needed2
“Will Employers Drop Health Insurance Coverage because of the Affordable Care Act?” Health Affairs 32(9): 1522–1530
Thomas Buchmueller, Ross School of Business, University of Michigan, Ann Arbor
Colleen Carey, and School of Public Health, University of Michigan
Helen G. Levy Institute for Social Research and the Ford School of Public Policy, University of Michigan
Abstract
Since the passage of the Affordable Care Act, there has been considerable speculation about how
many employers will stop offering health insurance once the major coverage provisions of the Act
take effect. While some observers predict little aggregate effect, others believe that 2014 marks
the beginning of the end for our current system of employer- sponsored insurance. We address the
question “how will employer health insurance offering respond to health reform?” using
theoretical and empirical evidence. First, we describe economic models of why employers offer
insurance. Second, we recap the relevant provisions of health reform and use our economic
framework to consider how they may affect employer offers. Third, we review the various
predictions that have been made on this subject. Finally, we offer some observations on
interpreting early data from 2014.
“If you like the plan you have, you can keep it.
” President Obama
Since the passage of the Affordable Care Act, there has been considerable speculation about
how many employers will stop offering health insurance to their workers once the major
coverage provisions of the Act health insurance exchanges, premium tax credits for low-
income families, individual and employer mandates, and a Medicaid expansion take effect.
Speculation has only increased since the recent announcement by the Department of the
Treasury that the implementation of the employer penalty for not offering insurance will be
delayed until 2015.
The response of employers to health reform is important for several reasons. First, less
employer coverage may increase Federal outlays if more workers receive premium tax
credits in the exchanges or enroll in Medicaid. Second, if the employers who drop coverage
have relatively less healthy workers, this worsens the exchange risk pool, driving up average
premiums. Finally, the Affordable Care Act was presented to the American public as a
reform that would not seriously disrupt existing employer-sponsored coverage. To the
approximately 160 million Americans who have such coverage and are for the most part
NIH Public Access Author Manuscript Health Aff (Millwood). Author manuscript; available in PMC 2014 July 31.
Published in final edited form as: Health Aff (Millwood). 2013 September ; 32(9): 1522–1530. doi:10.1377/hlthaff.2013.0526.
N IH
-P A
A u th
o r M
a n u scrip
t N
IH -P
A A
u th
o r M
a n u scrip
t N
IH -P
A A
u th
o r M
a n u scrip
t
quite satisfied with it, large-scale employer dropping of coverage would be an unwelcome
surprise.
Some observers predict that health reform will have relatively little aggregate effect on
employer-sponsored coverage. Others believe that 2014 marks the beginning of the end for
our current system of employer-sponsored health insurance. This disagreement is driven at
least in part by fundamental differences in assumptions about employer behavior. To put it
more simply, what you think about how health reform will affect employer-sponsored
coverage depends on why you think employers provide insurance in the first place. We will
soon have early data on employers’ health insurance offerings for 2014. Making sense of
these data determining whether it is business as usual or the beginning of the end requires an
underlying model of how employers respond to incentives in choosing a menu of employee
benefits.
In this essay, we address the question “how will employer health insurance offering respond
to health reform?” from multiple perspectives. First, we briefly describe economic models of
why employers offer insurance and how they might respond to the changes that health
reform brings. Second, we recap the relevant provisions of health reform and use our
economic framework to consider how they are likely to affect employer offers. Third, we
review the various predictions that have been made on this subject. Finally, we offer some
observations on what to look for as early data from 2014 begin to come in.
1. The Economics of Employer Health Insurance Offering
Employers currently face no requirement to provide health insurance and yet most do; nearly
80% of full-time workers are eligible for employer-sponsored coverage (1). The economic
explanation for this relies on three factors: employers have a comparative advantage in
providing health insurance; workers bear the cost of health insurance through lower wages;
and employer benefit offerings reflect, albeit imperfectly, worker demand for health
insurance.
Employers have a comparative advantage in providing health insurance
There are three reasons why employer-sponsored insurance tends to be a better deal than
coverage in the individual market. First, employer-sponsored health insurance premiums are
not subject to federal or state income taxes or the Social Security payroll tax. For a typical
worker in the 15 percent tax bracket, the tax exclusion reduces the cost of insurance by
roughly one-third (2). For higher income workers, the subsidy is even greater. Research has
shown that this tax subsidy increases the likelihood that small firms offer insurance and
leads employers of all sizes to provide more generous coverage (3, 4). Second, employer
provision of insurance mitigates adverse selection. Workers in a large firm constitute an
effective risk pool, with premiums from the healthy subsidizing expenditures on the sick,
and aggregate medical claims that are fairly predictable from one year to the next. In
contrast, adverse selection in the individual market greatly limits the availability of
coverage. Third, since administrative and marketing costs are relatively fixed, employers
enjoy significant economies of scale. For a large group, the “loading factor” per enrollee -
Buchmueller et al. Page 2
Health Aff (Millwood). Author manuscript; available in PMC 2014 July 31.
N IH
-P A
A u th
o r M
a n u scrip
t N
IH -P
A A
u th
o r M
a n u scrip
t N
IH -P
A A
u th
o r M
a n u scrip
t
which includes profits and any risk premium in addition to administrative and marketing
costs - may be as little as half what it would be for individually purchased insurance (5).
