implications of health care reform for employers

8/7/2019 Implications of Health Care Reform for Employers

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Implications of Health CareReform for EmployersAn Analysis o the Patient Protection and Aordable

Care Act

Kosali Simon May 2010



Contents 1 Introduction and summary

4 New market dynamics and new decisions for employers

6 An employer mandate

9 Subsidies to small employers

11 An individual mandate

12 Insurance market reforms

14 Expansions of public coverage

15 Medicare payment reforms and other improvements in

delivery system quality and efficiency

18 Conclusion

19 Appendix A: The current role of

employers in providing health insurance

26 Appendix B—How do employers react to increasing hea

care/health insurance costs?

30 Appendix C—What do employers say when asked about

opinions regarding health insurance and reform?

32 Appendix D

33 Endnotes

36 About the author and acknowledgements



1 Center or American Progress | Implications o Health Care Reorm or Employers

Introduction and summary

Te recen enacmen o comprehensive healh care reorm has many implicaions

or American employers and heir workers.1 Bu how hey are aeced by he Paien

Proecion and Aordable Care Ac and he companion Healh Care and Educaion

econciliaion Ac, or, ogeher, he Aordable Care Ac, will depend on acors such as

he size o he employer, amily incomes, and healh condiions o he workers.

More han 160 million (61 percen) o nonelderly Americans have an employmen-relaed

healh insurance policy in 2008. 2 In general, employers are expeced o coninue provid-

ing healh insurance or a large racion o he nonelderly ollowing healh care reorm.

Some small employers will qualiy or emporary subsidies, and large employers ace nes

designed o encourage employers o say in he game. I individuals are no insured, hen

hey ace nes ha add o he incenives aimed a employers. Oher provisions, noably

expanded Medicaid eligibiliy and he availabiliy o low-income premium and cos-shar-

ing subsidies or hose no oered employer coverage, may lead some employers wih low-

skilled workers o drop healh insurance provision, bu or he large majoriy o employers,

he reorms are likely o mainain heir key role.

More specically, key eaures o he enaced nal healh care reorm legislaion include:

• Te creaion o sae healh insurance exchanges wih amily income-based premium

subsidies (no available i oered employer insurance)

• A requiremen ha large employers who do no provide healh insurance (or hose

providing healh insurance whose workers receive subsidies in he exchange coverage)

pay a penaly on behal o heir workers; small employers who oer coverage receive a

emporary subsidy

• A requiremen ha individuals hold insurance coverage—eiher hrough a public pro-

gram, hrough an employer, or purchased hrough he exchange—or pay a penaly

• Insurance marke reorms, including near-communiy raing, guaraneed issue, and

minimum sandards or healh insurance plans

• Expanded eligibiliy o public coverage or all Americans wih incomes under 133 percen

o he povery level, or somewha less han $30,000 a year or aduls in a amily o our




• Cos-conainmen sraegies ha include Medicare paymen reorms ha aim o

improve delivery sysem eciency and qualiy, a new ax on high-cos healh insur-

ance plans, and new invesmens in delivery sysem inrasrucure, such as comparaive

eeciveness research

• Financing provisions ha include (in addiion o he high-cos-plan ax) reduced growh

o Medicare provider paymens, reducions in Medicare’s paymens o privae healhplans, axes on medical manuacurers, new payroll axes or high-income workers, and

new axes on unearned income

Employers’ coverage decisions will be deermined by hese changes o he healh care

sysem, as well as he aspecs o oday’s sysem ha remain unchanged. For insance,

employer-provided healh insurance coninues o receive a large ax subsidy, being exemp

rom payroll and income axes unlike cash compensaion and unlike he purchase o healh

insurance on one’s own. Large employer policies are also likely o coninue having lower

adminisraive coss relaive o individual policies sold hrough exchanges; small employ-

ers have he opion o buying ino he exchange.3

Among oher provisions, he new healh reorm law also includes demonsraion pro-

grams, innovaion iniiaives, independen commissions, and oher mechanisms o

improve healh care managemen, and redesigned nancial incenives or healh care

providers o reduce he growh rae o healh care and healh insurance coss.4 Cos

conainmen is unambiguously benecial or businesses; he growh o healh insurance

premiums has oupaced inaion and produciviy growh or many years.5 o he exen

ha he legislaion is able o lower healh care cos growh i will bene business because

workers would have o give up less o heir wages or healh insurance. How businesses are

aeced by insurance expansion provisions will vary according o heir characerisics.

Te smaller he employer, he lower he incomes and worse he pre-exising healh saus

o he workers, hen he larger he assisance provided by he new law relaive o he cur-

ren siuaion. Employers wih ewer han 25 ull-ime equivalen employees and annual

average wages below $50,000 will receive emporary subsidies or providing healh insur-

ance, saring in 2010. Employers wih 50 or ewer ull-ime equivalen employees ace no

nes or no providing healh insurance.

All individuals, regardless o wheher hey have an oer o coverage or no, ace nes i

hey are no insured. For he very ew (less han 3.5 percen) employers wih more han

50 ull ime equivalen, or FE employees who do no currenly oer healh insurance,

he law requires hem o provide coverage o all FEs or pay a ne. 6 A more bindingresricion or large employers, however, is ha even i hey oer coverage, hey are liable

or a ne on FEs who do no ake up coverage, or who were excluded rom he oer o

coverage, and receive subsidized coverage rom he exchange.7 Among employers wih 50

or more workers ha oer healh insurance, on average only 54.6 percen o FEs are cur-

renly enrolled in coverage a predominanly low-wage esablishmens.8




Te ne-based mandae or large employers, and he emporary subsidies or small

employers combined wih he exising ax subsidy and oher exising advanages o bulk-

purchasing policies, ac as incenives or employers o provide healh insurance. Tese

orces ac agains he income-based healh insurance subsidies available or low-income

workers which are available (wih some excepions) only i hey are no provided healh

insurance by heir employer.

How he dieren orces balance ou will depend on he employer’s size and workorce

characerisics. Smaller employers wih a relaively homogeneous low-wage workorce

may raionally decide o drop coverage and oer higher wages insead, beneing rom

he subsidies in he exchange. Larger rms wih a subsanial racion o low-wage workers

who do no currenly oer healh insurance may nd ways o creaively resrucure o he

exen allowed by he law i he subsidies available o heir workers in he exchange exceed

he advanages o employer-provided coverage.

Large rms ha oer coverage bu no o all workers may exend coverage and reduce

wages. A he margin, low-skilled employmen growh may be spurred in small rms and

dampened in large rms because o he relaive advanages rom he new law o being in a

small rm.9 Small employers wih higher-income workers wih high healh care coss may

nd hemselves able o provide coverage because o he near-communiy raing rules in

saes ha did no already have such insurance reorms.

On he ip side, small employers wih workers who have low healh care coss may see

a rise in premiums. Employers in he healh care secor isel sand o gain rom having

greaer demand or heir services when more Americans are insured. And rms o all sizes

and ypes sand o bene rom reducions in healh care cos growh, o he exen hey

maerialize rom cos conrol provisions o he law.

So wha will his all mean or employers? In he pages ha ollow, his paper will unpack

each o hese provisions conained in he new healh care reorms. I do no provide a

deailed accoun o he legislaion or he sake o breviy; summaries are available else-

where.10 Te complexiy o he legislaion means ha his analysis will no capure all

aspecs o imporance o employers. Nor is i mean o be an endorsemen or criicism o

he law. aher, I demonsrae in his paper and he deailed appendices ha employers

are expeced o be aeced by he reorm provisions in dieren ways depending on heir

circumsances, bu ha hey are neverheless expeced o coninue playing a cenral role

in providing healh insurance o workers. I will be imporan or policymakers o monior

he inended and uninended consequences o reorms, and o undersand he ull inci-

dence o coss and benes brough abou by he new laws.




New market dynamics and newdecisions or employers

New avenues o subsidized access o healh insurance or low income amilies as well as

new nes or hose larger employers who do no oer coverage will change imporan

dynamics ha are characerisic o oday’s healh care insurance sysem.

One o he key eaures o he new law is he creaion o sae-based insurance exchanges,

which will creae a new, regulaed markeplace where privae insurers who mee some

minimum sandards can sell heir plans. Individuals and small rms can purchase cover-

age hrough hese exchanges, and over ime hey will expand o larger employers as well.

Families who mee he income eligibiliy sandard o up o our imes he ederal povery

level, or $88,200 or a amily o our, may receive sliding-scale premium and cos-sharing

subsidies o help hem purchase coverage wihin he exchange (as long as hey have no

received an oer o employer coverage).11

Tese subsidy amouns are indexed o he cos o a medium-priced policy in he sae

exchange. Tey are only available o hose who do no have an oer o employer coverage,

or whose employer coverage does no mee minimum sandards. Lower-income individu-

als, paricularly hose wih incomes a or below 133 percen o he povery level, or slighly

less han $11,000 a year or an individual, would also be eligible or Medicaid coverage.

