For all the speculating in Washington about how the Affordable Care Act will work — much of it, I admit, from me — there’s been too little attention given to the best evidence we have on the subject: How the extremely similar reforms in Massachusetts have worked.
Take employers. There’s real concern that companies will see the Affordable Care Act as an opportunity to drop health insurance for their employees and let taxpayers pick up the tab. For those with more than 50 full-time workers, that’ll mean paying a $2,000 to $3,000 penalty for each one, but that’s a whole lot cheaper than paying for health insurance.
The Massachusetts reforms, if anything, were even friendlier to this sort of dumping. The penalty for employers was a paltry $295 per worker. Compared to the average cost of an employer-provided health plan in the Northeast — $17,099, according to the Kaiser Family Foundation’s 2012 Employer Health Benefits Survey — that’s a pittance. It seemed almost irrational for employers to keep offering coverage.
“The benefits we were giving guys who left employer-sponsored insurance were way more generous than what the federal plan gives them,” says MIT’s Jonathan Gruber, a health economist who helped design the Massachusetts reforms. “And we didn’t have much of an employer penalty. I predicted employers would drop coverage.”
The report argues that people simply misunderstand why employers offer health-care benefits. They’re not doing it as a favor to employees. And they’re not doing it because anyone is making them. After all, prior to the Massachusetts reforms, employers could stop covering their employees without penalty. That’s true now in every other state in the nation, too. And yet 61 percent of firms offer health-care coverage. If anything, the Massachusetts and national reforms are making it pricier, not cheaper, for them to drop insurance.
Employers offer health insurance because employees demand it. If you’re an employer who doesn’t offer insurance and your competitors do, you’ll lose out on the most talented workers. An employer who stopped offering health benefits would see his best employees immediately start looking for other jobs. That was true before the Massachusetts health reforms. And it turned out to be even truer after them.
PricewaterhouseCoopers found that Massachusetts’s individual mandate had two unexpected effects. First, it led to a lot of employees signing up for employer-based coverage they’d previously rejected. “About a quarter of the uninsured are offered employer-sponsored insurance and don’t take it,” Gruber says. “If the mandate will affect anyone, it will affect those guys.”
Second, it led some workers to march into their boss’s office and ask for insurance. The study notes that “the percentage of small employers offering coverage in Massachusetts rose from 45 percent to 59 percent between 2005–2011,” even though insurance premiums actually rose for small employers.
The Massachusetts experience might not prove an apt guide to the national experience. Though the Massachusetts reforms are architecturally similar to the Affordable Care Act, they didn’t have to contend with a political party working relentlessly to undermine their implementation. Moreover, Massachusetts is a relatively rich and liberal state that already had a fairly high rate of health insurance.
That said, there are a couple other reasons to expect that employers won’t be eager to drop coverage. First, because employer-provided health benefits are not taxed, employers can pay their workers more by paying them partly in health-care benefits. Let’s say an employer decides to stop offering health benefits but, in a bid to keep employees happy, promises to give them the cash value of their coverage. The employer would have to spend more on the wages than it spends on the benefits, as the wages are taxed. For the record, I think this is a very stupid way to construct our tax code, but that’s how it works.
Second, the fraction of employers actually affected by the health law’s mandate is very small. “You’ve got 5.7 million firms in the U.S.,” says Wharton’s Mark Duggan, who served as the top health economist at White House’s Council of Economic Advisers from 2009 to 2010. “Only 210,000 have more than 50 employees. So 96 percent of firms aren’t affected. Then if you look among those firms with 50 or more employees, something on the order of 95 percent offer health insurance. So it’s basically 10,000 or so employers who have more than 50 employees and don’t offer coverage.” Those companies probably employ around one percent of American workers.
Which is all to say that, for most companies, the Affordable Care Act won’t bring much change at all, and so there’s little reason to expect their behavior will change, either. And if it does change, it might not change in the direction we expect. “What happened in Massachusetts is not what I predicted,” Gruber says. “But it happened.”
KLEIN NOTES: Top health policy reads from around the Web
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How to vaccinate an aging society. "From 2000 to 2025, the over-60 demographic segment will double from 600 million to almost 1.2 billion. By 2050, it will nearly double again, surpassing two billion and accounting for an incredible 22% of the total global population. A society this 'old' has never before existed, and it is a social, ethical, and economic imperative to keep older adults healthy and engaged. It is timely for the global public health community to re-align its thinking, policies and activities to this new demographic reality." Michael Hodin, Javier Garau, and Alexandre Kalachec at Health Affairs.
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