and stagnant earnings for middle-income workers has for decades led to a gradual but steady decline in employer-sponsored insurance. This trend is the appropriate baseline against which to measure the impact of health reform.
It is, perhaps, stating the obvious to add a caution against reading too much into anecdotal reports. But for reasons described above, even surveys with large samples can produce results that are difficult to interpret. Fortunately, there are several high-quality data sources that will be useful for monitoring changes in employer-sponsored insurance and drawing inferences about the effect of health reform.
We expect that the earliest data on rates of coverage will come in September 2014, when both the National Health Interview Survey and the Current Population Survey should report on individuals’ sources of coverage in early 2014. If historical patterns hold, the Kaiser Family Foundation/Health Research and Educational Trust Employer Health Benefits Survey will be published the same month. In September 2015 the American Community Survey will provide state and metropolitan-area estimates of individual-level coverage patterns, and in July 2015 the Medical Expenditure Panel Survey will provide further information on employer offerings.
Of course, effects in early 2014 will not be the last word, as individuals and employers may take a wait-and-see approach. And since the employer penalty for not offering coverage will not take effect until 2015, it may be several years before the true effects of health reform on employer-sponsored insurance become evident.
However, these data will begin to answer the question posed in the title of our article. Given the historical importance of employer-sponsored insurance, the attention that is paid to this question is understandable. However, it is not a question of great economic significance. There is no efficiency argument for preferring private insurance facilitated by employers to private insurance facilitated by the state or any other mechanism that could be used to pool risk and achieve administrative economies of scale.
It is also important to remember that relying on firms as a mechanism for pooling insurance risk generates efficiency costs because it distorts the labor market. A better-functioning individual health insurance market has the potential to improve labor-market efficiency by reducing job lock, and thus eliminating a barrier to entrepreneurship and making it easier for workers to find a job and an insurance plan that matches their preferences. If the shift from employer-sponsored insurance to individual coverage is greater than projected, these labor-market gains may be substantial.
http://content.healthaffairs.org/content/32/9/1522.full
and
Small Increases To Employer Premiums Could Shift Millions Of People To The Exchanges And Add Billions To Federal Outlays
By Daniel R. Austin, Anna Luan, Louise L. Wang and Jay Bhattacharya
Health Affairs, September 2013
Abstract
The Affordable Care Act will expand insurance coverage to more than twenty-five million Americans, partly through subsidized private insurance available from newly created health insurance exchanges for people with incomes of 133–400 percent of the federal poverty level. The act will alter the financial incentive structure for employers and influence their decisions on whether or not to offer their employees coverage. These decisions, in turn, will affect federal outlays and revenues through several mechanisms. We model the sensitivity of federal costs for the insurance exchange coverage provision of the Affordable Care Act using the nationally representative Medical Expenditure Panel Survey data set. We assess revenues and subsidy outlays for premiums and cost sharing for individuals purchasing private insurance through exchanges. Our findings show that changing theoretical premium contribution levels by just $100 could induce 2.25 million individuals to transition to exchanges and increase federal outlays by $6.7 billion. Policy makers and analysts should pay especially careful attention to participation rates as the act’s implementation continues.
http://content.healthaffairs.org/content/32/9/1531.abstract
Comment:
By Don McCanne, M.D.
There has been considerable speculation as to whether or not employers will discontinue their health benefit programs and shift their employees to the state insurance exchanges established by the Affordable Care Act (ACA). What is the likely outcome, and, more importantly, does it even matter?
The majority of studies suggest that the impact of ACA on employers’ decisions regarding the continuation of their employee health benefit programs will be relatively modest initially.
Examples that predict more extreme shifts, such as that above by Austin et al – three Stanford medical students and their faculty advisor – are often based on narrow assumptions. In this case the assumption is that quite modest differences in net costs of plans offered through the exchanges compared with employer-sponsored plans could cause large shifts from employers to the exchanges.That ignores a great many other considerations that enter the employers’ action plans. Another infamous study by Douglas Holtz-Eakin made questionable assumptions that resulted in the spurious claim that employers would drop up to 35 million employees from coverage simply because of the provisions of ACA.
The Health Affairs article by Thomas Buchmueller and his colleagues provides a much more objective, if nuanced, analysis of the probability of a shift from employer-sponsored plans to the exchanges
. Based on several more credible microsimulations and based on employer surveys, they conclude that the more immediate impact of ACA will be quite modest. They suggest resources that we can follow which should provide us with better evidence of developing trends in the employer provision of health benefits.
While much attention is being directed to employer responses, Buchmueller et al state that employer-sponsored insurance “is not a question of great economic significance.” There is “no efficiency argument for preferring private insurance facilitated by employers to private insurance facilitated by the state or any other mechanism that could be used to pool risk and achieve administrative economies of scale.”
Although this study compared employer-sponsored private insurance with private insurance offered by the state exchanges, the subtle comment above on the efficiency argument perhaps should be refined: “…no efficiency argument for preferring… private insurance facilitated by the state or any other mechanism that could be used to pool risk and achieve administrative economies of scale.” There is, in fact, a very strong efficiency argument for the state to use another mechanism to pool all risks and achieve administrative economies of scale; that is, of course, single payer reform – an improved Medicare for all.