A he same ime, he ax subsidy or employer-based coverage remains in place, and

employers will coninue o be able o purchase coverage ouside o he new insurance

exchanges. Employer (including sel-employed) provision o healh insurance receives

a subsanial ax bene no available o individual healh insurance. Te amouns ha

employers provide in healh insurance compensaion (as well as he employee conribu-

ions owards coverage) are no subjec o income and payroll axes, as is cash compensa-

ion. Tis coninued ax preerence is one reason why employers’ large role in providing

healh insurance may no change dramaically even when exchanges wih subsidies

become operaional.12

Te exchanges are scheduled o be in place in by 2014, and all individuals wihou access olarge-employer coverage as well as small businesses can sar purchasing rom he exchanges

as soon as hey are operaional. In many cases, his new healh insurance marke will eaure

a greaer degree o coverage, and more ransparen policies han wha are currenly ypical




in he individual and (o a lesser exen) he small-group markes. And or hose who qual-

iy or income-based subsidies, he pos-subsidy price will be much cheaper han oherwise,

according o he Congressional Budge Oce’s November 2009 analysis.

Small-rm workers are likely o bene disproporionaely rom he subsidies in he

exchange, boh because heir employers do no ace nes i heir employees receive hese

subsidies and because o he greaer concenraion o low-income workers in small rms(see Appendix D).

When CBO looked a he November 2009 proposal rom Senaor Harry eid (D-NV),

hey prediced ha he reorm bill—including insurance exchanges and oher provi-

sions bu no including subsidies—would resul in a ne increase in premiums on average

or individuals who currenly purchase coverage in he nongroup marke; he subsidies

would reduce he ou-o-pocke prices subsanially, or hose who qualiy or i. Furher,

CBO predics ha premiums will say relaively unchanged or small and large employers.

Dynamics ha remain largely unchanged under he enaced legislaion.13




An employer mandate

Te new healh care law also aims o achieve greaer coverage hrough a combinaion o

an employer and an individual mandae. Employers wih more han 50 FEs are required

o provide healh insurance or ace a ne.14 Employers wih 50 or ewer FEs ace no

penalies or no sponsoring healh insurance.15 Te provision or large rms is echnically

no a “mandae” as he nes only apply when a leas one worker receives a subsidy in he

exchange. Bu i is likely his condiion would be riggered or almos all large rms ha

eiher do no oer coverage or have low ake-up o oered coverage. 16

Wha are he ways in which employers may reac o he employer mandae provisions, and

how do he mandaes inerac wih he individual nes and subsidies? All bene provi-

sions will be reeced in wages, o he exen ha workers value he benes, as poined

ou by hen-Harvard economis Lawrence Summers, hus his discussion views he impli-

caions rom boh a rm and a worker perspecive.17

Only 3.5 percen o employers wih 50 or more workers do no oer healh insurance.18

Bu daa rom he Deparmen o Healh and Human Services’ Medical Expendiure Panel

Survey Insurance Componen, MEPSIC, shows ha among FEs a large rms (50 or

more employees) ha oer healh insurance, he average ake-up rae is 70.7 percen; i is

54.6 percen a employers wih mosly low-wage workers.19

Some FEs are deemed by herm o be ineligible or oered coverage, or various reasons.20

By similar reasoning, an employer whose healh insurance policy was resricive in eligibil-

iy may decide o include earlier ineligible FEs in he policy (and workers who were

oered coverage earlier will decide o ake up coverage now) provided he amoun o he

ne is greaer han he subsidies he worker would receive in he exchange. Noncomplian

employers ace hree opions:

1. Provide health insurance (or make existing coverage more generous) to avoid the

fine. Firms wih higher-income workers who do no qualiy or large subsidies in he

exchange may consider his opion, especially i he decision o oer healh insurancewas a close call in he rs place. Ta is, suppose workers a he rm would be willing o

give up $4,000 a year or single coverage, bu because he employer cos was $5,000, he

rm oped no o provide coverage in he pas. When a ne o $2,000 per worker and

$695 as he individual ne is imposed, he “value” o coverage has now risen o $6,695




(he direc bene, plus he avoidance o he nes). Since he cos o an employer policy

is now lower han he bene o workers, he employer will reac o he ne by provid-

ing coverage.

2. Pay the fines, passing the costs on to the workers through lower wages. I a rm

has very low-income workers who qualiy or premium and cos-sharing subsidies in

he exchange in excess o $2,000, his rm and is employees may decide o incur hene because he bene o paricipaing in he exchange is greaer. In boh he case o

he rs and he second opion, he new employer coss ranslae ino wage decreases,

provided ha heir wages were no so low o begin wih ha he employer is unable o

pass he new coss on in his manner. Te increase in he per-worker coss due o healh

reorm could be viewed similar o a minimum wage increase, and i could have similar

disemploymen eecs. For insance, a rm ha pays a ne o $2,000 per FE who

works 2,000 hours a year will view his as a $1 per hour rise in he minimum wage.

3. Attempt to downsize the number of FTEs to 50 if close to it and not offering cover-

age or experiencing low take-up. Tere are some provisions in he law ha resric

he exen o which his could occur. For insance, a rm canno replace ull-ime

employees wih par-ime employees; alhough par ime employees are no covered by

he mandae, hey coun owards he calculaion o rm size. Tere may also be some

limis o he exen ha large rms could creae small subsidiaries or conrac ou some

aciviies o appear like a small rm. In reverse, a smaller nonoering rm considering

adding on urher workers also considers he implicaions o crossing he 51s worker

hreshold. Te employers a ha margin would ace a seep ax or he addiional

worker hired, as i would now be liable or a ne o $42,000 as long as a leas one o he

51 FE receives a subsidy in he exchange.

Te requiremen ha children can remain on a paren’s employer policy unil age 26(unless oered coverage by heir employer) is also an employer mandae o sors. W hile

employers earlier ended o phase dependens o policies prior o age 26, he new law

means han more young aduls will be covered by employers. Tese are likely no high-

cos individuals given heir ages.

Employer mandaes proposed several years ago by oher saes, such as he case in New

York Sae and Caliornia, applied o smaller rms wih lower raes o oers. esearchers

have commened on he impacs hey may have on wages, healh insurance, and levels o

employmen. Te ndings in a recen review sugges ha depending on how an employer

mandae is srucured, i could increase he coverage rae o he populaion bu also have

subsanial negaive impacs on hiring because o he ineracion beween hese laws andhe minimum wage laws.21

Te curren employer nes are much lower han hese earlier proposals—an annual $2,000

ne per FE would ranslae o $1 per hour. In conras, previous analysis demonsraed

ha i an employer is required o conribue $3 an hour o healh insurance provision, jobs




paying near he minimum wage may be eliminaed. Te curren law also conains a provi-

sion ha amends he Fair Labor Sandards Ac o preven he ring o workers who rigger

nes or he employers. o he exen ha disemploymen (or no adding workers ha oh-

erwise would be hired) were o occur, Kaherine Baicker o Harvard Universiy and Helen

Levy o he Universiy o Michigan nd ha workers who may lose heir jobs as a resul o

an employer mandae are more likely o be high school drop ous, minoriy, and emale.22

Jared Bernsein and Elise Gould o he Economic Policy Insiue noe ha while his

is rue, he ne impac on hese groups mus ake ino consideraion he ac ha he

mandae would also coner large increases in healh insurance levels o members o hese

groups whose jobs are no los.23 o he exen ha small rms are exemp as in he case o

he curren ederal law, he number uninsured who will gain new employer insurance does

no increase by as much because o he concenraion o uninsured workers in small rms.

In summary, he employer mandae in he healh reorm law applies o a raher small racion

o he currenly uninsured employees because o he small-rm exempion, and involves a

ne ha is subsanially less han he ull cos o coverage, bu may inerac wih he oher

aspecs o coverage expansions such as income-based subsidies and individual mandaes. In

addiion, he low ake-up rae a large employers wih low-wage workers may rigger nes

unless hose workers have coverage rom Medicaid or oher sources. Tere are a hos o oher

acors ha employers will consider in heir response o he mandae, hus policymakers will

need o monior boh he inended and uninended consequences o he new law.




Subsidies to small employers

Under he new law, small rms (ewer han 25 workers) wih lower-wage employees

(under $50,000 in annual average pay) will receive a reundable ax credi or a maximum

o our years i hey oer healh insurance in 2010, and a maximum o wo years i hey

oer healh insurance anyime afer 2014. Te maximum credi in 2010 o 2014 (35

percen o employer porion o conribuions o healh insurance) is available o rms

wih ewer han 10 employees wih workers who earn on average $25,000 per year or less.

