Monday, June 27, 2011

New Studies Suggest Employer Sponsored Coverage May Increase Because Of Health Reform

Several new studies suggest that the Patient Protection and Affordable Care Act (ACA) will help to reverse a decade-long reduction in employer-provided coverage.

The studies are in part a response to a McKinsey and Company report that as many as 30% of employers will drop employer provided insurance when the ACA is fully implemented after 2014. According to an already published report from the International Foundation of Employee Benefit Plans (IFEBP), fewer than 1% of employers (0.7%) plan to stop providing employees with health care coverage in 2014, when "play or pay" provisions become effective.

Robert Wood Johnson Reports

Two reports released by the Robert Wood Johnson Foundation (RWJF) show there has been a significant erosion in employer-sponsored insurance (ESI) over the last decade, but that the ACA is expected to help reverse the trend among small employers.

A report from the State Health Access Data Assistance Center (SHADAC) at the University of Minnesota shows the percentage of nonelderly Americans who get their health insurance through their jobs declined eight percentage points in a decade --from 69% in 1999/2000 to 61% in 2008/2009 --with low- and moderate-income families hardest hit. The SHADAC report, State-Level Trends in Employer-Sponsored Health Insurance, found that 7.3 million fewer people have ESI than approximately one decade ago.

Recent analysis from the Urban Institute finds that the ACA will likely help stem this decline, especially among small businesses.

Nationwide, the share of private employers offering ESI declined by 3.6% age points between 1999/2000 and 2008/2009. The decline among small businesses, those with less than 50 workers, was greater --from 47% in 1999/2000 to 42% in 2008/2009.

Focusing on small business, where the coverage erosion has been greatest, the Urban Institute analysis, in The Effects of Health Reform on Small Employers and Their Workers finds that the ACA will likely help reverse these trends due largely to the introduction of the Small Business Health Options Program (SHOP) and reforms to health insurance markets.

Using Urban's Health Insurance Policy Simulation Model, researchers estimated that insurance offer rates for all firms with fewer than 100 employees would increase by 9.7% under ACA. The biggest jump would be seen in the smallest firms, with a projected increase in offer rates of 14.2% among businesses with fewer than ten employees. When combined with a projected drop in premium costs, the report indicated that ESI coverage will increase modestly for workers employed by firms with fewer than 50 employees, as well as for their dependents.

Avalere Report

A report from Avalere Health that reviewed a number of analyses conducted by economists and policy analysts and published employer surveys suggests that the ESI market will be fairly stable after 2014 when key ACA coverage provisions go into effect.

According to Avalere, "Stability in ESI is driven by expectations that large firms, whose policies cover more people than small-and medium-firm policies combined, will continue offering health benefits. Moreover, small businesses that will benefit from new economies of scale in the small business exchanges are likely to offer coverage for their employees through the exchange and possibly newly offer coverage if they previously did not."

While the overall ESI market is likely to remain fairly stable, Avalere noted that there is agreement that that some firm types and covered subgroups are likely to experience changes in coverage soon after 2014. Large and small firms with low-wage workers are likely to pay the new ACA employer penalties and allow employees to enroll in Medicaid or subsidized coverage through health insurance exchanges. Also, the offers of early retiree coverage are likely to decline dramatically. This type of coverage is a significant cost for many companies and does not directly benefit the employer. Consequently, many early retirees are likely to receive defined contributions from employers to purchase coverage through the exchange in 2014 or soon thereafter.

McKinsey Response

In response to criticism of its report, including calls from some members of Congress to explain its results McKinsey & Company released details of its survey methodology and said that it stood "by the integrity and methodology of the survey."

According to McKinsey, "The survey was not intended as a predictive economic analysis of the impact of the ACA. Rather, it captured the attitudes of employers and provided an understanding of the factors that could influence decision making related to employee health benefits.

As such, our survey results are not comparable to the healthcare research and analysis conducted by others....Comparing the McKinsey survey to economic estimates, such as the [estimates from the Congressional Budget Office], is comparing apples to oranges." While McKinsey cited CBO estimates, "Any comparison is not apt. We understand how the language in the article could lead the reader to think the research was a prediction, but it is not."

For a comprehensive analysis of the ACA, and additional information on health reform and other developments in employee benefits, just click here.


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