• Workers’ exchange eligibility: Massachusetts vs. the ACA

    In comments to a post yesterday, the issue came up as to which Massachusetts workers of firms offering insurance have access to the state’s health insurance exchange with subsidies (Commonwealth Care). A related question is how that may differ from workers’ access to subsidized, exchange coverage under the ACA. I’m going to focus on the affordability thresholds only, though there are other requirements.

    Under the ACA, workers at firms that offer insurance can purchase coverage on the exchange if their employee contributions (out-of-pocket premiums) are greater than 9.5% of income. A recently released proposed rule decrees that the relevant premium here is for individual coverage.

    Meanwhile, here in Massachusetts, workers at firms that offer insurance can purchase subsidized coverage on the state’s exchange if the employer covers less than 33 percent of the cost for an individual insurance plan and the worker has income below 300% of the federal poverty level (FPL). This, by the way, was $34,032 for a non-elderly individual in 2010. (We’ll need that number later.)

    This is frustratingly apples and oranges, so let’s try our best to make some meaningful comparison between the two sets of eligibility rules.

    Focus on Massachusetts first. How much are individual premiums in the state? From a recent Kaiser study on state variation in health insurance premiums, the average individual coverage premium in 2010 in Massachusetts was $5,244. This is not an ideal estimate because it includes kids and is for individual market coverage, not employer-based. From a state report, the median, not mean, 2010 employer-based individual premium was $5,748, annually. I’m going to go with this number, though a mean would be higher. (Anybody have a mean?)

    So, if an employer covers at least 33% of $5,758 then an employee in Massachusetts is not eligible for exchange coverage. That means that if the employee share is at least 67% of this figure, or $3,858, she does have exchange access (provided her income is below $34,032 or three times FPL). Putting these together, for an individual with an income exactly 300% of FPL, if her employee share of premium is greater than 11.3% of income, she has exchange access. If it is lower, she does not. For a worker with a lower income, this percentage threshold is even higher. For example, workers with incomes 200% of FPL, or $22,688, share of premium must be 17.0% of income or higher to grant exchange access.

    Obviously, 11.3% and 17.0% are higher than 9.5%, the threshold for exchange access under the ACA. Hence, Massachusetts offers more restricted access to subsidized, exchange coverage for workers whose firms offer coverage than will be available under the ACA. Consequently, all else being equal, one should expect more people to exit employer-sponsored coverage under the ACA than in Massachusetts.

    With the right data and some work, one ought to be able to calculate how important a 9.5% threshold is compared to an 11.3% or 17% one. Some have likened the Massachusetts (implied) thresholds to huge firewalls preventing a massive exedous from employer-sponsored coverage. Are they? How many people would qualify for exchanges under the ACA relative to Massachusetts-like rules? How much in taxpayer funds would be saved if the ACA were modified to be more like the Massachusetts law? I’d like to see those calculations, though I admit they are hard to do. Without them, it is not so clear to me how important the exchange eligibility differences between the Massachusetts law and the ACA are.

    NOTE: After my first draft of the above I found a small error that required me to tweak many numbers. I may have missed a few, but I assure you the change was minor and had no bearing on the overall conclusion. I mention this to explain any small inconsistencies you may find. Still, if you find one, tell me and I’ll fix it.

    • Am I missing something, or is there no good reason to use the premium amount “paid by employees” as a basis for subsidies? Why not use the full premium amount? We all know that employees pay the full amount in the end…

      • That’s what I thought at first. It would mean that for a fixed income, a person with richer benefits due to higher employer contribution is more likely to be exchange eligible. In other words, employers could push their lower-wage workers to the exchange simply by increasing benefits. It’d actually be cheaper to provide total compensation this way due to the tax subsidy. Is that a good incentive? (I’m ignoring the Cadillac tax here.)

        Under the current arrangement (MA or ACA), employers can push lower-wage workers to the exchange by increasing the employee contribution. But doing so decreases total compensation (for a fixed income). So, there are countervailing incentives, which is probably what you want. (Well, not what you want but better than incentives going all one way in the sense that you get a gradual transition rather than a massive jolt to the system.)

        • Hmm interesting. Seems like there are downsides to both approaches. I do think employers could shift compensation from insurance to wages, tough, which would break down the countervailing force you cite

    • Relative to our original back and forth of August 11-12, perhaps this explains the rapid drop in number of “eligible” employees actually taking healthcare insurance from their employers in Massachusetts (the much more important metric as far as I’m concerned).

      First Massachusetts employers squeeze 50% of the workforce off their healthcare insurance rolls by only scheduling them for shifts that make them ineligible for insurance at all. Then for the rest of the workforce the employers make the insurance so good that only the highest paid employees can afford it. (There are some kind of rules against doing the latter vis a vis 401Ks; the regs let the feds monitor particpation rates by income bracked; you’d think they’d use the same approach here in PPACA).

      Actually I don’t believe any of this is happening but it is interesting theory. Most of this is related to small business, which in Massachusetts represents only about 10% of the insured population (but a large percentage of employers of course). What small businessperson has time to figure this all out? Isn’t the decision more binary?:
      — offer no insurance to anyone and get a $295 a head hit or
      — consider insurance an important benefit to more easily hire good people and price it so people like it.

      Business people I deal with are not going to sweat 9% vs. 11% or 17% of a small number as compared to the whole income statement.

      • The state survey had some questions about why firms don’t offer and about how much firms seem to know about the law. Other stuff in there could be relevant to your hypothesis, like average employer contribution.

      • With 45 employees, I would worry about 9% vs 17%.


        • Let me try to be clearer about my 9 vs 11 vs 17 comment. Considering Austin’s hypothetical worker at 200% of FPL costing $26K including employer-side payroll taxes and few bucks for other non-healthcare benefit and benefit administration costs and the average premium noted above of $5748, I don’t see many businesspeople making a decision on whether or not to offer health care insurance one way or the other because of $400 (17% of 5748 minus 9% of 5748). It’s a few tenths of a percent more than 1% of the total loaded cost of the employee?

          As I said, I could see choosing to pay the $295 fine and saving the total $5748 (not positive that’s how it works in Massachusetts because I’ve never been personally involved). But my point was that if I had to offer insurance to be competitive in the labor market I assume I’d have to pay more than 9% or 11% or 17% of the employee’s premium.

          We also know that at this income level, mostl likely we’re talking about jobs where the employer doesn’t offer insurance at all (or the employee isn’t eligible for it from the state’s point of view). I don’t know how the fine is assessed in that case (if at all). Probably on some FTE basis?

          (Truth in advertising: years ago, when I actually thought about such things, the premiums were much lower and I was spending either shareholders’ or some rich guy’s money. On the other hand, 22K actually went farther then,)

        • Turns out the whole 9 vs 11 vs 17 discussion is moot according to Josh’s comment elsewhere on this thread. I had assumed those numbers were not very good in the labor market. Josh says the number in the market is 50% or more.

    • Austin, sorry for the delay in posting.
      While I admire your attempt to do the math here, the reality in MA is that a carrier will not write a small group plan unless the employer is going to contribute 50%. The 33% threshold was set artificially low on purpose. I spoke to a former Connector staffer, and they said that in the five years they worked there, not a single person qualified for CommCare with ESI. While I will never say it never happens, it is very unlikely, if not close to impossible.

      But to make one final plug for culture. I stick with my original point that with all else being equal, more MA employers will maintain coverage compared to NM or TX given the ACA affordability threshold, and that is why the CBO modeling is flawed.