When ully phased in, he maximum rae is 50 percen insead o 35 percen. Currenly,

only abou 18 percen o low-wage rms wih ewer han 10 employees oer healh insur-

ance o heir workers.24

Tere is mixed evidence rom economic research on wheher small rms ha do no

currenly oer healh insurance will do so when subsidies are oered. On he one hand,

experimenal sudies sugges ha even when hal o he cos o coverage is subsidized,

small rms are relucan o oer healh insurance. (See Appendix C on page 30). Work by

oger Feldman and colleagues a he Universiy o Minnesoa also nds relaively inelasic

demand.25 In surveys, small employers also say ha he cos would have o be reduced

quie subsanially or hem o oer healh insurance.26

Healh economiss Jon Gruber and Michael Letau nd greaer price elasiciy, noing hasmall rms would decrease heir oers o healh insurance by 7 percen or every 10 per-

cen increase in he price o healh insurance.27 Tis suggess ha small employers may also

be responsive o subsidies. Bu given he curren cos o a comprehensive policy and he

emporary naure o he subsidies in healh care reorm law, even a 50 percen subsidy may

no reduce he ne cos o a level ha currenly uninsured small rms eel hey could pay.

A more relevan quesion ha low-wage small rms will ace is wheher o drop coverage,

explicily choosing beween uilizing he new employer subsidy or aking advanage o

he subsidies heir workers may ge in he exchange. For example, a worker earning abou

$20,000 (roughly 133 percen o FPL or a amily o wo) whose employer conribues

abou $3,000 owards a single policy cosing $4,000 oal, would ge a maximum o $1,500per worker or wo years hrough he small employer subsidy. Tis same worker would

be eligible or larger subsidies or he amily in he exchange (or or Medicaid) and would

receive higher wages i he rm did no provide hem wih healh insurance.




Te workers in hese low-wage rms are likely o see wages increase because o he

exchange and he subsidies available here, more so han because o he small employer

healh insurance ax credi. O course, o he exen ha some low-wage small employers

do no drop coverage, hey will receive a subsidy. Subsidies, like axes, ulimaely all on

workers, hus hese small employer subsidies should lead o emporary and small wages

increases or qualiying low-wage small rms ha currenly oer healh insurance.




An individual mandate

As alluded o in several places already, he new law requires individuals obain coverage ha

mees minimum sandards. Individuals who remain uninsured will pay a ax penaly unless

hey all ino an exempion caegory based on nancial hardship (coss greaer han 8 per-

cen o income) or religion. Tis penaly would equal $695 per person per year, o a maxi-

mum o $2085 per amily or 2.5 percen o amily income when ully phased in by 2016.

As early resuls in Massachusets demonsrae, hese penalies are likely o reinorce

employer coverage. In he rs wo years o implemenaion, more workers received an

oer o employer-sponsored coverage compared o he period beore reorm, and more

workers enrolled in his coverage.28

For a higher-income, healhy individuals in small rms wihou curren oers o healh

insurance, paying a ne may be preerable o purchasing near-communiy-raed healh

insurance. Tis incenive or selecion is limied somewha by he ac ha someone wih-

ou coverage will no be able o buy coverage he momen hey all ill as here will be one

open enrollmen period in a year. Te amoun o he penaly, and he hreshold or hard-

ship exempions are airly low relaive o he cos o buying healh insurance, allowing his

proposed requiremen o be characerized as a “loose” mandae. Bu as we have seen, hey

are relevan or employers o consider as hey reinorce he employer nes or large rms.




Insurance market reorms

In addiion o creaing healh insurance exchanges, he new healh law regulaes he insur-

ance marke—wihin and ouside hese exchanges—by prohibiing sandard indusry risk

selecion pracices, paricularly pracices prevalen oday in he individual and small-group

markes.29 Pre-exising condiions exclusions, which are currenly limied by sae or ederal

laws, will be urher reduced. For a ransiion period, ederal unding or high-risk pools will

provide a emporary alernaive coverage source or individuals wih pre-exising condiions.

Porabiliy provisions will be urher enhanced. Ulimaely insurers will be required o

issue policies o all applicans, wihou regard o healh hisory, and canno vary prices

based on healh saus. aing rules will enable insurers o vary prices or limied char-

acerisics, including age (o a 3-1 raio) and obacco use. All plans sold on he exchange

(oher han some young adul plans) will be required o mee cerain bene sandards.

Under hese provisions, here will be redisribuional implicaions; employers whose

workers are high healh care users will bene disproporionaely relaive o rms ha

have lower-cos workers. Tis achieves he goal ha hose who are in worse healh should

no have o necessarily pay more or healh care insurance. Wharon School o Business

economics proessor Mark Pauly, in discussing he eciency equiy radeos in com-

muniy raing, noes ha he goal o providing proecion rom he uure probabiliy o becoming a bad risk need no go hand in hand wih redisribuion.30 Guaraneed renew-

abiliy—anoher proecion wihin he bill—also provides a mechanism o insuring

agains “reclassicaion risk,” or ha one could be required o pay a premium every period

(saring while healhy) o preven uure increases in premiums.

In addiion o he redisribuional implicaions, communiy raing in healh insurance also

raises concerns abou adverse selecion, where insurance may disproporionaely atrac

high risks. Te availabiliy o dieren levels o generosiy wihin coverage choices could

also lead o more generous insurance producs atracing higher risks han oher plans.

Te resul is ha premiums would be higher han hey would i he risk pool were more

comprehensive, i mandaes do no appear o be very binding.

Saes have been acively adoping guaraneed issue, raing reorm, pre-exising condiions

mandaes, and similar policies since he 1990s o improve equiy in he healh insurance

marke or small rms. Tese “small group healh insurance reorms” were also enaced o




a lesser exen in he individual marke, and some o hese sae laws were models or ederal

laws hrough he 1996 Healh Insurance Porabiliy and Accounabiliy Ac legislaion.

Bu wih ew excepions, hese sae reorms have no meaningully addressed pricing

issues. Tere is some evidence ha sicker and healhier groups were aeced in opposie

ways, bu on ne he impac o hese laws have been very small and here is no evidence

ha hese laws improved insurance oucomes or small rms on ne. 31

In he individual marke, here is more evidence o adverse selecion behavior.32 Because

o hese possible negaive consequences o adverse selecion, he reorm law includes

mandaes or employers and individuals. o he exen hese mandaes are seen as binding

and keep he healhy rom dropping coverage, he impacs o he new laws may dier rom

prior experiences. In is assessmen, CBO expecs ha adverse selecion in he nongroup

and small-employer plans will be airly l imied. CBO urher anicipaes ha large groups

may see an improvemen in he composiion o workers as some o he sicker workers may

shif o he nongroup marke or he subsidies, and as he individual mandae may bring

some o he healhier workers who do no elec coverage and he newly eligible depen-

dens under age 26 ino heir employer plans.




Expansions o public coverage

As menioned earlier, he new healh law expands public coverage under Medicaid o

everyone living in amilies wih incomes below 133 percen o he ederal povery level,

or approximaely $11,000 or a single individual. Since children are already eligible under

he Sae Childrens Healh Insurance Program o more generous levels o coverage, his

expansion will largely bene aduls who do no qualiy or medical coverage oday as

eligible parens, seniors, or people wih disabiliies. While employers are ned when work-

ers receive subsidized coverage in he exchange, hey do no ace similar nes when heir

workers receive coverage rom Medicaid.33

Will his lead o rms wih workers newly eligible or Medicaid o drop coverage? Tere

is a range o esimaes o his “crowd-ou” phenomenon rom he lieraure on children’s

expansion, wih some suggesing ha abou hal o all new enrollmen in public coverage

comes rom reduced privae employer coverage.34

Te exen o subsiuion o coverage is likely o be less han wha sudies o recen

SCHIP expansions have ound as he new expansions arge a much lower income group

han has been argeed in recen children’s healh insurance expansions. Daa rom he

2009 Curren Populaion Survey shows ha among aduls ages 19 o 64 in amilies wih

incomes lower han 150 percen o he ederal povery line, only 19 percen repored someorm o employer coverage during 2008.35 I is also he case ha even i low-income work-

ers wih employer coverage subsiued oward public coverage, he workers should recoup

he benes as lower ou-o-pocke spending and higher wages. Anoher implicaion o

public healh insurance expansions, especially or small employers, is ha i will become

easier o atrac low-wage workers (who may have earlier sough employmen in large

rms o nd healh insurance) wihou oering hem healh insurance.

