Employer-Sponsored Insurance after Health Reform

Much of health reform’s efforts has been focused on expanding coverage to those without employer-sponsored insurance (ESI).  For instance, the ACA mandated expanded Medicaid eligibility and the creation of a health insurance exchange for those not eligible for a group plan or those who work for small employers.

Much of health reform’s efforts has been focused on expanding coverage to those without employer-sponsored insurance (ESI).  For instance, the ACA mandated expanded Medicaid eligibility and the creation of a health insurance exchange for those not eligible for a group plan or those who work for small employers.

One area of study which has been neglected, however, is the effect of health reform on ESI.  For non-elderly Americans, ESI is still the primary mechanism through which individuals finance the provision of health care services.  A recent Urban Institute report uses a simulation model to estimate how health reform would effect coverage through ESI.  I discuss this article after the jump.

Methods

“Within the model, workers are assigned to representative firms. Firms’ decisions whether to offer coverage depend on their workers’ demand for ESI. All else equal, firms with a higher share of younger and healthier workers, workers with other offers of ESI in the family, and workers with lower incomes who face lower tax rates and are eligible for Medicaid or subsidized coverage in the exchanges are less likely to offer health insurance. Firms with a higher share of workers who place a high value on health benefits and have fewer opportunities for subsidized coverage or coverage through a spouse are more likely to offer health insurance coverage.”  The model also assumes that firms only care about total compensation and that reductions in ESI are reflected in higher wages and vice versa.

The key provisions included in the simulation model are:

• Health insurance exchanges
• Employee choice vouchers
• Tax credit for employers with less than 25 employees
• Assessments for employers with more than 50 employees who do not offer coverage
• An individual mandate.

“Employee choice vouchers are available to workers whose employers offer health insurance coverage through the workplace, whose incomes are below 400 percent of the federal poverty level (FPL), and whose share of the lowest offered employer-sponsored insurance (ESI) premium is between 8 and 9.8 percent of income.”

Results

The results are here. One can see that the biggest impact will be on single policyholders rather than family policyholders. This is likely because single policyholders have more elastic demand, and the individual mandate will require them to hold insurance at their employer. Additionally, the largest gains in coverage come from workers at large employers (due increased take-up driven by the individual mandate) and small employers (due to better insurance options through the exchange).

Although the ACA would reduce employer premium contributions by 3.7%, However, employers will also receive subsidies through the health exchanges and assessments if they do not offer health insurance. In addition, they must fund the vouchers mentioned above. On net, the ACA will cause little change in total employer spending on health insurance (a 0.9% increase). However, small firms would end up paying less for premiums. Offer rates would increase, but the health insurance exchanges will reduce the cost of each policy due to both risk pooling and government subsidies. Thus, small firms would reduce spending by 8.7%, mostly driven by lower premium payments. On the other hand, spending for medium sized firms would increase by +11.8%. Premium costs would remain about the same, but many medium sized firms would be assessed fines for not providing adequate insurance; hence the large increase.

Important Note

The paper does may an important additional point. “As long as underlying health costs grow faster than inflation, there will be pressure on some firms to stop offering ESI. This should not be confused with the specific provisions in the ACA and can ultimately be addressed only by effective cost control measures. We simulate the provisions of the Affordable Care Act fully implemented in 2010.”

Source:

• Garrett B and Buettgens M. “Employer-Sponsored Insurance Under Health Reform: Reports of Its Demise Are Premature,” Quick Strike Series, Urban Institue, January 24, 2011.