(Bloomberg) — U.S. retirees being pushed out of company-sponsored health plans may prove a harbinger for existing employees as well.
About $6.7 billion in taxpayer money may be at risk if companies raise premiums by as little as $100 a month. That may spur as many as 2.25 million people to drop company coverage and enroll in plans under the Affordable Care Act, Stanford University researchers say.
International Business Machines Corp. and Time Warner Inc. say that they’ll give retirees a stipend to move to coverage in private health exchanges. Rising health care costs and the availability of new government coverage options may spur companies to similarly shift active workers out of employer-sponsored insurance.
The cost of the ACA “is much more sensitive than people previously appreciated” to employers’ decisions to drop coverage, says Jay Bhattacharya, an economist and Stanford associate professor of medicine. He published a study in the journal Health Affairs this week that shows about 37 million workers would get a better deal in the taxpayer-subsided exchanges next year than through their companies as employers raise or redistribute health costs.
“The taxpayers are going to get hammered,” says Douglas Holtz-Eakin, a former Congressional Budget Office director who is now president of American Action Forum, a Washington-based advocacy group that opposes the health law. “It’s going to be extraordinarily expensive.”
Company fines
The health exchanges established under the ACA are set to open Oct. 1. They are being created to provide medical coverage for most of the 50 million Americans who currently are uninsured. Enrollees will be able to select from a menu of private health plans and in some cases will receive federal tax credits to defray the cost.
Companies with 50 or more workers must pay a fine of as much as $3,000 for every employee who obtains a subsidy for exchange plans, though the penalty in most cases will be less than what the company now pays for health coverage. The Obama administration’s decision in July to delay the penalties until 2015 may encourage more companies to drop coverage next year, Bhattacharya says.
The Congressional Budget Office estimated in May that about 7 million workers will lose employer-sponsored coverage by 2018, either because their companies stop offering it or people choose to go to the exchanges. Tax credits will cost $26 billion next year, rising to $118 billion by 2018, according to the CBO.
A separate analysis of the issue, also published Monday in Health Affairs, argues that labor markets may be improved if more workers than expected enroll through the exchanges. People who otherwise feel locked into their jobs for health coverage may be freed to start businesses or retire early, says Thomas Buchmueller, a professor of risk management and insurance at the University of Michigan’s Ross School of Business.
“We, at a minimum, should not be concerned if people make that transition,” Buchmueller says in a telephone interview. “It just means there’s more good options for people.”
Independent estimates of the number of Americans who may leave their employer-sponsored health plans because of the ACA vary widely. A July study by Craig Garthwaite of Northwestern University’s Kellogg School of Management predicts as many as 940,000. That number is an estimate of how many adults without children are working because of what the researchers call “employment lock.”
“That speaks to what we might see in January,” Garthwaite says. “One of the risks to starting a business is that it’s really hard to get benefits when you’re just a one- or two-person firm and Obamacare is going to change that.”
Changed relationship
Workers can opt out of their companies’ health plans if premiums cost more than 9.5% of their incomes, under the law. The test is based on the cost of an individual plan, not the more expensive family coverage, a policy that will hold down eligibility for exchange subsidies, Bhattacharya says.
American Action Forum predicts 43 million workers will lose their employer-sponsored plans. That would make exchanges the dominant source of U.S. insurance coverage, Holtz-Eakin says.
“You’d get different insurance-provider relationships and different care models,” he says. “You certainly wouldn’t get the interference from labor markets we have now with health insurance. Those would be benefits.”
Buchmueller doesn’t expect that many workers to lose their coverage or opt for exchange plans, pointing to results in Massachusetts, where employer-sponsored insurance increased after 2006, when the state enacted a health-care overhaul that later served as the model for the federal ACA.
Workers, looking to avoid paying a penalty for not carrying insurance, pressured their employers to provide it, an effect Buchmueller’s study calls “crowd-in.” That may happen under the national health law as well, he says.