Te upsho: Medicaid expansions and low-income subsidies in he exchanges are likely

o bring subsanial benes or small employers o low-wage workers. Te exen o he

crowd-ou may be limied boh because o he low incomes o he newly eligible popula-

ions, he employer nes or ailure o cover workers who atemp o receive income-basedsubsidies in he exchange (bu no Medicaid), and he coninuing ax subsidy given only

o employer-provided healh insurance.




Medicare payment reorms andother improvements in deliverysystem quality and eiciency

Te Aordable Care Ac leverages Medicare paymen policy and oher ools o spur

innovaive changes in provider paymen, healh care delivery, and paiens’ experiences in

he healh care sysem. o begin wih, he Ac species wo ypes o changes in Medicare

paymen. Firs, i includes a number o “radiional” Medicare savings proposals. Many o

hese provisions should reduce growh o paymens or various providers, including hospi-

als, home healh agencies, long-erm care hospials, nursing homes, and hospices.

Ohers will modiy paymen mehods or Medicare Advanage plans, he privae insur-

ance plans ha conrac wih Medicare o provide coverage o Medicare beneciaries.

Anoher group o proposals under his umbrella will require, over ime, ha paymen o

some providers o be ied o various measures o qualiy, while oher providers will begin

submiting qualiy-reporing daa, albei wihou he nancial incenives inheren o pay-

or-perormance paymen policies.

In addiion, he new law requires he Ceners or Medicare and Medicaid Services o

launch a series o reorms designed o ransorm nancial incenives rom he curren

pay-or-volume inducemens o ee-or-service o paymens ha reward care coordinaion

and qualiy. Case in poin: he combined law will require CMS o launch “shared savings”

approaches o paying Accounable Care Organizaions—a nework o providers whoassume responsibiliy or a dened panel o paiens—and o experimen wih bundling

paymens or pos-acue care.

Te CBO orecass ha he new healh reorm law’s shared-savings approach could save

$4.9 billion over 10 years. Should his iniiaive realize hese savings, and should pri-

vae payors ollow sui, i could produce urher savings as provider pracices change in

response o hese new incenives. I hese evens come o pass, employers and workers

sand o bene rom reduced cos growh.

Te new healh reorm law includes addiional demonsraion auhoriy and oher sraegies

or enhancing paymen innovaions, improving eciency, and demonsraing he degreeo which new nancial incenives can inuence coordinaion o care and improved qualiy.

Tis all would be done hrough an “innovaion cener” wihin CMS charged wih esing

innovaive paymen and service delivery models wihin Medicare and Medicaid, includ-

ing almos all mechanisms ha have been suggesed as poenially cos savings, as well as




models ha are no enumeraed wihin he reorm bill bu ha hold promise or reducing

coss and mainaining or increasing qualiy o care. Tese reorms, i eecive, could be

implemened on a wide basis wihou he need o seek urher approval rom Congress.

Te new law also envisions urher use o healh inormaion echnology, comparaive

eeciveness research, and oher ools or improving healh sysem eciency. Tere is

mixed evidence on wheher healh care coss will be reduced by adoping such programs.Former RND economis Melinda Beeuwkes Bunin (now a ASPE) and Harvard econo-

mis David Culer esimae ha $2 rillion could be saved in oal healh care spending

over 10 years hrough sysem modernizaions, including paymen innovaion and greaer

use o healh I.36 Te CBO, however, esimaes ha savings rom healh I and compara-

ive eeciveness research are by no means assured.

Oher policy iniiaives ha may lead o savings include invesmens in comparaive

eeciveness research. Tere is a public good aspec o knowing he relaive eeciveness

o dieren medical soluions o he same problem. Currenly, no one eniy in he privae

secor has an incenive o engage in his research, hus paymens are being decided sub-

opimally. Public invesmen in comparaive eeciveness research could give physicians,

paiens, and oher paries beter ools or conrolling healh spending, bu here is a grea

deal o uncerainy regarding he eeciveness o he laws in being able o conrol coss.

Other reorm inancing mechanisms o interest to employers

A eaure o he healh care sysem ha economiss ofen poin o as disoring he

employer role in healh insurance, muing incenives o conrol coss, and leading o

regressive subsidies is he ax subsidy provided o employer healh insurance. As poined

ou above, his ax subsidy is unalered under he new law, excep or he “Cadillac ax.”Under his policy, insurers are charged a ax o 40 percen on he op porion o plans ha

cos more han $27,500 a year or amily coverage and $10,200 or individuals, beginning

in 2018 and subjec o cerain exempions. Mos employers and insurers could probably

adjus heir plans in he near run so ha hey purchase a policy jus below he hreshold

and escape he ax alogeher.37 Tis eaure, however, is expeced o exer some pressure o

keep premium growh down, especially as he hresholds are no indexed or inaion.

Tus ar, he discussion has reaed he income-based exchange subsidies and Medicaid

expansions as a “ree lunch” o employers. Tese expansions are nanced by a combinaion

o new axes, Medicare savings, and oher savings provisions. Te new axes (on capial

gains axes, payroll and income axes or he very wealhy, and on medical manuacurers)may increase he coss or businesses hrough direc and indirec avenues, aecing busi-

ness invesmen decisions.




Tere are also eaures ha reduce exising subsidies, such as a halving o he limi or

exible spending accoun conribuions. Bu none o hese are employer axes per se,

even i described as such in legislaion; like all axes, hey will evenually be shared among

consumers, workers, and shareholders. Te botom line is ha here is diuse incidence

o coss and benes rom he new law; businesses are likely pay close atenion o hese in

decision making regarding healh insurance and oher maters.




Conclusion

Employers are acive agens on behal o heir employees in he U.S. healh insurance mar-

kes, and he healh reorm legislaion signed by Presiden Obama has many implicaions

or hem. Tis is especially rue or larger rms wih workers rom low-income amilies,

whose decisions regarding oering generous coverage may be aeced by healh reorm.

Employers will be encouraged o exend or mainain heir role in providing healh insur-

ance wih carros and sicks.

Ulimaely, he degree o which employers’ cos growh will slow will depend on he

savings ha could resul rom adminisraive simplicaions, increased compeiion, and

ransparency in he marke, weighed agains he premium increases ha could arise rom

greaer coverage o services, adverse selecion due o resricing price variaion based on

individual characerisics ha are predicive o healh care coss, and nonbinding mandaes

o purchase coverage.

esearch suggess ha legislaion is likely o have heerogeneous impacs on dieren

ypes o employers. eorms will increase demand or employer-sponsored insurance

among some workers, and decrease demand among ohers. Employer penalies eiher

ose or magniy hese incenives. Uncerainies in he anicipaed eecs depend on he

ake-up o public coverage and income-based subsidies, he enorcemen o and reacionso individual and employer mandaes, he exen o which rms end o be homogenous

in he amily incomes o workers, and he exen o which premium changes may occur.

Atenion also needs o be paid o he incidence o axes and subsidies—ha is, recogniz-

ing ha workers, no employers, ulimaely pay he coss o heir healh insurance.




Appendix A: The current role o employers in providing health insurance

What do they do and why do they do it?

In no oher counry do employers play as subsanial

a role in healh insurance as in he Unied Saes.38 In

he middle o he las cenury, warime ani-inaion

policies capped wage increases (bu no ringe bene-

s) leading employers o play a bigger role in healh

insurance. In order o atrac workers during a labor

shorage, employers included healh care coverage

ino he compensaion package. Tis iniial hisorical

even, coupled wih a ax sysem ha allows healh

insurance coss ha ow hrough he employer o

be reaed as ax-exemp paymens o he worker,39

and he lack o alernaive mass purchasing orms or

poliical suppor or an alernaive caused he sysem

o persis.

While employers are ofen reerred o as he provid-

ers o healh insurance, in realiy hey are hird-pary agens in a ransacion beween a healh insurance

company and he ulimae cusomer, he worker and

his/her amily. Group purchasing occurs in many

oher setings as well, such as businesses banding

ogeher o purchase raw maerials in he grocery

indusry, where group purchasing organizaions

may negoiae discouns or beverage purchases on

behal o a large number o grocery sore cliens, or

individuals banding ogeher hrough nonemployer

organizaions o purchase homeowner’s insurance.

Tere is well-developed heory in economics per-aining o group decision making relaed o he level

o service o “public goods” o be provided.

In he conex o employers and healh insurance,

his heory was rs pu orward by Goldsein and

Pauly in 1976.40 Tey compare he decisions regard-

ing employer provision o healh insurance o ha

o a local governmen deciding on he level o a

local public good, such as a library, which provides

a broadly similar level o bene or everyone in

heir group o consiuens, and is excludable o

consiuens o oher jurisdicions. Some eaures o

employer healh insurance are closer o local public

goods han ohers. Employers usually oer broadly

similar levels o coverage o all heir workers (or o

groups o workers). While i is commonly believed

ha he Inernal evenue Code requires his level

o comparabiliy, hese ax provisions apply only

o sel-insured rms, which comprise he majoriy

o large employers.41 Bu even in hese sel-insured

plans, no everyone in a group necessarily has he

same coverage because employers ofen oer morehan one opion, 42 and some employees decide no

o ake up healh insurance a all.

