Employer-Based Health Care Plans on Slippery Slope
Policy + Politics

Employer-Based Health Care Plans on Slippery Slope


Will any of the 160 million Americans who receive health insurance from their employers lose that coverage because of the Affordable Care Act?

Former Massachusetts Gov. Mitt Romney, the presumptive Republic nominee, has repeatedly challenged the President Obama’s assertion that no one who likes their current plan will lose it. “Up to 20 million Americans . . . will lose the insurance they currently have, the insurance that they like and they want to keep,” he said shortly after the Supreme Court decision upholding the law was announced. The claim is based on a 2011 McKinsey & Co. online survey of 1,329 corporate executives where 9 percent said they would “definitely” drop coverage.

Former Congressional Budget Office chief Douglas Holtz-Eakin, who now heads the Republican-oriented American Action Forum, went even farther. He claimed during the health care reform debate that the law “provides strong incentives for employers – and their employees – to drop employer-sponsored health insurance for as many as 35 million Americans.”

His assertion was based on a simple market-based calculation. Since the penalties for failing to cover workers is a relatively puny $2,000 per employee per year – far below the cost of even a bare bones health insurance plan – it will make financial sense for some employers to drop coverage. That will be especially true for employers whose workers earn below 400 percent of the poverty level, who will qualify for subsidies under Obamacare.

Most health care economists and analysts are far more circumspect in their estimates, however. The Congressional Budget Office said 3 to 5 million people or less than 2 percent of the insured might lose coverage from employers who pack them off to the exchanges for subsidized coverage. CBO labeled a massive disruption to the employer insurance market as “unlikely.”

Some are optimistic. A Rand study projected more than 13 million people would gain employer-based coverage, citing the tax credits and other incentives offered to small businesses in the reform law. 

The more optimistic projections are also based on market-based thinking. But the market they find compelling is the labor market. “If coverage in the exchanges is less generous, it will be harder for employers to drop (what they have) because that would put them at a competitive disadvantage,” said Dan Mendelson, president of Avalere Health, a research and consulting group. “Employers want to remain competitive in attracting good people.”

Employers who provide health insurance consider it a key part of overall compensation packages that are designed to attract and retain workers. Of course, labor markets have become far more advantageous to employers in recent years. Not only is there heightened competition between workers for jobs on the domestic front, many businesses now have the option of moving jobs abroad. A health care costs rose rapidly, as they did until recently, a growing number of employers decided they could dump the benefit without paying a penalty.
This movement among employers long preceded health care reform. Just 53.5 percent of Americans received health coverage from their employers in 2010, down from 69.8 percent in 2001, according to a recent study by Chapin White and James Reschovsky of the Center for Studying Health System Change.

The Great Recession accelerated the trend. “Even when employment rebounds to pre-recession levels, a return to previous levels of employer-sponsored health insurance is unlikely,” they wrote. “Well before the start of the recession, a steady decline of employer health coverage was underway with fewer firms offering coverage and fewer workers taking up coverage – likely because of rising health care costs.”

The erosion of employer-based coverage contributed to the demand for health care reform in the first place. Even McKinsey & Co. said its survey “was not intended as a predictive economic analysis of the impact of the Affordable Care Act. Rather, it captured the attitudes of employers and provided an understanding of the factors that could influence decision making related to employee health benefits.”

“It’s not what employers would do, it’s what they’d like to do,” said Mendelson. “It was an aspiration, not a reality.”

There is one state that is bucking the trend of employers abandoning health insurance coverage, however. In Massachusetts, where then Gov. Romney signed the nation’s first far-reaching health care reform law, employer coverage expanded after the reform went into effect and continued through the worst of the recent recession. Between 2007 and 2010, the state went from 72 percent to 77 percent of its employers offering coverage. All of the gains were among firms with 50 or fewer workers, according to the Massachusetts Division of Health Care Finance and Policy.

“In the one test case we have – Massachusetts – (losing coverage) didn’t happen,” said Deborah Chollet, a health economist at Mathematica Policy Research. “I don’t think it will happen at the federal level because there are no economic arguments for it.

“If employers have many low wage workers, they’re typically not offering coverage now so there’s no coverage to be lost,” she said. “Those that offer coverage now will still have the same reason to do so – to attract and retain the workforce they want. While there may be some opportunity for fraying, I just don’t see it happening.”