Workers bear the cost of health insurance through lower wages
Economists are in near-unanimous agreement that workers ultimately pay for health
insurance through lower wages (6–8), unless minimum wages are a binding constraint (9).
The logic is that employers care about the cost of total compensation, not how compensation
is split between wages and benefits and, therefore, will only offer insurance if wages adjust
to keep total compensation constant. Because of the cost advantages just described, workers
who want health insurance will find this trade-off to be a good deal, particularly if the
marginal tax rate on earned income is high. There is considerable empirical evidence of a
compensating wage differential for health insurance (10–13).
Employer benefit offerings take into account worker preferences
Not all workers want health insurance, in the sense that they are not willing to trade off the
amount of wages required to pay for it. Even among workers who want insurance, some will
want more generous coverage than others. Because of both practical considerations and
Federal non-discrimination rules, employers generally cannot tailor health benefits to the
preferences of each individual worker (14, 15). Rather, they must balance the preferences of
workers who have a strong demand for insurance against those who are less willing to trade
wages for benefits, although it is not entirely clear how they do this (16–18). Firms may also
tailor employee premium contribution requirements or the scope of benefits in response to
diversity in worker demand for insurance (19). Clearly, the problem is simpler for employers
with workers who are similar to one another in their demand for insurance, although firms
may need to hire diverse workers depending on the nature of their business.
The advantages afforded to employer-sponsored insurance explain why most Americans
receive their health coverage through the workplace. Nonetheless, as increases in health care
costs have outpaced wage and price inflation, employer-sponsored coverage has declined
(20).
Exhibits 1 and 2 illustrate three features of the current market landscape that are important
for understanding the potential impact of the Affordable Care Act on employer-sponsored
coverage. First, the size of the circles highlights a fundamental feature of the labor market:
while most firms are very small roughly 60 percent of all private-sector employers have
fewer than 10 employees nearly two-thirds of private sector workers are employed at firms
with more than 100 employees. This means that the aggregate effect of the Affordable Care
Act on employer-sponsored insurance will depend disproportionately on the decisions made
by large employers and their workers.
Second, because both administrative economies of scale and the benefits of risk pooling
increase with group size, there is a strong positive relationship between firm size and
insurance offers. Only 36 percent of workers in firms with fewer than 10 employees are
offered coverage, compared to over 96 percent of workers in firms with 50 or more
employees. Part of this difference is likely due to the fact that small employers do not enjoy
the economies of scale and risk pooling that large employers do; in these respects, the
Buchmueller et al. Page 3
Health Aff (Millwood). Author manuscript; available in PMC 2014 July 31.
N IH
-P A
A u th
o r M
a n u scrip
t N
IH -P
A A
u th
o r M
a n u scrip
t N
IH -P
A A
u th
o r M
a n u scrip
t
market for small group coverage is characterized by some of the same problems as the
market for individual coverage. The data in Exhibit 1 also show that while employer-based
insurance rates have been stable for large firms, small business offer rates have fallen.
Third, Exhibit 2 shows that holding constant firm size, there is a strong relationship between
employee wages and employer-sponsored insurance coverage. The red circles correspond to
employers in which the majority of workers are “low-wage” workers, defined here as
workers earning less than $11.50 per hour. The dotted blue circles represent employers
where the majority of workers earn more than this amount. For all but the largest size
category, workers at high-wage firms are substantially more likely to be offered coverage
than those working at low-wage firms. The relationship between wages and employer-
sponsored insurance is in part driven by the tax exclusion for employer premiums, which
presents greater tax savings to higher-income workers. Other work has documented the
regressive nature of this tax expenditure (21).
2. Relevant Provisions of the Affordable Care Act
With these facts in mind, we consider which provisions of the Affordable Care Act are
likely to affect employers’ decisions about whether or not to offer insurance. First, though,
we note that there are other dimensions on which employers may respond to these
provisions. They may change employee premium contribution requirements; they may
adjust plan generosity; they may offer more or fewer plans; they may change their policies
for which workers are eligible for coverage. We do not attempt to consider these infra-
marginal decisions here, focusing instead on the bottom line offer/not offer decision, which
has been the focus of most policy attention.
Exhibit 3 describes the provisions of the ACA that are most relevant to employer health
insurance offering. We group these provisions into two categories: those that affect
employer decisions about offering health insurance coverage directly, and those that affect
this decision indirectly, through their effect on worker demand for coverage from their
employers. Provisions with direct effects include employer penalties for not offering
affordable coverage, small business health insurance exchanges, and small business health
insurance tax credits. Provisions that affect employers indirectly through their effect on
workers’ demand include health insurance exchanges, premium tax credits, Medicaid
expansion, and the individual mandate. While we do not attempt to predict the impact that
all of these provisions will have on employer offering this would, in effect, replicate the
work of the microsimulation models discussed in the next section some general observations
come from the simple economic understanding of firm behavior that is outlined above.
We begin by noting that the provisions affecting employers directly some of which affect
only large firms (50 or more full time employees) and some of which affect only small firms
all increase the likelihood that firms will offer coverage. Consider, first, the effect of the
employer “responsibility requirement” facing large employers who do not offer affordable
coverage to their full-time workers. As already noted, nearly all firms large enough to face
this penalty already offer coverage. The small minority of large firms that do not currently
offer insurance will face a choice of either offering coverage (and presumably reducing cash
Buchmueller et al. Page 4
Health Aff (Millwood). Author manuscript; available in PMC 2014 July 31.