Goldsein and Pauly consider dieren heories o

group purchasing, including one where workers sor

hemselves ino heir ideal rm in erms o he mix

o benes and wages, assuming ha hey can choose

rom rms wih innie combinaions o wages/

benes. Te marginal revenue produc o labor

(essenially he produc ha he worker makes imes

he marke price or i ha he rm can obain) musequal he sum o heir wage and bene compensa-

ion ha he rm incurs, he “oal compensaion.”




How ha is divided ino wages and benes is

decided upon by workers. I here are workers who

do no like he combinaion available a ha rm,

hey will move elsewhere.43 Given ha here are

economies o scale in providing ringe benes,

his heory predics ha employers would band

ogeher unil hey reached a size ha minimizes hecoss o ringe bene provision. Employers could

band ogeher hrough an arrangemen such as a

af Harley plan or oher muliple employer plans

wihou he rms necessarily merging. Bu hisory

has shown ha employers have no ound suiable

ways o band ogeher or healh insurance purposes,

leaving small rms a a disadvanage in providing

ringe benes. Te heory predics ha small rms

are hen more likely o oer compensaion packages

ha involve no ringe benes, and workers wih a

high preerence or hose ringe benes will concen-

rae in large rms.

In mos cases, workers do no have a choice o

jobs ha oer hem every possible combinaion o

wages and ringes. Firms may need o have a mix o

workers o dieren ages, or example, which would

imply dieren preerences or healh insurance. In

such a heerogeneous seting, one heory is ha he

“median” worker’s preerence may dicae he level o

ringe benes ha will be seleced as he one levelavailable o all a he rm.44

As an alernaive, he rm may chose his level so

ha workers are made as well-o as possible under

his consrained environmen (he consrain being

ha each worker canno ge heir individually

desired level o ringes because i has o be provided

uniormly o all workers a he same level) and

employer coss are minimized. Employers will end

o caer coverage owards poenial employees in

he labor marke oo, while unions caer owards heemployees currenly in he rm, in paricular hose

who are union members.

In heir empirical work, Goldsein and Pauly nd

ha premiums per person are higher in rms wih a

union presence, afer conrolling or oher variables.

Tis suggess ha where unions have more voice in

he decisions relaive o he employer deciding on

he level o ringe benes, more compensaion in

healh insurance occurs. Trough his heoreicaland empirical work, Goldsein and Pauly provide

some ways or us o hink abou how we can ake

insighs rom oher areas o economics, namely he

provision o local public goods, as heory o how

employer healh insurance decisions are made wih

he employer ineracing wih workers.45 In relaing

his lieraure o wheher employers will reac o

new healh care reorm by changing heir decision o

oer healh insurance, a key quesion is he concen-

raion o low-wage subsidy (or Medicaid expansion)

eligible workers in cerain rm, as well as he exen

o subsidy or he median worker. Te subsidies

are only available in he exchange and no hrough

employer-sponsored coverage, however, employers

are consrained o oer airly uniorm benes o all

workers and may only change heir decisions i a vas

majoriy o he workers are likely o be eligible or

subsanial subsidies.

Anoher role ha employers have aken on, in addi-

ion o purchasing healh insurance or workers,is implemening disease managemen and healh

promoion programs (Gabel e al, 2009).46 Te

business case or employers invesing in he healh

o heir workers is eviden in case sudies ha nd

improved risk saus and lower healh care coss,

reduced abseneeism, reduced urnover as a resul o

hese programs. Tese sudies sugges ha employ-

ers have incenives o provide argeed and specially

designed programs above and beyond he provi-

sion o regular healh insurance policies. One could

ake he rising racion o employers who adopprevenion and disease managemen programs o be

evidence ha employers are realizing improvemens




in proabiliy rom hem. Bu even hough employ-

ers are accusomed o making calculaed decisions

abou wheher o underake business invesmens

in general, hey may no have enough ools a heir

disposal o make such calculaions when i comes

o healh care decisions (Nicholson e al, 2005). 47

Employers also need o undersand beter he eeco increased cos sharing (high-deducible policies)

on healh care coss and produciviy.

The employer’s health insurancedecisions—a series o tradeos

Employer healh insurance decisions are inuenced

by supply and demand acors such as he prevailing

price o a healh insurance policy (which depend on

cos o healh care, he conen o he policy, and he

rm’s characerisics) and he workers preerences

or healh insurance (which depend on he avail-

abiliy o ouside opions, he workers’ produciviy,

and heir healh saus). Like any economic decision,

employer healh insurance deliberaions come down

o cos-bene calculaions a he margin, comparing

supply and demand acors.

Since policy can aec several supply and demand

side eaures (hrough changing ax policy, orhrough he generosiy o alernaive opions),

employers may reac o legislaive reorms by chang-

ing heir healh insurance decisions. Evidence rom

prior economic sudies will help in anicipaing he

naure o he eec. For insance, small employers

who did no earlier oer healh insurance may reac

o he availabiliy o subsidies ha lower heir premi-

ums, bu he subsidies will have o be very large and

susained, based on evidence rom prior sudies ha

sugges employer decision o oer new coverage is

no highly elasic wih respec o price. Employersmay similarly reduce heir generosiy o healh insur-

ance when Medicaid expansions and income-based

subsidies in he exchange commence.

Congressional agencies and privae hink anks have

developed microsimulaion models (boh ones

based on elasiciies rom previous lieraure, as well

as ones ha esimae parameers wihin he model)

ha will be very helpul in anicipaing he coss and

ne newly insured rom dieren proposals.

Employers make a decision abou wheher o oer

healh insurance or no (excep in Hawaii where

here is a sringen employer mandae in place, and

o a lesser exen in Massachusets where here

is a small mandae in place) considering various

radeos. An employer has a cerain amoun o ne

revenue o disribue as compensaion o workers, in

he orm o wages and benes. As Summers (1989)

poined ou, i workers value healh insurance a

exacly he cos o he employer, hen when healh

insurance is provided, he wage decreases by he

ull cos o healh insurance and employmen levels

remain unchanged. Tus, i workers value healh

insurance a more han he ull cos o he employer

(perhaps because heir alernaive opion is more

expensive), hen employmen levels could acually

rise as a resul o oering healh insurance.

In realiy, workers may value healh insurance more

or less han he cos o he employer, bu he exac

magniude o his radeo has been dicul opinpoin, mosly because o a lack o suiable experi-

menal designs.48 Te possible reasons or recen

increases in healh care coss range rom improved

echnology o increased obesiy.49 We do no know

precisely how much workers value wha his higher

cos healh care buys hem, in erms o wages hey

are willing o orego. When workers do no value he

increase in coss a leas dollar or dollar, he number

o jobs will all or similar reasons, even aside rom

binding minimum wage consideraions.

esearchers have ound i dicul o documen

how employers and workers radeo wages and

healh insurance because he wo end o be ighly

correlaed. Ta is, i is hard o nd he equivalen




job ha does and does no oer healh insurance;

jobs end o be “good” or “bad.” Using husband’s

job characerisics as exogenous deerminans o a

wie’s compensaion package (which assumes ha

married couples do no make join labor marke

decisions), Olson esimaes ha he magniude

o he radeo is a 20 percen lower wage or hewie when she acceps a job wih healh insurance

benes relaive o one wihou.50 I is also no

possible o say wheher he incidence o healh

insurance coss hemselves occurs a he level o he

individual employee or by groups o employees.

Gruber and Sheiner nd evidence ha groups wih

higher healh care coss see lower wages (women

and married men in he Gruber example ha sudies

he imposiion o a maerniy coverage mandae,

and older workers in he Sheiner example where she

sudies variaion in healh care coss across ciies).51

I is unlikely he employer makes his radeo a he

individual worker level, bu he group level a which

he radeos occur (occupaion wihin he rm, or

demographic groups such as age or gender bases) is

no known.

