Gene Steuerle of the Tax Policy Center writes,
It appears that the new law will make it beneficial for many employers to drop their insurance coverage. …
[A] worker earning [$60,000] … who receives employer-provided insurance would receive a subsidy around $3,500 from the exclusion of health benefits from his taxable wages, leaving him more than $3,000 worse off than his counterpart whose employer offers no insurance. This pattern holds until compensation reaches about $84,000, at which point the two subsidies are about the same. Workers earning more than $84,000 do better under the current employer-provided system than they will under the new system.
But this is not a convincing argument that employers will drop their offers of coverage. A firm is not composed entirely of $60,000 workers. Management and the CEO make more and they want insurance that comes with the big employer tax subsidy. A firm can’t offer coverage to one worker and not another so if the CEO gets the offer so does the entry-level clerk.
As I wrote before, Steuerle and others are ignoring the reason employers offer coverage, to compete in the labor market. Workers in the labor market, and especially the older, experienced, higher income, and highly valued ones with families, want health insurance and, moreover, want it through their employer. Thus, if a firm doesn’t offer insurance it will lose access to the class of workers who value it. For larger firms that’s going to be a lot of people, some they can’t afford to lose.
My prediction is that employers’ offers will not be affected, but the structure of their benefits will. They’ll try hard to get folks to switch to exchange coverage because it is cheaper for the firm. They won’t do it by not offering coverage but through other means of persuasion, like offering less generous coverage with higher employee costs.
So, I agree with Steuerle that the Affordable Care Act will create incentives for employers to alter their behavior. But I don’t think there will be substantial reduction in employer offers. And if there is, it’ll be because firms’ management and the CEOs decided so. If it’s good for them and good for lower-wage employees as well (who get better deals in exchanges), what’s there to worry about?