N IH
-P A
A u th
o r M
a n u scrip
t N
IH -P
A A
u th
o r M
a n u scrip
t N
IH -P
A A
u th
o r M
a n u scrip
t
wages) or paying the penalty. For a typical full-time employee (40 hours per week, 50 weeks
per year) a $2,000 penalty raises the employer’s cost by $1/hour (although the per-employee
cost is reduced by the fact that the penalty does not apply to an employer’s first thirty
employees). Some employers in this group may decide that it is now worth offering
insurance. Others will not and will simply pay the penalty. Others will find ways to appear
to be “small” employers in order to avoid the penalty, such as reducing hours below the
ACA definition of “full time” (30 hours) or converting employees to contractors. For small
employers, who face no penalty for not offering coverage, the cost of offering coverage is
reduced by both the small business tax credits and the Small Business Health Options
Program (“SHOP exchanges”), insurance marketplaces intended to give small employers the
administrative efficiencies and risk-pooling long enjoyed by large employers.
Offsetting these incentives for employers to offer insurance is the fact that with one
exception (the individual mandate), the indirect provisions listed in Exhibit 3 largely
decrease worker demand for employer coverage. They do this by creating viable alternatives
to employer-sponsored coverage that cost low-income workers less than employer coverage.
The net effect of these new alternatives on employers’ incentive to offer coverage depends
on the characteristics of the firm and its workforce (22). In particular, for low-income
workers, the benefit of exchange coverage subsidized by premium tax credits exceeds the
value of the tax exclusion associated with employer-sponsored coverage, while for higher-
income workers the opposite will be true. Blumberg et al. identify 250% of the Federal
Poverty Level as the threshold at which the value of this credit will (on average) exceed the
value of the tax exclusion for employer-sponsored insurance (23), although the calculation
will depend on household circumstances, employee contributions, and plan parameters.
Since subsidized exchange coverage is available only for lower-income workers without
access to affordable employer-sponsored coverage, some lower-income workers who
wanted employer coverage in the past will now prefer not to be offered it, since it stands
between them and a generous tax credit. For employers who are already balancing the varied
demands of different workers in deciding whether or not to offer coverage this may tip the
balance against offering coverage. Or it may not.
Back on the other side of the ledger (i.e. in favor of employers continuing to offer
insurance), the individual mandate should increase workers’ demand for employer-
sponsored coverage. Indeed, the fact that employer offering actually increased after reform
was implemented in Massachusetts has largely been credited to the fact that workers want to
avoid paying tax penalties (24–27). This “crowd-in” effect for some workers potentially
offsets the reduction in demand for employer-sponsored coverage among others.
3. Projections of How the Affordable Care Act Will Affect Employer Offers
These competing incentives make it difficult to make simple predictions of how employers
and employees will respond. It is particularly hard to predict how small employers will
respond to the new incentives under the ACA. On the one hand, the factors just described
reduce small employers’ cost of offering coverage relative to what it is now; on the other
hand, they do not face penalties for not offering coverage, and to the extent that their
workers can now obtain affordable coverage through the exchanges, they do not necessarily
Buchmueller et al. Page 5
Health Aff (Millwood). Author manuscript; available in PMC 2014 July 31.
N IH
-P A
A u th
o r M
a n u scrip
t N
IH -P
A A
u th
o r M
a n u scrip
t N
IH -P
A A
u th
o r M
a n u scrip
t
need to offer coverage in order to attract workers. As noted above, however, the decisions of
large employers will drive the aggregate impact of the ACA on offering of employer-
sponsored insurance.
In light of this theoretical uncertainty, two main approaches have been used to make
projections about how the number of Americans with employer-sponsored insurance will
change after all provisions of the Affordable Care Act are in place. The most widely cited
estimates, including that of the Congressional Budget Office (CBO) who calculate
legislation’s budgetary “score”, are based on a microsimulation methodology (28, 29). The
second approach is to ask employers directly about how, if at all, their decisions concerning
health insurance are likely to change in 2014 and beyond. We review both types of
predictions.
Microsimulations
Microsimulation models combine data from nationally representative surveys with the best
evidence from the research literature to predict how families, employers and insurers will
respond to policies that alter their incentives (30, 31). The models used to simulate the
effects of health reform are based on the conventional economic theory summarized above,
although details vary across models. Employers are assumed to set their compensation
policies to attract and retain the desired number and type of employees, who implicitly pay
for employer-sponsored insurance with reduced wages. Employer and employee behavior is
modeled within the context of key institutional features of the system, such as Federal non-
discrimination rules that essentially prohibit firms from offering benefits to some full-time
workers but not others. Insurance premiums, which are a key input to these decisions, are
assumed to depend on the expected medical costs of the individuals who are insured and on
market regulations, such as guaranteed issue and community rating.
In addition to CBO, organizations that have conducted microsimulation analyses include the
Urban Institute (32, 33), the RAND Corporation (34), the Lewin Group (35), and the Office
of the Actuary (OACT) of the Center for Medicare and Medicaid Services (36). The bottom-
line predictions from these analyses about how health reform will affect employer offering
are summarized in Exhibit 4. Given the number of assumptions that must be made and the
complexity of the models, it is not surprising that different models yield different results.
