How the ACA will affect employer-sponsored insurance: ranges and point estimates

A new NBER paper titled The Importance of the Meaning and Measurement of “Affordable” in the Affordable Care Act, by Richard Burkhauser, Sean Lyons, and Kosali Simon, is an exploration of the range of possible implications of the ACA for employer-sponsored insurance (ESI). The paper also includes a review of work by others in this area.

First, from the abstract, are some findings of the NBER paper:

This working paper highlights the practical importance of two critical but under-explored assumptions […]. The first assumption is whether ACA’s affordable coverage rule will be interpreted to mean that employers must provide affordable single coverage or that they must provide affordable family coverage policies to workers with families to avoid paying a fine. The second assumption is how much employers and employees will cooperatively agree in the future to designing new compensation contracts to take advantage of the way “affordability” is determined. We show that depending on these assumptions, the ACA could lead to far more lower to moderate income families gaining access to affordable coverage through exchanges or, conversely, to far fewer of these families being covered by ESI, even if no employers drop their health insurance plans as a result of the new law. Using our stylized models, we find at one extreme that the share of private sector workers covered by ESI would fall by as much as 12.7 percentage points, relative to a case of full compliance with the law, if the ACA affordability coverage rule is interpreted to apply to family coverage and employees directly pay 100 percent of the cost of the ESI in premiums, with compensating higher wages making them no worse off. At the other extreme, we find no changes in the share of private sector workers covered by ESI along this margin if employee contribution shares do not change in the future and affordability is interpreted to refer to single coverage.

The key thing to keep in mind about this work is that the results are, as stated, driven in large part by assumptions. There’s nothing wrong with that. It is a perfectly fine way to explore the possible range of consequences. That is, in fact, one of the points of the paper. The authors are not making a prediction about what will happen, so much as showing the extremes of the range. If you have a lot of confidence that one extreme will turn out to be true, you are probably putting a lot of faith in something outside the scope of the paper, as the authors note:

Our paper is only able to display a full range of possible estimates rather than provide a point estimate. The extent to which employers act in ways that are closer to one extreme or another depend on factors that are beyond the scope of our analysis.

The paper includes a brief literature review, which I’ve further condensed:

Dubay [and] Cook […] (2009) simulate the effects of health reform on the uninsured, modeling a Medicaid expansion to 133 percent of the poverty line and an individual mandate. They find that these two reform components would bring some financial assistance to three-quarters of the uninsured, with about half being eligible for subsidies and half being eligible for Medicaid. Holahan and Garrett (2011) discuss the impact of both health insurance and health care provisions in the ACA on employment and conclude that on net, there would be very small consequences.

Holtz-Eakin and Smith (2010) were the first to point out that the federal subsidies in the ACA intended only for those not eligible for ESI are so large that they could induce strategic behavior on the part of some employees, and tempt some employers to change their labor contracts to take advantage of these subsidies. Using hypothetical workers and a fine of $2,000 per worker (the case where large firms do not offer health insurance to their workers) they demonstrate when it will make sense for an employer to drop health insurance coverage, and the types of workers who will benefit from a switch from ESI to subsidized exchange coverage. […]

There is also a growing literature assessing the impact of health reform in Massachusetts. In July 2007, Massachusetts was the first state to implement a package of reforms that included an expansion of public health insurance, subsidized exchange coverage, and employer and individual fines. While the specific issue of the definition of affordability and employee premium shares is not present in those reforms, it is noteworthy that there is no evidence that employers have dropped health insurance coverage (Long and Masi, 2008, and Gruber, 2011) as critics contended they may.

I’ve also commented on Holtz-Eakin and Smith (2010) and Gruber (2011) in prior posts. Also in prior posts you’ll find more on employer responses to the Massachusetts reforms.

Finally, Steve Pizer, Lisa Iezzoni, and I have made our own predictions about the future of public and private insurance due to the ACA. (See also our working paper.) Though some assumptions are involved, which cannot be avoided, our predictions are based on analysis of historical data that characterizes actual firm and individual behavior.


Dubay, L. and A. Cook (2009). How Will the Uninsured be Affected by Reform?

Gruber, J. (2011). “The Impacts of the Affordable Care Act: How Reasonable Are the Projections?” NBER Working Paper 17168.

Holahan, J. and B. Garrett, 2011. How Will the Affordable Care Act Affect Jobs?

Holtz-Eakin, Douglas and Cameron Smith. 2010 Labor Markets and Health Care Reform: New Results, May 2010. American Action Forum.

Long, S. and P. Masi. 2008. “How have Employers Responded to Health Reform in Massachusetts? Employees’ Views at the End of One Year,” Health Affairs, 27 no.6 w576-583 2008.

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