Tere is also evidence ha employees do no view

healh insurance as somehing hey can radeo or

wages easily in he labor marke rom he lieraure

on “job lock,” a phenomenon where workers wano leave he employer or a beter produciviy

mach elsewhere, bu eel locked in because he new

employer may no provide healh insurance. Sudies

by Madrian and Gruber or example, 52 provide evi-

dence ha having employers provide healh insur-

ance creaes such hurdles o job mobiliy, bu oher

papers such Kapur (1998) does no.53 Evidence

on he eec o healh insurance on reiremen

behavior, on he oher hand, unanimously nds ha

individuals are less likely o reire early rom jobs

wih healh insurance (Blau and Gilleskie, 1997).54

Bu i is no clear ha providing healh insurance

enhances produciviy (relaive o an equivalen

amoun in wages), e.g. by reaining needed employ-

ees and improving morale.55 Te lieraure on job

lock views increased urnover as being posiive

because workers (paricularly older or sicker work-

ers or hose wih such dependens) hen move o he

bes opions raher han being locked in o a cerain

job due o healh insurance. For he ecien unc-

ioning o he labor marke, mismached workers

need o be able o move o beter suied jobs.

Tere is evidence rom labor economics lieraure

ha workers who change jobs, paricularly he

young, experience wage growh.56 I younger work-

ers swiching rms produces eciency gains or

he economy, hen job lock due o healh insurance

(which would aec older workers more) is no as

serious a consequence or labor marke eciency.

For an individual rm, reduced urnover (by he

mos valued workers) would be pro enhancing.

Evidence o job lock means healh insurance reduces

urnover, bu more so or sicker han healhier

workers. esearch in his area would add grea value;

since i is dicul o empirically ideniy he eec

o oering healh insurance on labor produciviy,

we do no ye know he answer o his quesion.

In a laer secion, I review he lieraure on well-

ness and disease managemen, which has some

resuls peraining o improved healh and reduced

abseneeism.

Te rade-os ha employers see in providing healh

insurance will depend on wha alernaives exis.

Employers realize ha i hey do no oer healh

insurance o heir workers, hose workers will ypi-

cally no be able o ake he equivalen cash wage

(on which hey will have o pay income axes) and

nd a policy o even near equivalen generosiy on

he individual marke. Bu here are some workers

or whom public healh insurance is an opion, and

or hose workers (or heir dependens), he alerna-

ive is no he expensive individual producs marke.

In a similar way, employers may be more likely o

sop oering healh insurance and provide higher

wages i a good alernaive exised ouside o he

employmen relaionship. Tis is more likely o




occur as public healh insurance eligibiliy limis

rise, as has been shown by he exensive lieraure

on he eecs o Medicaid expansions on healh

insurance. Policy makers are aware o he possibil-

iy o insurance reorms uninenionally crowding

ou employer coverage, and employer mandaes or

oher employer requiremens represen, in par, oneatemp o preven his response.

Empirical determinants o whether airm oers health insurance

Many papers look a wha predics or is correlaed

wih wheher an employer oers healh insurance.

Tese include sudies like ha by Feldman and col-

leagues who look a he causal eec o premiums

on healh insurance oer decisions afer making

economeric correcions or he ac ha only a

selec sample are observed, hose who have bough

policies, o reduced-orm sudies like hose by Gabel

and Jensen or Simon, who sudy he eec o sae

policies on small rm decisions o oer healh insur-

ance using variaion in iming o he laws.57 Also

included are descripive repors like hose by Kaiser

Family Foundaion/HE ha presen oer raes o

insurance by employer characerisics. Tere are also

many sudies ha look a he individual level deer-minans o wheher someone has privae-employer-

provided healh insurance.

Te mos sriking nding regarding he employer’s

decision o oer healh insurance is ha small rms

(25 workers or ewer) are home o he vas majoriy

he ull-ime-working amilies who are wihou access

o employer healh insurance oers.58 Te Kaiser/

HE Employer Healh Benes Survey surveyed

1,997 employers and ound he percenage o small

employers (3 o 9 workers) who oered healhinsurance dropped rom beween 50 percen and 60

percen in he early 2000s, o 45 percen by 2007. For

large rms o 200 or more workers, his sayed a 99

percen. Exhibi 2.3 o heir sudy shows oer raes

by urher breakdowns o rm size. Te percenage o

rms wih 10 o 24 workers ha oer healh insur-

ance is 76 percen (relaive o 45 percen or 3 o 9

workers) indicaing how dieren very small rms

are. Firms wih 25 o 49 workers are a 83 percen,

and rms wih 50 o 199 workers are a 94 percen.59

eecing hese concerns ha healh insurance cossare paricularly burdensome or small employers, he

Senae HELP Commitee recenly held hearings on

he opic o increasing healh insurance coss acing

small businesses.60

Tere are various reasons oher han rm size or

he dierences in healh insurance beween small

and large rms, including he ac ha small rms

end o be dominaed by lower-skilled jobs, higher

urnover, ec. (Abraham, Deleire, oyaly, 2009).61

Oher acors correlaed wih employer healh insur-

ance oers in 2007 rom he Kaiser/HE survey

include region, wih a high o 69 percen oer raes

or employers in he Norheas and 52 percen in he

Souh. In erms o indusries, he lowes oer rae

is 38 percen in reail and highes is 90 percen in

sae/local governmen.

Tere are also imporan dierences by wage level o

he workers, percen o workers who are par ime,

presence o union workers, and age o he workers.When smaller rms (size 3 o 199) are asked he

reason or no oering healh insurance, he reason

mos cied as being “very imporan” is high premi-

ums (72 percen).62 Oher reasons include he rm

being oo small, employees being covered elsewhere,

and he abiliy o obain good employees wihou

oering healh insurance. (Firms were allowed o

designae more han one issue as being a very impor-

an reason).

When hese employers (wih 3 o 199 workers andno oering healh insurance) were asked abou

employee preerences or wages over healh insur-

ance, 71 percen said hey believe employees would

preer higher wages over healh insurance, anoher




6 percen said hey don’ know, and only 23 percen

said ha employees would preer healh insurance

(bu presumably no a he premium ha is available

o he rm, or else he rm would have oered healh

insurance). Tere are ollow-up quesions asking how

much employers and employees eel hey may be

able o pay or coverage, bu hese quesions do nospeciy a wage ose. Ta is, every employer who

pays workers above minimum wage a year could in

heory ake all ha money o purchase healh insur-

ance insead (hey could legally “aord” o) bu he

labor demand condiions hey ace may no allow

hem o view ha amoun as wha hey eel hey can

aord, and a large racion (39 percen) say hey do

no know.

Employers’ role as healh insurance agens involves

many decisions beyond he basic one o wheher o

oer any coverage. Some parameers are under he

employer’s conrol, while ohers are dicaed by law.

What design decisions do employersmake?

Once employers decide o oer coverage, hey mus

make secondary decisions, such as:

• Who qualies or coverage?• How much coverage will hey oer?

Tis secion briey oulines his decision ree, and

considers exising evidence—when available—on

hese decisions wihin he curren sysem.

Who gets covered by what health insurance

plan within a irm?

ypically, all employees wihin a rm who mee

some atachmen crieria (monhs served, or hours

worked) are covered by he plans wihin a rm.63

Te Employee eiremen Insurance Securiy Ac,

or EISA, saes ha sel-insured employers mus

no provide healh insurance o highly compen-

saed workers on more avorable erms han o

lower-compensaed workers.64 In addiion, all rms

oering healh insurance mus abide by ederal laws

such as he Americans wih Disabiliies Ac, employ-

men discriminaion laws as enorced by EqualEmploymen Opporuniies Commission,65 and he

Healh Insurance Porabiliy and Accounabiliy Ac’s

injuncion agains diereniaing beween sick and

healhy employees in healh insurance design, includ-

ing he ype o plans and benes hey oer, and he

share o premium paid by employees. Some saes

require insurers o oer coverage o all applicans—

ha is, guaraneed issue—and resric he degree o

which insurers may vary premiums.66 Tese resric-

ions are similar o hose now in ederal law.

What amount o health insurance shall be

oered? Will there be choice o plans?

Tere are some consrains on he erms o coverage

ha can be oered, or commercial insurance. Sae

laws (and some ederal laws) sipulae minimum

levels o coverage, i healh insurance is oered a

all. Plans mus include required services, such as

maerniy coverage (a he ederal level) and iemssuch as ineriliy services (a he sae level).67 Saes

also regulae commercial insurance in many oher

ways, such as collecing premium axes and requir-

ing proo o solvency o insurance plans. Firms ha

sel-insure have considerable exibiliy, bu don’

appear o ake advanage o ha exibiliy o evade

bene mandaes.

In ac, sel-insured plans are ofen more generous

han commercial plans and ofen oer nonmandaed

benes. Plan choice goes up wih rm size.68 Aparrom he regulaions relaed o mandaes, he gen-

erosiy o coverage is lef up o employers o decide

upon in he conex o heir business and labor

marke condiions.




Appendix B—How do employers react toincreasing health care/health insurance costs?