However, it is clear from Exhibit 4 that even with different assumptions, the various models
tell a similar story. Consistent with economic logic discussed above, the models predict that
the Affordable Care Act will cause little change in the number of Americans covered by
employer-sponsored health insurance. The predicted change in employer-sponsored
coverage ranges from the CBO’s estimate of a 1.8 percentage point decline to RAND’s
estimate of a 2.9 percentage point increase. These estimated changes represent the net effect
of some workers and their dependents gaining coverage and others moving from employer
coverage to other categories.
These modest effects stand in contrast to a prediction by the American Action Forum (AAF)
that 43 million workers will lose access to employer coverage (37). We believe that a critical
assumption driving this difference is that while most microsimulation models assume that in
deciding whether or not to offer coverage employers aggregate their workers’ demand for
Buchmueller et al. Page 6
Health Aff (Millwood). Author manuscript; available in PMC 2014 July 31.
N IH
-P A
A u th
o r M
a n u scrip
t N
IH -P
A A
u th
o r M
a n u scrip
t N
IH -P
A A
u th
o r M
a n u scrip
t
health insurance as described above, the AAF estimates appear to assume employers offer
insurance to those who want it and withhold it from those who do not. This could happen
only if employers ignore federal non-discrimination regulations or dramatically restructure
firms so that workers with low demand for employer-based insurance are isolated in separate
firms or in part-time/temporary jobs. In addition, the AAF estimates overstate the number of
workers below 250 percent of the poverty line currently enrolled in employer coverage and
fail to include any offsetting increases in employer coverage due to factors such as the
individual mandate.
Because there is substantial uncertainty associated with projecting the effects of any policy,
especially one this significant, modelers typically conduct sensitivity analyses, varying key
behavioral assumptions. For example, in a 2012 report, the CBO discusses how alternative
assumptions about employers’ responsiveness to employee utility and their willingness to
restructure their firms affect their results (29). The most important finding that emerges from
this sensitivity testing is that even when alternative assumptions yield divergent estimates of
the number of workers with employer-sponsored insurance, they produce similar estimates
of overall insurance coverage and of the Federal budgetary cost of the coverage provisions.
The main reason for this latter result is that greater exchange enrollment entails greater
spending on premium tax credits, but lower tax expenditures for premiums as well as
increased revenue from employer penalties.
The estimates summarized in Exhibit 4 pertain to the Affordable Care Act as enacted in
March 2010. Recent developments such as states declining to expand Medicaid eligibility
and the one-year delay in the enforcement of the employer mandate are not reflected, since
most researchers have not released updated estimates. As of this writing, only CBO has
released updated estimates to reflect the fact that not all states will expand Medicaid; CBO
assumed that 30 percent of those otherwise eligible for Medicaid would reside in states that
do not fully expand eligibility and would instead enroll in the exchanges or go uninsured
(38). The Urban Institute predicts that the delay in the employer mandate will have no
effects on rates of coverage (39). These findings reinforce our view that rates of employer-
sponsored coverage are driven by the business case for benefits for the firm’s workers.
Predictions Based on Employer Surveys
Two caveats apply to interpreting survey evidence on firm behavior. Firstly, because most
firms are small but most employees work for large firms, estimates of the number of firms
adding or dropping coverage can be difficult to translate into corresponding numbers of
individuals affected. Secondly, surveys of employers currently offering insurance the
sampling frame of the surveys described below will miss offsetting increases from firms
beginning to offer benefits, and therefore cannot predict net changes in coverage.
With those caveats noted, the results of a number of surveys are consistent with the
predictions from microsimulation models. Most surveys suggest that most employers
offering health insurance now will continue to offer it in 2014, and that the vast majority of
individuals enrolled in employer-sponsored insurance will continue in it next year. In one
2012 survey, 9% of currently offering large firms, representing 3% of the workforce, said
that they anticipated dropping coverage in the next three years, an estimate consistent with
Buchmueller et al. Page 7
Health Aff (Millwood). Author manuscript; available in PMC 2014 July 31.
N IH
-P A
A u th
o r M
a n u scrip
t N
IH -P
A A
u th
o r M
a n u scrip
t N
IH -P
A A
u th
o r M
a n u scrip
t
the microsimulation estimates of gross flows from employer-based coverage (40). In a 2013
survey, nearly all (98%) of very large firms (firms with more than 1000 employees, which
account for about half of total employment) said that they expected health benefits to be an
important component of compensation three to five years from now (41).
These survey results suggest that reports of the demise of employer-sponsored coverage
soon after the Act’s passage (42) may have reflected a lack of awareness of its true effects
on employers’ incentives. The International Foundation of Employee Benefit Plans has
surveyed plans repeatedly since the Affordable Care Act became law (43, 44). Over the last
two years, it reports that fewer employers are “taking a ‘wait-and-see’ approach” and more
employers have “modeled the financial impact of reform”. Over the same period, the
number of employers who are considering dropping benefits has fallen by half to 2% and the
share of employers reporting they will definitely offer coverage in 2014 jumped from 46%
to 69%.
