Will the ACA cause employers to drop coverage?
Over at the Tax Policy Center, Gene Steuerle writes that the Affordable Care Act "will make it beneficial for many employers to drop their insurance coverage." This, Reihan Salam says, substantially complicates the political case for the reform, even as it may strengthen the intellectual case for it. "Where were the legions of scrupulous fact-checkers from the center and the left when the president claimed that those who liked their coverage would keep their coverage under the reform?" he asks.
Well I, for one, was attacking the administration for not going far enough in this direction. The exchanges are closed to large employers until at least 2017, at which point states get to choose whether to let larger employers participate.
What Steuerle and Reihan are talking about, however, is something very different: It's employers dropping coverage entirely. And I think this unlikely. Consider this: It's beneficial for many employers to drop insurance coverage now. There's no law saying they have to offer it. And it's wildly expensive. But they keep offering it.
I've often asked employers why they offer it and the answer is a mixture of competition and responsibility. They feel like they have to, because if they don't, the best employees will go with their competitors. And they feel like they should because, well, that's what you do for your employees.
But in a world with exchanges and subsidies, it's possible that both employees and employers would be better off if employers dropped insurance coverage, raised wages and let their lower-income employees get subsidized on the exchange. The upside to that world is that the employees are getting better insurance at a lower cost. The downside is that increased use of subsidies makes things more expensive for the taxpayers.
My judgment is that a large move in this direction isn't very likely. Benefits are sticky. Workers don't like disruption. And new businesses that are hiring the sort of workers who would ordinarily get health benefits will be competing against businesses offering health benefits, and workers will likely prefer that arrangement. But if you do see a move in this direction, the policy responses aren't too complicated: A mixture of a stronger employer mandate and more tax credits for businesses is likely, though I'd certainly prefer that we embrace the end of the employer-based health-care system and put into place policies that accelerate its decline.
But like a lot of things in this -- or any -- bill, whether we need to strengthen this part of the legislation will depend on how businesses and individuals respond to the legislation. For now, we just don't know. The employer-based market exists despite all sorts of rational economic incentives that should cause it to stop existing. My guess is it will continue to exist, in much the same way it exists now, at least into the second decade of the legislation, and that the transformative change will be large employers entering the exchange rather than midsize employers dropping coverage entirely.
So to answer Reihan's question: I think the argument that most people who like their current coverage will get to keep it is basically correct. The bigger problem for the bill, actually, is that people who don't like their coverage will not be able to choose something different. So long as your employer is offering you a minimally affordable plan, you're barred from entering the exchanges.
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