Healh insurance coss represen an increasing

componen o labor inpu coss, a ac ha has been

brough o atenion by auomakers in union nego-

iaions; auo manuacurers poin ou ha healh

care coss per car now ouweigh he cos o seel ha

goes ino a car. Te cos o he average amily policy

bough by an employer in 2007 is $12,106 (Kaiser/

HE, 2007), which is 24 percen as large as median

amily income, $50,233 in 2007 (U.S. Census

Bureau, 2008).71

In order o accep an oer o employer healh

insurance, he median amily mus spend roughly

6.5 percen o heir income, no couning ou-o-

pocke expenses no covered by insurance and

no couning he amouns by which heir wages

are lower o accoun or he employer porion

o he premium. From 2008 o 2009, according

o he Kaiser/HE employer survey, amily premiums or employer-sponsored insurance grew

5 percen. Tis was he fh year in which year-

o-year growh raes ell. Te 2008-2009 growh

in premiums approaches hisorically low levels o

premium growh—he las year ha saw similarly

low year-o-year growh was 1999—bu growh

in premiums coninues o oupace boh earnings

and general inaion and applies o a large base o

employer healh insurance paymens.

esearchers poin ou ha i is imporan o con-sider he reasons or he rise in healh insurance

coss o undersand employers’ responses. I he

increase in healh care coss and healh insurance

premiums is due o changing qualiy o healh care,

and i workers value his improved healh care, hen

wages should in heory adjus downward by he

amoun o he increase in coss, and employmen

levels and all oher oucomes would say he same.

Ohers, such as Gruber (2000), argue ha here

is more o consider in undersanding employer

responses o growing healh care coss. Employers,

according o Gruber, have signican discreion

around hiring and bene decisions, including

wheher o subsiue par-ime or ull-ime work-

ers, wheher o shif o using more capial han

labor, how o design heir oal benes package, and

wheher o oer healh insurance a all.

Gruber also noes ha employers may be con-

srained by minimum wage laws and union

conracs rom reducing wages, and wages may no

adjus or rising healh care coss a he specic

worker level versus a a broader level o aggregaion.

Tese acors sugges ha an increase in he healhcare coss may lead o oher changes in behavior,

such as reduced hiring o ull-ime workers, raher

han jus reduced wages or he group whose healh

care coss rose.

One srand o empirical research ha commens on

he issue o cos examines how sensiive employers

are in heir decision o oer healh insurance when

premiums change. Tis price elasiciy o demand has

been esimaed by Feldman e al (1997) o be such

ha a 1 percen increase in premiums would decreasehe probabiliy ha a rm oers single coverage by

3.91 percen or single coverage and 5.82 percen

or amily coverage. Conicing evidence came rom

he ober Wood Johnson demonsraion projecs,72

which ound ha even i small employers were given




premium reducions o 25 percen o 50 percen, ew

would sar o oer healh insurance. Gruber and

Letau also nd more modes elasiciies—on he

order o -0.25.

Gruber and Washingon (2005) examine wha

happens when employees are provided wih ax subsidies (when he co-premium is made pre-ax).73

Tey nd ha making employee conribuions

cheaper by proecing hem rom axes does no

change he ake-up decision much, bu insead

increases ax expendiures.

Baicker and Chandra use he exogenous variaion

creaed by medical malpracice growh o ideniy he

impac o rising healh insurance coss on he labor

marke. 74 I is imporan o noe ha his source o

rise in healh insurance cos is one ha workers may

no value, as i does no come rom improved medical

echnology. Tey nd ha a 10 percen increase in

premiums would reduce wages by 2.3 percen or

hose who coninue o receive employer provided

healh insurance. Tis paper also shows evidence o

rising premiums consraining employmen oppor-

uniies, a 10 percen rise in premiums reducing he

level o employmen by 1.2 percen, argued on he

basis ha employers canno cu healh insurance

only or some workers because o nondiscriminaionlaws, hus resor o cuting jobs or reducing hours o

conver some ull-ime posiions o par-ime jobs. In

a 1998 paper, Culer and Madrian ound ha employ-

ers respond o rising healh insurance coss by shifing

o more ull-ime labor, aking advanage o his xed

cos naure o he ringe benes.75

Oher han acceping healh insurance coss pas-

sively and dropping healh insurance coverage or

changing labor marke oucomes, employers also

respond in more acive ways. Larger rms have morebargaining power and can acively engage in cos-

reducing negoiaions more han small rms, bu all

employers hink abou how o deliver healh insur-

ance a he lowes cos possible, shopping around

or services hrough brokers and experimening

wih innovaive sraegies. Some such responses are

discussed below.

Whether to sel-insure health beneits

Sel-insuring healh benes is an opion ha lowers

coss, bu is only available or large rms since i

requires use o in-house capial, or he use o expen-

sive soploss (“reinsurance”) insurance policies.

Sudies ha examine he decision o sel-insurance

have ound mixed evidence or he inuence on

mandaes on rm decisions o sel-insurance.

Gruber76 nds ha bene mandaes have litle

impac on insurance coverage; his could be because

mandaes do no appear o be especially binding,

while earlier work by Gabel and Jensen (1989) nds

ha mandaes are responsible or lack o healh

insurance in 1/6 small rms ha are uninsured,

and 50 percen o large rms ha conver o sel-

insurance. Due o he adminisraive simplicaions

and cos savings associaed wih sel-insurance, mos

large rms (62.7 percen o rms wih 50 or more

workers who oer healh insurance in 2008) cur-

renly sel-insure a leas one produc.77

Whether to use disease management andemployee wellness programs

ecenly, here has been an increase in ineres

among employers in implemening disease manage-

men and wellness programs. Many (28 percen)

employers hough ha disease managemen

programs were “very eecive” (Kaiser/HE,

2007). Only beween 12 o 16 percen hough

ha igher managed care neworks, CDHPs, andhigher employee cos sharing was “very eecive,”

and a similar number hough hey were “no a all

eecive.” However, close o hal hough ha hese

sraegies were all “somewha eecive.”




Daa rom he UBA 2008 Employer Opinion

Survey,78 which polled 1,664 employers, nds a

large number desire wellness programs and chronic

disease managemen programs, indicaing employ-

ers buy ino he idea ha hese programs will impac

he business. According o William Saord, vice

presiden o member services or UBA “Tis survey illusraes ha employers have a high level o con-

dence in heir abiliy o conrol healh care coss and

ha heir employees can make inormed choices i

given he addiional ools necessary o do so.” Te

survey also nds ha employers are increasing heir

use o wellness programs. In 2008, 9.8 percen o

employers oered wellness programs, while in 2007

his was 7.4 percen.

Tere are hree relaed issues o consider in hinking

o he scope or reducing healh care coss hrough

hese programs. One is o wha degree does modi-

able healh behavior and managemen o reaable

condiions wih beter prevenive/early care aec

healh care coss. Second issue is how successul are

opions available o employers o aec healh behav-

iors and ensure beter managemen o diseases. Tird

is he ime rame during which hese benes occur-

are hey shor erm enough ha curren employers

recoup he benes? Employers have some bene

in serving he role o healh promoion managerbecause employees are physically presen (or

example, in esablishing on sie exercise aciliies).

esearchers have explored he impac o wellness

programs and disease managemen ools on healh

saus, healh care coss, produciviy, abseneeism

and urnover, nding some reason or cauious opi-

mism ha such programs migh produce desirable

oucomes i adoped on a large scale. However, i

mus be noed ha his evidence is rom case sudies.

Firs, here is evidence ha healh risks aec

employer coss and produciviy in signican ways.

A series o papers by Goezel and colleagues using

daa on workers linking healh care and employee

produciviy measures ound ha afer conrol-

ling or demographic and oher acors, hose wih

risky behaviors were ound o incur higher healh

care coss.79 Tere are numerous reviews (ones by

Pelleier) showing ha employer inervenions have

lead o benecial oucomes.80 How much o his is

causal is hard o pin down.

A recen sudy ha overcomes hese esimaion di-

culies is Loepke e al (2008),81 who use an experi-

menal/conrol group seup where 543 employees

o a large company were provided wih healh risk

assessmen programming while wo ses o conrol

group workers were no. Te auhors ound ha

hose who received he risk assessmen were ound

o be in beter healh afer he sudy period (years

2003 o 2005), paricularly in choleserol, die,

subsance abuse, high blood pressure, sress manage-

men, and aciviy and obesiy raes. Tey also ound

ha hese benes persised afer he conrolled

sudy ended (2006 daa), and ha improved healh

was associaed wih reduced abseneeism.

Te evidence on wheher employers, providers, or

he governmen could reduce healh care coss by

encouraging qualiy improvemens in healh care is

less cerain. Oher acive sraegies employers could

pursue o lower healh care coss include atempingo improve qualiy and obain more ransparency on

he provider side, as was ried by he Leaprog group

(Galvin e al, 2005), an atemp by large employers

ha has no been viewed as a noable success. 82

Manipulating plan design

Some elemens o plan design are covered by sae

and ederal law regarding specic bene mandaes.

