Obamacare: Expected to Decrease Employer Provided Medical Insurance Coverage

Econintersect: It seems the argument about the overall effect of Obamacare continues:

• How many companies will stop providing health care to employees?

• How much will these newly dropped employees cost the government?
  

Obamacare offically is known as the Affordable Health Care Act (ACA). The CBO believes the more employers who drop coverage, the lower the costs to the government will be.

The Affordable Health Care Act enacted in 2010 aims to increase coverage for more Americans in 2014 as well as financially assisting eligible small businesses with providing health insurance to their employees. However, both the Congressional Budget Office as well as the Joint Committee on Taxation have staff members who expect the act to reduce the number of employees receiving health insurance through their employment. The increased coverage of Medicaid as well as subsidies through insurance coverage have many wondering why the CBO and Joint Tax Committee have not expected a larger reduction in employees receiving employment-based insurance.

Many of the key findings of the Congressional Budget Office (CBO) and the Joint Committee on Taxation (JCT) include:

• An additional 11 million people covered by employment-based health insurance under the old legislation will not be covered under the new legislation.
• The assumption that many of the businesses which are projected not to choose insurance under the ACA will be smaller businesses along with businesses which employ lower-wage workers, which of whom are already eligible for Medicaid, Children’s Health Insurance Program (CHIP) or other subsidies through the health insurance “exchanges” resulting from the new legislation of the ACA.
• Many of the people already eligable for employment-based health insurance will choose another source from which to obtain coverage. This number is expected to be roughly 3 million people. People already receiving employment-based insurance coverage will be ineligible for “exchange” subsidies, workers which of whom employment-based insurance coverage is deemed to be unaffordable being the exception to this rule.
• The CBO and ACT expect the ACA will have the impact of a small reduction in employment-based health insurance.
• Both organizations assume that even a dramatic decrease in employment-based health insurance plans may in fact reduce rather than raise the price of insurance coverage under the ACA. The probability of the reduction of employment-based insurance plans under the ACA  is quite low – as noted in the following finding:
  

….. the scenario with the largest reduction in employment-based coverage actually lowers the cost of the ACA to the federal government relative to the baseline projections because the extra costs for Medicaid and exchange subsidies are more than offset by the increased revenues resulting from higher taxable compensation among workers who receive higher wages in lieu of health benefits.

It is the CBO’s belief that employers will generally base their decision of continuing to offer employment-based insurance under the ACA upon whether or not employees are eligible for outside benefits such as the exchange subsidies mentioned earlier, whether or not they are eligible for Medicaid or CHIP as well as tax implications associated with dealing with the ACA.

In the scenarios examined by the CBO and JTC, the information gathered about people who will choose to have employment-based health insurance and the net cost have a wide range of differences. The number of people who may obtain employment-based health insurance due to ACA ranges from a reduction of 20 million to an addition of 3 million people. The net cost of employment-based health insurance under the ACA ranges from $1,170 billion to $1,297 billion with a projected net cost to the federal government of $1,252 billion. These estimated costs have a difference in relation to the baseline projections from a decrease in 7% ($82 billion) to an increase of 4% ($45 billion).

In truth, no one really knows the impact.  But if the Massachusetts experience repeats……

One piece of evidence that may be relevant is the experience in Massachusetts, where employment-based health insurance coverage appears to have increased since that state’s reforms, which are similar but not identical to those in the ACA, were implemented.

Written by Jillian Friesen

Sources:

The Congressional Budget Office (Jessica Banthin and Paul Jacobs of CBO’s Health and Human Resources Division, March 2012)

Congressional Budget Office (Full PDF file of the CBO and JTC’s Analysis of the Effects of ACA, March 2012)

Congressional Budget Office (Updated Budget Projections: Fiscal Years 2012 to 2022)

Congressional Budget Office (H.R. 4872, Reconciliation Act of 2010 – Final Health Care Legislation)

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