At the same time, employers continue to report uncertainty about various provisions of the
Affordable Care Act. In March 2013, 84% of employers reported that they were still
studying the Act (44). Only two-thirds of large employers are “familiar” with the shared
responsibility penalty (40). As firms see the Act’s provisions in action, they may explore
new health insurance options. Among firms with 50 to 100 employees, 71% reported that
they would be more likely to participate in the SHOP exchanges if a large choice of plans
were available at the employer’s targeted benefit level (40).
4. Summing up and looking ahead
For an employer, deciding whether or not to offer health insurance already requires a
complex calculus that takes into account a host of factors including employee preferences,
wages, taxes, and regulations. The Affordable Care Act throws more into the mix new taxes,
new subsidies, new requirements, new insurance markets. But it does not fundamentally
change the economics of the firm. Microsimulation models built on sound economic
principles have for the most part predicted relatively small declines in employer-sponsored
coverage as a result of the Affordable Care Act, and we believe that these predictions are
likely to be correct.
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 reported changes
to the Affordable Care Act, it is important to interpret new data on employer-sponsored
insurance coverage within the context of the basic economics of firm behavior and pre-
existing trends. For decades, the combination of rising health care costs and stagnant
earnings for middle income workers have 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 is, perhaps, stating the obvious to add a caution against reading too much into anecdotal
reports. But, for reasons described above, even surveys with large samples can produce
results that are difficult to interpret. Fortunately, there are several high quality data resources
that will be useful for monitoring changes in employer-sponsored insurance and drawing
Buchmueller et al. Page 8
Health Aff (Millwood). Author manuscript; available in PMC 2014 July 31.
N IH
-P A
A u th
o r M
a n u scrip
t N
IH -P
A A
u th
o r M
a n u scrip
t N
IH -P
A A
u th
o r M
a n u scrip
t
inferences about the effect of health reform. We expect that the earliest data on rates of
coverage will come in September 2014, when both the National Health Interview Survey
and the Current Population Survey should report on individuals’ sources of coverage in early
2014. If historical patterns hold, the Kaiser Family Foundation’s survey of employer-
sponsored insurance will be published the same month. A year later, in September 2015 the
American Community Survey will provide state and metro-area estimates of individual-level
coverage patterns, and in July 2015 the Medical Expenditure Panel Survey will provide
further information on employer offerings. Of course, effects in early 2014 will not be the
last word as individuals and employers may take a wait-and-see approach. And since the
employer penalty for not offering coverage will not take effect until 2015, it may be several
years before the true effects of these policies become evident.
These data will begin to answer the question posed in our title. 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 of labor
market distortions. A better functioning individual health insurance market has the potential
to improve labor market efficiency by reducing job-lock, 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 significant.
References
1. Fronstin, P. Employment-Based Health Benefits: Trends in Access and Coverage, 1997–2010. Employee Benefit Research Institute; 2012. p. 370
2. Gruber J. The Tax Exclusion for Employer-Sponsored Health Insurance. National Tax Journal. 2011; 64(2):511–30.
3. Gruber J, Lettau M. How Elastic Is the Firm’s Demand for Health Insurance? Journal of Public Economics. 2004; 88(7–8):1273–93.
4. Royalty AB. Tax Preferences for Fringe Benefits and Workers’ Eligibility for Employer Health Insurance. Journal of Public Economics. 2000; 75(2):209–27.
5. Swartz, K. Reinsuring Health: Why More Middle-Class People Are Uninsured and What Government Can Do. New York, NY: Russell Sage Foundation; 2006.
6. Cawley, J.; Morrisey, M.; Simon, K. The Results of the 2012 Survey of Health Economists; San Diego, CA. ASHEcon Luncheon at the Allied Social Sciences Association Convention; 2013.
7. Fuchs VR. Economics, Values, and Health Care Reform. American Economic Review. 1996; 86(1): 1–24. [PubMed: 10168326]
8. Morrisey MA, Cawley J. Health Economists’ Views of Health Policy. Journal of Health Politics, Policy and Law. 2008; 33(4):707–24.
9. Baicker K, Levy H. Employer Health Insurance Mandates and the Risk of Unemployment. Risk Management and Insurance Review. 2008; 11(1):109–39.
10. Baicker K, Chandra A. The Consequences of the Growth of Health Insurance Premiums. American Economic Review. 2005; 95(2):214–8.
11. Gruber J. The incidence of mandated maternity benefits. The American Economic Review. 1994; 84(3):622. [PubMed: 10134748]
Buchmueller et al. Page 9
Health Aff (Millwood). Author manuscript; available in PMC 2014 July 31.
N IH
-P A
A u th
o r M
a n u scrip
t N
IH -P
A A
u th
o r M
a n u scrip
t N
IH -P
A A
u th
o r M
a n u scrip
t
12. Kolstad, JT.; Kowalski, AE. National Bureau of Economic Research Working Paper 17933. 2012. Mandate-Based Health Reform and the Labor Market: Evidence from the Massachusetts Reform.
13. Olson CA. Do workers accepts lower wages in exchanges for health benefits? Journal of Labor Economics. 2002; 20(2):S91–S114.
14. Carrington WJ, McCue K, Pierce B. Nondiscrimination Rules and the Distribution of Fringe Benefits. Journal of Labor Economics. 2002; 20(2):S5–33.
