Likely Effects of the New U.S. Health Care Reform Law: Increased Rates of Coverage, Different Mixes of Coverage, Less Spending for Businesses, More Spending for Government

The Patient Protection and Affordable Care Act has several provisions that are likely to expand employer-sponsored health insurance (ESI) in the United States. A mandate requiring individuals to obtain health insurance coverage will likely lead workers to seek it from employers. Penalties inducing firms to provide coverage could increase their propensity to offer it. New health insurance exchanges, established at the state level, will offer a means for firms to provide coverage to their employees. All of these changes are likely to affect small firms most of all.

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  • The U.S. Health Care Reform Law Will Likely Increase the Rate at Which Firms of All Sizes Offer Health Insurance
  • Traditional Employer Coverage Would Decrease, but Overall Employer Coverage Would Increase
  • Many Employees Would Shift from Traditional Coverage to Exchange-Based Employer Coverage
  • Among All U.S. Residents Under Age 65, Medicaid and SCHIP Coverage Would Increase Along with Exchange-Based Coverage
  • Varying the Eligibility for Insurance Exchanges Would Alter the Types of Coverage Obtained After Reform
  • Employer Spending Would Fall as Government Spending Rise
  • The Greater the Status Quo Bias, the More Who Would Retain Traditional Employer-Based Coverage

The U.S. Health Care Reform Law Will Likely Increase the Rate at Which Firms of All Sizes Offer Health Insurance

The proportion of businesses in the United States offering insurance to employees will likely grow by more than a third. By 2016, 81 percent of U.S. employers will offer insurance under the new law, compared with 59 percent today, according to RAND researchers. Without reform, just 57 percent of employers with 50 or fewer workers will likely offer coverage. With reform, 80 percent of such employers will likely do so. Among firms with 51 to 100 workers, the proportion of employers offering coverage is expected to rise from 90 percent to 98 percent.

Traditional Employer Coverage Would Decrease, but Overall Employer Coverage Would Increase

All≤ 50 workers51–100 workers> 100 workers

Without reform, an estimated 3.5 million of 6 million U.S. firms would offer health insurance. With reform, an estimated 4.8 million firms will offer it. Firms with 100 or fewer workers will be eligible to participate in the exchanges, but the increased coverage will come largely among firms with 50 or fewer workers. Once the exchanges are available, the number of firms offering traditional ESI will decrease from 3.5 million to 1.9 million. But the decision of 2.9 million firms to participate in the exchanges will boost the overall number of firms offering coverage.

Many Employees Would Shift from Traditional Coverage to Exchange-Based Employer Coverage

All≤ 50 workers51–100 workers> 100 workers

Similarly, implementation of the health reform law is expected to reduce the number of workers receiving traditional ESI. Without reform, 115 million workers would receive traditional ESI. With it, 97 million will, but another 31 million will receive exchange-based insurance from their employers, boosting the total number of workers receiving any form of ESI to nearly 129 million (when adjusting upward to account for rounding error).

Among All U.S. Residents Under Age 65, Medicaid and SCHIP Coverage Would Increase Along with Exchange-Based Coverage

Among all U.S. residents under age 65, an estimated 35 million people will gain insurance coverage under the health reform law, raising the total number of Americans covered from 224 million to 259 million. The fraction of residents under age 65 without insurance will fall from 19 to 6.5 percent. Nearly a half-million firms will likely drop their coverage because their workers will become eligible for Medicaid, for the State Children’s Health Insurance Program (SCHIP), or for subsidized coverage in individual exchanges. The entire pre-reform “nongroup market” is also expected to migrate to the exchanges upon full implementation of the reform in 2014.

Varying the Eligibility for Insurance Exchanges Would Alter the Types of Coverage Obtained After Reform

Reducing the maximum number of employees required for a firm to be eligible for insurance exchanges—from 100 employees to 50 employees—would cause a slight shift of 7 million Americans from the exchanges to traditional ESI. Conversely, removing any such eligibility threshold would cause a large shift from traditional ESI to the exchanges. In the latter case, Medicaid enrollment would also grow as some newly eligible workers would find Medicaid more attractive than some exchange plans.

Employer Spending Would Fall as Government Spending Rise

In general, employer spending will likely drop, thanks to the state-run health insurance exchanges and Medicaid. Pre-reform, employers spend $722 billion annually on insurance coverage; post-reform, they will spend $705 billion under the baseline reform. Virtually all of this $17 billion in annual savings will be for firms with more than 100 workers, for which spending will drop from $511 billion to $496 billion. These savings reflect an increase in Medicaid enrollment as well as the increased ability of firms to offer inexpensive exchange plans, resulting in new government spending of $137 billion. Reducing the threshold for exchange participation to 50 employees would reduce these shifts somewhat; removing the threshold would exacerbate them.

The Greater the Status Quo Bias, the More Who Would Retain Traditional Employer-Based Coverage

Status quo bias is the extent to which people strongly prefer their existing forms of coverage. The baseline reform scenario assumes no such bias; thus, the results might be unrealistic if employers and workers have a strong preference for the status quo. Should individuals opt for the status quo 60 percent of the time—as other research indicates they might if they prefer it 50 percent of the time in a neutral setting—then more workers would remain in traditional ESI and fewer would participate in the exchanges. An 80-percent bias would further increase the number retaining traditional ESI.

SOURCE: Establishing State Health Insurance Exchanges: Implications for Health Insurance Enrollment, Spending, and Small Businesses, Christine Eibner, Federico Girosi, Carter C. Price, Amado Cordova, Peter S. Hussey, Alice Beckman, Elizabeth A. McGlynn, RAND/TR-825-DOL, 2010, 85 pp.

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