Estimate of Reduction in Employer-Provided Health Coverage as a Result of Affordable Care Act Varies Depending on Scenario

A new report (pdf) released on Thursday by the Congressional Budget Office (CBO) and the Joint Committee on Taxation (JCT) supports their initial finding that the Affordable Care Act (ACA) will likely lead to a modest reduction in employment-based health insurance over the next decade. Specifically, the report estimates that as a result of the health care reform law, a net of approximately 3 million to 5 million fewer people will obtain employer-provided coverage each year from 2019 through 2022 than would have absent the law’s enactment. The report was issued after the CBO and JCT released a revised cost estimate (pdf) of the ACA on March 13. The revised estimate projects that over the 2012-2021 period, the law’s insurance coverage provisions will cost about $50 billion less than initially thought.

The report acknowledges that: “some observers have expressed surprise that CBO and JCT have not expected a much larger reduction in the number of people receiving employment-based health insurance in light of the expanded availability of subsidized health insurance coverage that will result from the ACA.” CBO and JCT respond that their “estimates take account of that expansion, but they also recognize that the legislation leaves in place some financial incentives and also creates new financial incentives for firms to offer and for many people to obtain health insurance coverage through their employers.” Beginning in 2014, larger employers who fail to offer health care coverage to their full-time employees face a penalty of $2,000 per full-time employee per year, minus the first 30 such employees.

The report notes that despite the extensive cost modeling conducted by the CBO and JCT, there remains a “tremendous amount of uncertainty about how employers and employees will respond to the set of opportunities and incentives” provided by the ACA. In making their analysis, the CBO and JCT examined the experience in Massachusetts, “where employment-based health insurance coverage appears to have increased since that state’s reforms, which are similar but not identical to those in the ACA, were implemented.” The report also explains that employer decisions about health coverage will be “influenced heavily” by subsidies made available to some employees through the future health insurance exchanges and by Medicaid and the Children’s Health Insurance Program (CHIP), as well as by the tax treatment of employment-based insurance.

Because of all the variables involved, the report presents an analysis of four different scenarios showing the impact the ACA would have on health insurance coverage when the assumptions about employer behavior change. These scenarios are as follows:

  • Scenario 1: Greater Responsiveness by Employers to the Difference in the Cost of Obtaining Insurance from Different Sources and Lesser Responsiveness to Additional Demand for Insurance Arising from the Individual Mandate. In this scenario the CBO and JCT incorporate three changes to assumptions about employers’ behavior that increase the projected number of employers deciding not to offer coverage.
  • Scenario 2: Lesser Responsiveness by Employers to the Difference in the Cost of Obtaining Insurance from Different Sources and Greater Responsiveness to Additional Demand for Insurance Arising from the Individual Mandate. This scenario incorporates three changes in the CBO and JCT’s assumptions about employers’ behavior that decrease the number of employers deciding not to offer coverage.
  • Scenario 3: A Variation on Scenario 1’s Greater Responsiveness by Employers to Differences in the Cost of Obtaining Insurance. In this scenario the CBO and JCT consider different changes in their assumptions “that also increase the number of employers deciding not to offer coverage but lead to different sorts of workers not having employment-based insurance—which leads to different estimated budgetary effects of the ACA.”
  • Scenario 4: Substantially More Restructuring by Employers. This scenario discusses how the estimates might change if employers took more significant steps in response to the law, such as shifting more of their lower-wage workers into separate firms, contracting for the services of more such workers from other companies, or shifting their workforces toward part-time workers instead of fulltime workers.

Depending on any of the four scenarios, the final estimate of employer-provided health insurance gain or loss varies significantly. For example, the report explains that under scenario number three, 20 million fewer people will obtain employer-provided insurance in 2019 than they would absent the law, while 3 million more individuals will obtain coverage through their employers under the second scenario.

Overall, the report considers the following to be the CBO and JCT's key findings:

  • The ACA will lead to a small reduction in employment-based health insurance. That projection arises from the agencies' modeling of the many changes in opportunities and incentives facing employers and employees under the ACA, and it is consistent with the findings of other analysts who have carefully modeled the nation’s health insurance system.
  • Significant changes in some of the key assumptions underlying the estimates lead to somewhat higher or lower projections of the change in employment-based health insurance and the budgetary impact of the ACA. However, differences in the projected change in employment-based health insurance tend to have limited effects on the projected budgetary impact of the law because changes in the availability and take-up of such insurance affect the federal budget through several channels that are partly offsetting. Indeed, one scenario examined here shows that larger reductions in employment-based health insurance than expected by CBO and JCT might lower rather than raise the cost of the insurance coverage provisions of the ACA.
  • In CBO and JCT's judgment, a sharp decline in employment-based health insurance as a result of the ACA is unlikely and, if it occurred, would not dramatically increase the cost of the ACA.

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Information contained in this publication is intended for informational purposes only and does not constitute legal advice or opinion, nor is it a substitute for the professional judgment of an attorney.