15. Dafny L, Ho K, Varela M. Let Them Have Choice: Gains from Shifting Away from Employer- Sponsored Health Insurance and toward an Individual Exchange. American Economic Journal: Economic Policy. 2013; 5(1):32–58.
16. Bundorf MK. Employee Demand for Health Insurance and Employer Health Plan Choices. Journal of Health Economics. 2002; 21(1):65–88. [PubMed: 11845926]
17. Goldstein, GS.; Pauly, MV. Group Health Insurance as a Local Public Good. In: Rosett, R., editor. The Role of Health Insurance in the Health Services Sector. New York: Watson Academic; 1976. p. 73-114.
18. Monheit AC, Vistnes JP. Health insurance availability at the workplace - How important are worker preferences? J Hum Resour. 1999; 34(4):770–85.
19. Miller NH. Pricing health benefits: A cost-minimization approach. J Health Econ. 2005; 24(5): 931–49. [PubMed: 16129129]
20. Gilmer TP, Kronick RG. Hard times and health insurance: how many Americans will be uninsured by 2010? Health Aff (Millwood). 2009; 28(4):w573–7. [PubMed: 19477872]
21. Selden TM, Gray BM. Tax subsidies for employment-related health insurance: estimates for 2006. Health Aff (Millwood). 2006; 25(6):1568–79. [PubMed: 17102182]
22. Abraham, JM.; Graven, P.; Feldman, R. Employer-Sponsored Insurance and Health Reform: Doing the Math. Washington, DC: National Institute for Health Care Reform; 2012.
23. Blumberg, LJ.; Buettgens, M.; Feder, J.; Holahan, J. Why Employers Will Continue to Provide Health Insurance: The Impact of the Affordable Care Act. Washington, DC: Robert Wood Johnson Foundation and Urban Institute; 2011 Oct.
24. Gabel JR, Whitmore H, Pickreign J, Sellheim W, Shova KC, Bassett V. After The Mandates: Massachusetts Employers Continue To Support Health Reform As More Firms Offer Coverage. Health Affairs. 2008:W566–W75. [PubMed: 18957452]
25. Gruber J. The Impacts of the Affordable Care Act: How Reasonable are the Projections? National Tax Journal. 2011; 64:893–908.
26. Long SK, Stockley K, Dahlen H. Massachusetts Health Reforms: Uninsurance Remains Low, Self- Reported Health Status Improves As State Prepares To Tackle Costs. Health Affairs. 2012; 31(2): 444–51. [PubMed: 22282572]
27. Pricewaterhouse Coopers. The Massachusetts Experience: Employer-Sponsored Health Insurance Post Reform. Washington, DC: Health Research Institute; 2013.
28. Congressional Budget Office. H.R. 4872, Reconciliation Act of 2010 (Final Health Care Legislation). Washington, DC: Congressional Budget Office; 2010 Mar.
29. Congressional Budget Office. CBO and JCT’s Estimates of the Effects of the Affordable Care Act on the Number of People Obtaining Employment-Based Health Insurance. Washington, DC: Congressional Budget Office; 2012 Mar.
30. Glied S, Remler DK, Zivin JG. Inside the sausage factory: improving estimates of the effects of health insurance expansion proposals. The Milbank quarterly. 2002; 80(4):603–35. iii. [PubMed: 12532642]
31. Abraham JM. Using microsimulation models to inform U.S. health policy making. Health Serv Res. 2013; 48(2 Pt 2):686–95. [PubMed: 23480782]
32. Garrett, B.; Buettgens, M. Employer-Sponsored Insurance under Health Care Reform: Reports of Its Demise are Premature. Washington, DC: Robert Wood Johnson Foundation and Urban Institute; 2011 Jan.
33. Buettgens, M.; Garrett, B.; Holahan, J. America Under the Affordable Care Act. 2010.
Buchmueller et al. Page 10
Health Aff (Millwood). Author manuscript; available in PMC 2014 July 31.
N IH
-P A
A u th
o r M
a n u scrip
t N
IH -P
A A
u th
o r M
a n u scrip
t N
IH -P
A A
u th
o r M
a n u scrip
t
34. Eibner, C.; Girosi, F.; Price, CC.; Cordova, A.; Hussey, PS.; Beckman, A., et al. Establishing State Health Insurance Exchanges: Implications for Health Insurance Enrollment, Spending, and Small Businesses. Santa Monica, CA: RAND Corporation; 2010.
35. The Lewin Group. Patient Protection and Affordable Care Act (PPACA): Long Term Costs for Governments, Employers, Families and Providers. Falls Church, VA: Lewin Group; 2010 Mar.
36. Foster, RS. Estimated Financial Effects of the ‘Patient Protection and Affordable Care Act,’ as Amended. Baltimore, MD: Department of Health and Human Services Centers for Medicare & Medicaid Services, Office of the Actuary; 2010.
37. Holtz-Eakin, D.; Smith, C. Labor Markets and Health Care Reform: New Results. Washington, DC: American Action Forum; 2010.
38. Congressional Budget Office. Effects on Health Insurance and the Federal Budget for the Insurance Coverage Provisions in the Affordable Care Act May 2013 Baseline. Washington, DC: Congressional Budget Office; 2013 May.
