Will Employers Drop Coverage Under ObamaCare?

Economists have identified strong incentives for employers to drop health insurance coverage for below-average wage employees under the Affordable Care Act. Yet MIT economist Jon Gruber notes that has not happened under the Massachusetts health reform. He and others argue that Massachusetts shows that concerns about employers dropping coverage are vastly over blown.

Pioneer Institute health policy analyst, Josh Archambault, answers Gruber at the Apothecary:

First, the two laws aren’t the same when it comes to allowing access to a public exchange and associated tax credits/subsidies. Under Obamacare, it is much easier for employers to access an exchange, and for employees to receive federal subsidies, as opposed to Romneycare. Second, even if the two laws were exactly the same, there are major cultural and industry differences between employers in Massachusetts and many other states that should prevent deep parallels from being drawn.

Third, there are significant variations as to how small businesses are treated in the two laws. Fourth, there are significant differences between the affordability and penalties schedules. And finally, the economic incentives in the ACA are strong for many employers to drop coverage.

Comments (13)

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  1. Tyrus says:

    “economic incentives in the ACA are strong for many employers to drop coverage”

    -This is very obvious. I do not know how one could argue otherwise.

  2. Andrew O says:

    Can’t say I know enough about the ACA and Massachusetts law, so, I cannot say with certainty how “obvious” this actually is.

  3. Gabriel Odom says:

    This is actually a textbook example of the Fallacy of Composition.

    http://www.businessdictionary.com/definition/fallacy-of-composition.html

  4. Devon Herrick says:

    It will really depends on each firm’s mix of workers. Firms that are predominantly small and employer lower-wage workers will find it hard to resist. Why would they not? Over several decades, the firms that are able to avoid the mandate and pass on more cash wages to workers will have a competitive advantage over similar firms that provide costly coverage and pay workers lower wages.

    Large law firms may continue providing health coverage. Small janitorial firms probably never offered health coverage and certainly won’t start now if they don’t have to. In the middle are firms that will have to weigh the costs and benefits. My guess is that many will find it is better to spin off some functions to contract labor and drop the company health plan.

  5. Jordan says:

    Devon is right. Dr. Goodman posted a French study a few weeks back saying that the 40-49 employee companies are the battleground, and that there is a reduction.

  6. Evan Carr says:

    I wonder if underemployement rates will rise after ACA implementation? Will companies volunteer to employ more part-time workers leading to a drop in the unemployment rate?

  7. Gabriel Odom says:

    Underemployment is already a problem, if you ask me. I know people with 3-4 part time jobs – each with 10-15 hours per week.

    I’ve been in similar positions myself. I even asked employers to let me sign away my benefits, just to let me work full time. Having more than one job, and therefore more than one works schedule, can be exceptionally frustrating.

  8. Jardinero1 says:

    I just read my wife’s W-2. Her employer spends 19000 dollars a year on health insurance in Texas. The arithmetic is not difficult. The employer can dump everyone next year and pay at most, 3000 per employee or continue to pay 19000 or more per employee.

  9. Bob Hertz says:

    I believe that even before RomneyCare, the largest employers in Massachusetts were universities and hospitals, and that 90% of firms paid for health insurance aven before the law was passed

    This is so different from Texas, Wyoming, or Louisiana, that we could be talking about two separate nations.

  10. Dennis Byron says:

    Whether or not employers will stop offering insurance coverage is not the right question to ask. How many working people are covered is the correct question? Under RomneyCare, the percentage has decreased from almost 70% before RomneyCare to just about 50% as of 2011 (latest data available). More employers in Massachusetts offer insurance because otherwise they will be fined. But 30% fewer working people are insured through their work. That’s the promise of Obamacare

    NOTE: The Deval Patrick administration hides the RomneyCare data from the public because to the extent it is an indicator of how Obamacare works, the trend lines are devastating to Obamacare on this issue and almost all other promises (lower premium prices, you can keep your insurance, fewer ER visits, lower government costs, lower healthcare costs and even number of people insured). You probably won’t see this in a Kaiser press release, a New York Times article or on Wonkblog but the number of uninsured increased by 50% in Massachusetts in 2011. Nobody wanted that news out before the presidential election — neither Romney or Obama.

  11. Bob Hertz says:

    Dennis, can you offer any reasons why fewer working people are covered?

    Did more employers shift to using part timers?

    On the surface, if more employers offer coverage then more workers should be covered. What is going on beneath the surface?

  12. Dennis Byron says:

    Bob –

    There is no definitive Massachusetts research on this subject that I know of (that is, a survey of employees rather than employers that ask employees “Why don’t you take insurance from your employer?”). The survey that should ask that question — the so-called Massachusetts Health Insurance Survey (MHIS), also called the Household Survey — is the flip side of the Employer Survey from which I quoted. The 2011 MHIS was apparently** conducted by the far-left-wing Urban Institute although — inexplicably — the methodology section of the state document on this subject does not indicate who did the survey.

    Having no definitive data, there are various theories:

    – One is that the reason is macroeconomic. That is a theory, however, that holds no water because Massachusetts — being a demographically elderly state with a relatively finite housing stock — actually weathered the recent housing-related/job-related recession and slow recovery quite well. In fact, we still have a large and growing population of illegal immigrants unlike the border states–and, oh by the way, they get free RomneyCare and Medicaid.
    – Employers offer insurance to avoid the fine but price the offer so high, and provide poor coverage leading to high co-pays, etc., that fewer people take up the insurance (despite all the hype about a tax on citizens for non compliance with Massachusetts’ individual mandate, very few people actually pay that tax — or penalty if you prefer; they are excused from the tax by the board that runs the exchange)
    – The part time scheduling phenomenon that you mention is also a strong possibility

    (**I say it is apparently Urban Institute because it has done the survey in past years. Likely Urban Institute is not mentioned in the document because that means Deval Patrick has sent state business out of state… again.)

  13. Bob Hertz says:

    Good points. Have you seen the 4 part article by Josh Archambault in Forbes on whether Massachusetts will predict the ACA experience?

    Incidentally, the reason I was a little confused by your statement was that I tend to assume that an employer offering health insurance is equivalent to an employer paying for health insurance.

    Of course there is a world of difference, and the ACA will rise or fall to some extent on what goes on the gaps.

    Per Archambault and Holtz-Eakin, the number of workers seeking federal subsidies could exceed 35 million.

    Whereas the CBO predicted 3 million.

    Wow.