Tuesday, September 10, 2013

Fwd: qotd: Will the Affordable Care Act obviate the need for employer-sponsored insurance?

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-------- Original Message --------
Subject: qotd: Will the Affordable Care Act obviate the need for
employer-sponsored insurance?
Date: Tue, 10 Sep 2013 11:50:07 -0700
From: Don McCanne <don@mccanne.org>
To: Quote-of-the-Day <quote-of-the-day@mccanne.org>

Health Affairs
September 2013

Will Employers Drop Health Insurance Coverage Because Of The Affordable
Care Act?
By Thomas Buchmueller, Colleen Carey and Helen G. Levy


Since the passage of the Affordable Care Act, there has been much
speculation about how many employers will stop offering health insurance
once the act's major coverage provisions take effect. Some observers
predict little aggregate effect, but others believe that 2014 will mark
the beginning of the end for our current system of employer-sponsored
insurance. We use theoretical and empirical evidence to address the
question, "How will employers' offerings of health insurance change
under health reform?" First, we describe the economic reasons why
employers offer insurance. Second, we recap the relevant provisions of
health reform and use our economic framework to consider how they may
affect employers' offerings. Third, we review the various predictions
that have been made about those offerings under health reform. Finally,
we offer some observations on interpreting early data from 2014.

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 employees' preferences, wages, taxes, and regulations.
The Affordable Care Act throws new taxes, subsidies, requirements, and
insurance markets into the mix. But it does not fundamentally change the
economics of the firm's decision. Microsimulation models built on sound
economic principles have for the most part predicted relatively small
declines in employer-sponsored coverage as a result of health reform,
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 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 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 sources that
will be useful for monitoring changes in employer-sponsored insurance
and drawing 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/Health Research and Educational Trust Employer Health
Benefits Survey will be published the same month. In September 2015 the
American Community Survey will provide state and metropolitan-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 health
reform on employer-sponsored insurance become evident.

However, these data will begin to answer the question posed in the title
of our article. 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.


Small Increases To Employer Premiums Could Shift Millions Of People To
The Exchanges And Add Billions To Federal Outlays
By Daniel R. Austin, Anna Luan, Louise L. Wang and Jay Bhattacharya


The Affordable Care Act will expand insurance coverage to more than
twenty-five million Americans, partly through subsidized private
insurance available from newly created health insurance exchanges for
people with incomes of 133–400 percent of the federal poverty level. The
act will alter the financial incentive structure for employers and
influence their decisions on whether or not to offer their employees
coverage. These decisions, in turn, will affect federal outlays and
revenues through several mechanisms. We model the sensitivity of federal
costs for the insurance exchange coverage provision of the Affordable
Care Act using the nationally representative Medical Expenditure Panel
Survey data set. We assess revenues and subsidy outlays for premiums and
cost sharing for individuals purchasing private insurance through
exchanges. Our findings show that changing theoretical premium
contribution levels by just $100 could induce 2.25 million individuals
to transition to exchanges and increase federal outlays by $6.7 billion.
Policy makers and analysts should pay especially careful attention to
participation rates as the act's implementation continues.


Comment: There has been considerable speculation as to whether or not
employers will discontinue their health benefit programs and shift their
employees to the state insurance exchanges established by the Affordable
Care Act (ACA). What is the likely outcome, and, more importantly, does
it even matter?

The majority of studies suggest that the impact of ACA on employers'
decisions regarding the continuation of their employee health benefit
programs will be relatively modest initially.

Examples that predict more extreme shifts, such as that above by Austin
et al - three Stanford medical students and their faculty advisor - are
often based on narrow assumptions. In this case the assumption is that
quite modest differences in net costs of plans offered through the
exchanges compared with employer-sponsored plans could cause large
shifts from employers to the exchanges.That ignores a great many other
considerations that enter the employers' action plans. Another infamous
study by Douglas Holtz-Eakin made questionable assumptions that resulted
in the spurious claim that employers would drop up to 35 million
employees from coverage simply because of the provisions of ACA.

The Health Affairs article by Thomas Buchmueller and his colleagues
provides a much more objective, if nuanced, analysis of the probability
of a shift from employer-sponsored plans to the exchanges. Based on
several more credible microsimulations and based on employer surveys,
they conclude that the more immediate impact of ACA will be quite
modest. They suggest resources that we can follow which should provide
us with better evidence of developing trends in the employer provision
of health benefits.

While much attention is being directed to employer responses,
Buchmueller et al state that employer-sponsored insurance "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."

Although this study compared employer-sponsored private insurance with
private insurance offered by the state exchanges, the subtle comment
above on the efficiency argument perhaps should be refined: "…no
efficiency argument for preferring… private insurance facilitated by the
state or any other mechanism that could be used to pool risk and achieve
administrative economies of scale." There is, in fact, a very strong
efficiency argument for the state to use another mechanism to pool all
risks and achieve administrative economies of scale; that is, of course,
single payer reform - an improved Medicare for all.

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