39. Blumberg, LJ.; Holahan, J.; Buettgens, M. It’s No Contest: The ACA’s Employer Mandate Has Far Less Effect on Coverage and Costs Than the Individual Mandate. Washington, DC: Urban Institute; 2013.
40. Deloitte. 2012 Deloitte Survey of US Employers: Opinions about the US Health Care System and Plans for Employee Health Benefits: Deloitte Center for Health Solutions and Deloitte Consulting. 2012 Jul.
41. Towers Watson/NBGH. Towers Watson/NBGH Employer Survey on Purchasing Value in Health Care. 2013 Mar.
42. Singhal, S.; Stueland, J.; Ungerman, D. McKinsey Quarterly. 2011. How U.S. Health Care Reform Will Affect Employee Benefits.
43. International Foundation of Employee Benefit Plans. Health Care Reform: 2012 Employer Actions Update: International Foundation of Employee Benefit Plans. 2012 May.
44. International Foundation of Employee Benefit Plans. 2013 Employer-Sponsored Health Care: ACA’s Impact: International Foundation of Employee Benefit Plans. 2013 May.
45. Blumberg LJ, Buettgens M, Feder J, Holahan J. Why Employers Will Continue to Provide Health Insurance: The Impact of the Affordable Care Act. Inquiry. 2012; 49(2):116–26. [PubMed: 22931019]
46. DeNavas-Walt, C.; Proctor, BD.; Smith, JC. Income, Poverty, and Health Insurance Coverage in the United States: 2011. Washington, DC: United States Census Bureau and U.S. Department of Commerce Economics and Statistics Administration; 2012 Sep.
Buchmueller et al. Page 11
Health Aff (Millwood). Author manuscript; available in PMC 2014 July 31.
N IH
-P A
A u th
o r M
a n u scrip
t N
IH -P
A A
u th
o r M
a n u scrip
t N
IH -P
A A
u th
o r M
a n u scrip
t
Exhibit 1. Percent of Private Sector Workers Receiving Offers of Health Insurance, by Firm Size, 2000
and 2011
Source: Medical Expenditure Panel Survey, Insurance Component.
Buchmueller et al. Page 12
Health Aff (Millwood). Author manuscript; available in PMC 2014 July 31.
N IH
-P A
A u th
o r M
a n u scrip
t N
IH -P
A A
u th
o r M
a n u scrip
t N
IH -P
A A
u th
o r M
a n u scrip
t
Exhibit 2. Percent of Private Sector Workers Receiving Offers of Health Insurance, by Firm Size and
Majority Low-Wage Status, 2011
Source: Medical Expenditure Panel Survey, Insurance Component.
Buchmueller et al. Page 13
Health Aff (Millwood). Author manuscript; available in PMC 2014 July 31.
N IH
-P A
A u th
o r M
a n u scrip
t N
IH -P
A A
u th
o r M
a n u scrip
t N
IH -P
A A
u th
o r M
a n u scrip
t
N IH
-P A
A u th
o r M
a n u scrip
t N
IH -P
A A
u th
o r M
a n u scrip
t N
IH -P
A A
u th
o r M
a n u scrip
t
Buchmueller et al. Page 14
Exhibit 3
Major Affordable Care Act Provisions Affecting Employer Health Insurance Offering
Provisions affecting employers directly: Impact on offering:
Employer penalties: Employers with 50 or more full-time workers face a penalty if any of their full-time workers qualifies for a premium tax credit. If the firm does not offer coverage at all the penalty is $2,000 for each full-time worker beyond the first 30. If the firm offers coverage that is not affordable, the penalty is the lesser of (1) $3,000 for each full-time worker who receives a credit or (2) $2,000 for each full-time worker in the firm beyond the first 30. Originally scheduled to take effect in 2014, HHS recently announced that this penalty will not be implemented until 2015.
Increase offering for large firms
Small business exchanges: Establishes the Small Business Health Options Program (“SHOP exchange”) on which small employers, defined as those with fewer than 50 full-time workers, can get coverage. Between 2014 and 2016, states may choose to allow employers with 50 to 100 workers in the SHOP exchange; in 2017 and later, they may choose to allow employers of any size to offer coverage from the SHOP exchange. As of 2014 in some states and 2015 in others, a small employer may designate a menu of insurance options for employees.
Increase offering for small firms
Small business tax credits: Employers with fewer than 25 employees and average annual wages below $50,000 are eligible for premium tax credits to offset the cost of coverage for up to 2 years. The maximum credit is currently 35 percent, rising to 50 percent in 2014. In 2014 and later, coverage must be purchased through a SHOP exchange.
Increase offering for small, low- wage firms
Provisions affecting worker demand for employer-sponsored insurance:
Health insurance exchanges with community rating and guaranteed issue: Exchanges should, in theory, provide a viable alternative to employer-sponsored insurance since they capture the “economies of scale” and “risk pooling” advantages that employers have. In practice this depends on what the exchange risk pool looks like.
Reduce offering for firms with many low- income workers
Premium tax credits: Premium tax credits are available to workers without access to affordable employer- sponsored coverage, where “affordable” means that the worker’s share of the premium for single coverage does not exceed 9.5 of the worker’s income.
Reduce offering for firms with many low- income workers
Medicaid expansion: In some states, all individuals with incomes below 138% of the Federal poverty threshold will become eligible for Medicaid.
