Why We Should All Care about Obamacare
Cross-posted from The Field Clinic blog
Despite all the media attention, most of us are only bystanders to the activities surrounding “Obamacare.” That’s because most of us still get our health insurance through our employers. The ACA focused on stabilizing the individual market and making coverage more affordable for people buying health insurance on their own.
|Janet Weiner is Associate Director for Health Policy at LDI; David Grande is an Assistant Professor of Medicine at Penn's Perelman School of Medicine and Director of Policy at LDI.|
So why should the 149 million of us getting employer-sponsored insurance (ESI) care so much about what happens to the 19 million non-elderly people who buy their coverage directly? A number of reasons emerged from a joint Penn LDI and Wharton Public Policy Initiative workshop held recently in Washington, DC.
1) Over time, fewer employers are offering coverage. The recent news that Walmart is ending coverage for 30,000 of its part-time employees accelerated fears that the ACA is suddenly leading many employers to drop coverage. There is no evidence that this is the case; nevertheless, a trend that predates the ACA suggests a slow shift away from ESI. The Kaiser Family Foundation recently reported that the percentage of firms offering ESI decreased from 66% in 1999 to 55% in 2014. That may mean that more of us may be getting our insurance by shopping on public or private marketplaces.
2) The benefits offered in ESI may start to resemble the more limited designs of plans available on the marketplaces. Although employers are not dropping coverage en masse, they have been adopting the same cost-cutting measures of plans on the marketplaces, such as higher deductibles, pricing tiers, and “narrow” networks of providers. Avalere Health estimated that the average annual deductible for a single person on a marketplace “silver” plan was $2,550, more than twice the average ESI deductible. In general, these designs offer lower premiums in exchange for higher out-of-pocket costs and a more limited choice of providers. The marketplace plans will tell us whether these designs contain costs, maintain quality, and are appealing to consumers.
3) Some of the ACA provisions related to ESI will soon start to kick in. In 2015, the “employer mandate” is being phased in; it requires companies with 50 or more full-time employees to offer affordable insurance or pay a $2,000 penalty per employee (excluding the first 30 employees). Most economists do not believe that this mandate will have much of an effect on the labor market, but others suggest that it might induce some companies to shift more workers to part-time to avoid the penalty.
A tax on ‘generous’ employer plans (known as the “Cadillac tax”), set to take effect in 2018, may have more direct consequences for ESI. The ACA calls for a 40% tax on the cost of coverage for health plans that exceed a certain annual limit ($10,200 for individual coverage and $27,500 for family coverage). The tax is intended to counteract current tax incentives that encourage employers to offer generous health insurance plans. It is these generous plans that some economists criticize for promoting excessive utilization of health care. The prospect of this tax is already encouraging employers to reduce premiums by shifting more of the costs onto the employee, using some of the mechanisms described above. It may also accelerate a trend toward high deductible health plans (HDHPs) which sometimes are paired with individual health savings accounts.
According to the Kaiser Family Foundation, 11% of employees now work for a firm that only offers a high deductible plan, and 45% work for a firm that offers it as a choice. In 2014, the average deductible in these plans is $2,215 but the premium is about $700 less that the average employer plan. The Cadillac tax will further push employers in this direction. Eventually, it may spur some to replace their health benefits with a defined contribution that employees can use to shop for coverage on public or private marketplaces.
Will Obamacare herald the end of ESI as we know it? Zeke Emanuel, one of the architects of the ACA and Penn Professor of Medical Ethics and Health Policy, predicts it will, over the course of the next 10-15 years, if the shopping experience on the marketplaces improves. Noted economist Mark Pauly, a Wharton professor and contributor to this blog, predicts no more than a 10%-20% shift away from ESI, particularly for low-wage workers in small firms.