• There’s consensus about how much the ACA is expected to reduce employer-sponsored insurance (Spoiler: not much)

    A new paper in Health Affairs by Thomas Buchmueller, Colleen Carey, and Helen Levy finds (again) that  the aggregate impact of health reform on offers of employer-sponsored insurance is likely to be small.

    The piece handily summarizes research to date on the projected impact of the ACA on the ESI question: though the methodologies and time horizons vary between studies, none project a net loss of more than 2% (refer to the figures highlighted in green, below). RAND actually predicts an overall increase in employer-sponsored plans, which is what was observed in Massachusetts.

    buchmueller-esi

    The microsimulations do anticipate that some employers (though far from a majority) will drop health benefits. It seems likely that the “loss” could be concentrated among low-wage workers, who stand to benefit from compensatory wages—economists agree that there’s a near dollar-for-dollar tradeoff between income and insurance—plus subsidies to shop on the exchange. The flip side is that more small businesses will offer coverage through the SHOP, which allows them to combine risk pools across employers. Projections for those two shifts come close to canceling each other out.

    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’s hard to overstate the importance of that last bit. We expect rates of employer-sponsored insurance to trend downward, independent of Obamacare. They’ve been doing that for years, but now the ACA provides a politically convenient scapegoat.

    The models cited generally don’t account for the recent delay in the employer mandate, meaning projected impacts are likely to be attenuated for 2014. I had a chance to chat with Thomas Buchmueller about the study, and he suggested that we might also observe status quo bias after that—employers continuing what they do now, because it’s what they know.

    Another thing to keep in mind, lest the economists accuse me of favoring ESI:

    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.

    Adrianna (@onceuponA)

    Share
    Comments closed
     
    • Adrianna
      Is there a “dollar-for-dollar tradeoff between income and insurance—plus subsidies to shop on the exchange” — in the short run, with low wage workers (operative words–low wage)?

      Brad

    • The survey data shows that offer rates went up, but data appears to suggest that ESI actually declined slightly.

      http://www.mass.gov/chia/docs/r/pubs/11/2011-key-indicators-may.pdf

      Also, the figures I’ve seen show a year over year decline in small group. MA went from 800K covered in small group in 2007 to just over 600K covered in 2012. The report below is from 2012 but they have them going back a ways.
      http://www.mass.gov/ocabr/docs/doi/managed-care/smgrp/repcovlives-2012.pdf

      That’s been mitigated by a large increase in individual coverage and an increase in self-funded/ large group. Given that info and the way the employer penalties are structured under ACA, I’ll bet on th side of a larger than expected decrease in small group ESI.

      • Jared

        You are correct but there is much more recently published (but still not as up to date as it should be) state-issued data that shows the trickling decrease in people covered by ESI in Massachusetts (your link to an old State of Massachusetts Key Indicators report) became a waterfall as we here in Massachusetts got further into the now repealed so-called RomneyCare.

        See this report issued about a month ago on August 14, 2013 (http://www.mass.gov/chia/docs/r/pubs/13/ar-ma-health-care-market-2013.pdf) Figure 1 shows that the percent of people under ESI in Massachusetts dropped from 67% to under 62% just between 2009-2011. Since our population was static during that period (if it did not decline) that translates to over 300,000 people just in that short period.

        The actual absolute drop in people covered by ESI in Massachusetts is much higher if you pick a period starting before RomneyCare was proposed (say 2004) up through today (e.g., look at the Census Bureau’s CPS and normalize for its methodology of surveying monthly; that is, it has an “n” 20% higher than the state’s population). In no way is this balanced by the 60,000 additional people covered by individually purchased policies.

        These statistics are well known to the academics and politicians that fawn over RomneyCare as an indicator of how PPACA may work. They always talk about Massachusetts’ offer rate but never cite the take-up rate.

        • thank you sir, was not aware of that more recent report.

          • Your welcome.

            I should point out — given total intellectual honesty — that about a third of the drop in ESI in Massachusetts is because a bunch of old goats like me have gone on Medicare. However that is still a 200,000 person drop among non seniors in just those three years.

            (And some of us Massachusetts seniors — not me however — were “forced” onto Medicare even though we wanted to keep ESI. A senior almost certainly had to leave ESI if he or she worked for a small company. I — on the other hand — had been buying my own insurance as a self employed person so when I turned 65, I began to get my payback of 45 years of prepaying for Medicare through payroll and income tax deductions. If I live to about 85 (longer than actuarially predicted, not to mention too many years before I quit smoking) and I have average healthcare expenses, I get my 45-50 years of prepayment back.)

    • “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.”

      While I agree with that statement, isn’t there still a tax incentive to get insurance through an ESI? I think that you can pay for your contributions to and ESI with pre-tax money, right? Can you do that if you enroll through the new marketplaces?

    • There’s consensus about how much the ACA is expected to reduce employer-sponsored insurance (Spoiler: not much)

      I wish that it would greatly reduce the number of people getting insurance via their employers, so this is not good news.

      It’s hard to overstate the importance of that last bit. We expect rates of employer-sponsored insurance to trend downward, independent of Obamacare. They’ve been doing that for years, but now the ACA provides a politically convenient scapegoat.

      3rd party payment is fine for small expenses but health care spending has risen to 18% of GDP. We now need more people evolved in trying to cut costs.

    • Do ACA-induced layoffs factor into this analysis? If so, how? If they don’t, should they?

    • I think the scapegoat part is important to remember. I notice that when my employer makes a change to something in our benefits, they try to come up with some external justification. So I would expect that many employers who were cutting insurance anyway will just say that it was because of Obamacare. It’s easy, everyone’s heard of it, and it lets them deflect the blame.

    • As is well known but ignored by PPACA proponents, while the number of employer sponsored plans offered in Massachusetts increased after RomneyCare was passed (so employers could avoid the penalty), the number of people “taking up” health insurance from an employer in Massachusetts dropped dramatically (see the August 14, 2013 Annual Report on the Massachusetts Health Care Market for the latest albeit quite out of date and only partial-period statistics). All of this is not attributable to RomneyCare because so of it is due to people going on to Medicare (Massachusetts is an old state) and some of it is a long-standing trend dating back to around 2000 when the percentage was over 80% (when fewer people had part time jobs)