Reduce offering for firms with many low- income workers
Individual mandate: Individuals who lack coverage for more than 3 months in a year face a penalty that is phased in between 2014 and 2016. The penalty is the greater of $285/1% of family income in 2014, $975/2% of family income in 2015, and $2,085/2.5% of family income in 2016 and later. Exemptions apply in the case of hardship, families with incomes below the tax filing threshold, Indians, and certain religious groups.
Increase offering
Health Aff (Millwood). Author manuscript; available in PMC 2014 July 31.
N IH
-P A
A u th
o r M
a n u scrip
t N
IH -P
A A
u th
o r M
a n u scrip
t N
IH -P
A A
u th
o r M
a n u scrip
t
Buchmueller et al. Page 15
E x h
ib it
4
S im
ul at
ed I
m pa
ct s
of H
ea lt
h In
su ra
nc e
C ov
er ag
e fo
r N
on el
de rl
y A
m er
ic an
s
R at
e in
2 01
1
E st
im at
ed A
C A
I m
p ac
t in
P er
ce n
ta ge
P oi
n ts
C B
O /J
C T
R A
N D
U rb
an L
ew in
O A
C T
E m
pl oy
er C
ov er
ag e
T ra
di ti
on al
M ar
ke t
58 .3
% N
A −
10 .1
− 7.
9 −
4. 7
N A
S H
O P
0. 0%
N A
13 .0
7. 7
3. 7
N A
T ot
al 58
.3 %
− 1.
8 2.
9 −
0. 2
− 1.
0 −
0. 5
In di
vi du
al C
ov er
ag e
T ra
di ti
on al
M ar
ke t
7. 1%
− 1.
1 −
6. 1
− 4.
3 −
2. 8
− 5.
6
E xc
ha ng
e 0.
0% 8.
4 11
.9 8.
6 10
.0 11
.3
T ot
al 7.
1% 7.
3 5.
8 4.
3 7.
1 5.
7
M ed
ic ai
d/ C
H IP
17 .6
% 5.
8 4.
3 6.
2 4.
9 7.
3
O th
er 6.
9% N
A 0.
0 0.
0 0.
0 0.
0
U ni
ns ur
ed 17
.9 %
− 11
.3 −
12 .3
− 10
.4 −
10 .9
− 11
.7
N ot
es :
E ac
h m
ic ro
si m
ul at
io n
co m
pa re
s th
e A
ff or
da bl
e C
ar e
A ct
t o
co nt
in ua
ti on
o f
th e
st at
us q
uo . H
ow ev
er , t
he s
tu di
es s
im ul
at e
th e
A ct
’s e
ff ec
t in
d if
fe re
nt y
ea rs
; w
e re
po rt
e st
im at
es f
or 2
01 9
fo r
C B
O /J
C T
a nd
O A
C T
, w ho
p re
se nt
e st
im at
es f
or s
ev er
al y
ea rs
. D if
fe re
nt a
ss um
pt io
ns g
ov er
n ho
w q
ui ck
ly t
he A
ct ’s
e ff
ec ts
a re
r ea
li ze
d an
d ho
w c
ov er
ag e
tr en
ds i
n th
e st
at us
q uo
. W hi
le a
ll m
ic ro
si m
ul at
io ns
i nc
lu de
t he
m aj
or m
ar ke
t re
fo rm
s an
d co
ve ra
ge i
nc en
ti ve
s of
t he
A ff
or da
bl e
C ar
e A
ct , t
he y
di ff
er s
om ew
ha t
in t
he ir
i nc
lu si
on o
f sm
al le
r pr
ov is
io ns
, s uc
h as
t he
e xt
en si
on o
f pa
re nt
s’ po
li ci
es t
o ad
ul t
ch il
dr en
2 5
an d
yo un
ge r.
A lt
ho ug
h th
e C
on gr
es si
on al
B ud
ge t
O ff
ic e
(3 8)
a nd
t he
U rb
an I
ns ti
tu te
( 39
, 4 5)
h av
e is
su ed
n ew
e st
im at
es r
ef le
ct in
g up
da te
d po
li ci
es , w
e us
e ol
de r
C B
O a
nd U
rb an
e st
im at
es t
ha t
ar e
m or
e co
m pa
ra bl
e to
t he
p ol
ic y
as su
m pt
io ns
u se
d by
R A
N D
, L ew
in , a
nd O
A C
T . L
ew in
a nd
O A
C T
s im
ul at
e in
su ra
nc e
co ve
ra ge
f or
t he
f ul
l po
pu la
ti on
i nc
lu di
ng e
ld er
ly , b
ut w
e at
tr ib
ut e
al l
ch an
ge s
to t
he n
on el
de rl
y po
pu la
ti on
. “ O
th er
” in
cl ud
es M
ed ic
ar e
an d
m il
it ar
y- re
la te
d in
su ra
nc e.
T he
c ha
ng es
b y
ty pe
o f
co ve
ra ge
d o
no t
ad d
up t
o re
du ct
io n
in u
ni ns
ur ed
b ec
au se
s om
e in
di vi
du al
s w
il l
ha ve
m or
e th
an o
ne t
yp e
of c
ov er
ag e.
S ou
rc es
: (2
9, 3
3– 36
, 4 6)
Health Aff (Millwood). Author manuscript; available in PMC 2014 July 31.