Federal policy mandaed ha large employers oeran HMO on he menu as long as one exised in heir

area.83 Tis law’s provisions or employers expired

in he 1990s, and managed care has generally allen

rom avor and morphed ino he preerred provider




organizaion, or PPO, orm ha allowed greaer

reedom, bu uses incenives o keep paiens wihin

nework (Kaiser/HE, 2007).

A new wave o plan design innovaion has been

come o be called “consumer direced healh care”

plans, or CDHPs. While here are sligh variaionsin wha one would reer o as a CDHP, i is com-

monly a high-deducible insurance plan (ypically

a deducible o $1,000 or more), which maybe

oered in andem wih a personal healh accoun

(such as a ax-preerred Healh Savings Accoun ha

can only be used or qualied medical expenses).

As Chrisianson a al discuss in a recen Health

Aairs aricle,84 adopion o “consumerism” hrough

CDHPs has been seen as a way o reduce healh care

coss afer he rerea o managed care sraegies han

pu he onus on he insurer. Tese plans have experi-

enced signican growh in recen years.85

A review o he impac o HSAs and CDHPs by

RND researchers published in Health Aairs in 2006

shows ha here is some selecion ino hese plans

by he healhy, and lower healh care coss; eecs on

qualiy are mixed.86 More recen evidence in 2007 by

Greene and colleagues using claims daa rom one

employer nds ha hose enrolled in CDHPs were

less likely o coninue use o chronic care medica-ions.87 However, owe e al nd ha hose in

CDHPs (wih ree prevenive and screening services)

were no less likely o use prevenive and chronic ill-

ness services relaive o a conrol group in PPOs.88

On ne, he jury is sill ou on wha CDHPs will

accomplish. Te issues ha are raised are he likely

selecion by healhy, leaving he risk pool worse or

oher insurance plans; he possible decreased use

o prevenive care, unless such services are exemp

rom he deducible; he lack o needed inormaion

on which consumers will base healh care decisions;

and he ac ha by deniion, high-deducible plans

will no aec caasrophic coss which are where he

bulk o U.S. healh expendiures lie.

Encouraging workers to take alternative options

Employers have incenives o encourage he use

o alernaive means o paymen (oher han he

employers policy) o cover healh care coss. Tis

could be pushing workers on o spouses’ coverage89

or ono public insurance opions such as Medicaid

and CHIP. Employers’ decisions on reiree coverage

are also likely o be inuenced by he availabiliy o

Medicare. Employers generally adjus heir healh

insurance plans o reirees o be he secondary payer

once Medicare eligibiliy is reached a age 65. Tis

could be viewed as a orm o subsiuion o cover-

age because employers would oherwise have pro-

vided he usual coverage. Tere is a conemporary

issue in his area wih Medicare Par D oering sub-

sidized coverage or prescripion drugs. Employers

were given he opion o receiving a wo-hirds

subsidy rom he ederal governmen or coninuingheir coverage o prescripion drugs in reiree plans

or hose over age 65.90 Tus, no all healh care coss

o he employed (or reired) populaion need o be

covered under employmen-based coverage because

o he exisence o alernaive public programs ha

are designed o mee he needs o hese populaions.




Appendix C—What do employers saywhen asked about their opinions regardinghealth insurance and reorm?

Tere now exiss some daa rom surveys ha have

asked employers heir opinions regarding heir role

as healh insurance providers, and heir possible

reacions o uure changes in healh care eaures.

In 2002, he Employee Benes esearch Insiue

commissioned a survey and ocus groups o employ-

ers. Te ndings showed ha employers hink o

oering healh insurance as a way o atrac workers,

bu are also cognizan o waning o improve he

healh saus o heir workers. Tey wan o be com-

peiive in he labor marke bu also recognize ha

when here are dual workers in a amily, hey would

raher no be he plan ha is chosen or he amily.

Many quesions o employer opinions are asked as

par o a series o surveys conduced by Gabel and

colleagues naionally. In he one sae ha has acu-

ally implemened reorms recenly, Massachusets,

Gabel e al (2008)91

conduced a special survey o employers in 2007 abou heir suppor or healh

reorm. Tis survey o 1,056 employers was con-

duced afer he reorm legislaion was enaced in

ha sae bu beore he pars ha aec employers

were implemened, and hus serves as a baseline or

laer surveys o employers in he sae.

All employers wih more han 10 ull-ime work-

ers are required o provide healh insurance or pay

a nominal ne o $295 per employee per year. Te

survey ound ha employers, smaller ones in par-icular, were no well aware o he reorms (wih only

14 percen o rms in he 3 o 10 worker caegory

saying hey undersood he plan very well; or rms

in he 11 o 50 size caegory his was 18 percen).

Abou 75 percen o 80 percen o employers under

he 50-employee size repored ha he media was

heir main source o inormaion abou reorm,

while larger employers were more likely o menion

heir brokers han he media.

Smaller rms (50 or ewer employees) were beween

31 percen and 39 percen more likely o srongly

agree ha all employers bear some responsibiliy or

providing healh benes o heir workers. Beween

43 percen and 40 percen o small employers

responded ha hey somewha agree wih his

proposiion. egardless o rm size, he suppor or

employers wih 11 or more workers paying a ne o

$295 per employee wihou healh insurance was

srongly agreed o by abou one-hird o respon-

dens. When employers no oering healh insur-

ance were asked wheher hey would limi pay raises

o mainain heir employees eligibiliy or subsidies,very ew indicaed hey were very likely o do so (17

percen among rms wih 3 o 10 workers and 10

percen among rms wih 11 o 50 workers). Tese

resuls sugges ha employers are airly responsive

o he reorms in Massachusets, alhough here is

low awareness o he deails. I will be imporan or

comparison wih responses afer he reorm plan has

gone ino eec or employers.

A survey similar o he one in Massachusets was

elded in early 2008 in New York, a sae ha hasno enaced large-scale reorm. Simon and Whie

(2008)92 nd ha New York employers o all rm

sizes agree srongly or somewha srongly ha

hey bear some responsibiliy or providing healh




insurance o heir workers, ranging rom 72 percen

or small rms (2 o 9 employees) o 79 percen or

medium rms (10 o 49 employees) and 88 percen

or large rms (50 or more employees). Employers

also sae hey agree ha individuals above he pov-

ery level bear some responsibiliy or buying insur-

ance, ranging rom 79 percen or small and mediumrms o 87 percen or large rms. o supplemen

he survey, ocus groups were conduced.

When asked wheher employers are in avor o an

employer mandae, in one ocus group, a small rm

owner commened:

“I think everyone would agree here that doing

business, especially or small businesses in New

York State is very tax burdening. To do business

in New York State compared to other states…

imposing another responsibility like this would

just add fnancial pressure on us, especially as

a small business.” (Ithaca)

In 2007 a survey o employers was conduced by

he Caliornia HealhCare Foundaion in Caliornia,

anoher sae ha considered healh reorm.93 When

employers were asked wheher hey suppored

Caliornia’s “pay or play” legislaion, 7 percen o

large rms “srongly” suppored i while 18 percen

o small employers (dened as under 200 workers)srongly suppored i. Tiry-ve percen o small

rms and 38 percen o large rms “somewha” sup-

pored i. weny-one percen o small rms and 13

percen o large rms “srongly” opposed i.

Ye 33 percen o small rms and 48 percen o

large rms srongly agreed ha all rms bear some

responsibiliy or providing healh bene; overall

wo hird o all rms srongly or somewha agreed

on his. Eighy-wo percen o all rms agreed ha

all individuals above he povery level bore some

responsibiliy or buying healh insurance.




Appendix D—Employer coverageby frm size

Te able above considers he disribuion o work-

ers, and poenial access o employer provision o

healh insurance oday across dieren rm sizes

and amily incomes, in order o see how small rmscompare o large rms. Te CPS does no have a

50-employee rm size classicaion, bu daa rom

he MEPSIC shows ha roughly 50 percen o work-

ers in he 25 o 99 size caegory are in rms o 25-50

workers (AHQ 20101, able I.B.1).94

Firs, his able shows ha smaller rms have a

greaer racion o heir workers belonging o low-

income amilies. Te rows add up o 1, hus hese

daa ell us ha 17 percen o workers in a rm wih

under 10 employees come rom amilies under 133percen FPL, while in rms over 100 workers his is

only 9 percen. Te nex se o rows show poenial

access o employer healh insurance or he worker,

dened as having a leas one amily member

Distribution of nonelderly U.S. Workers and Potential Access to Employer Coverage, by Firm Size

and Family Income

<133%FPL 133-150 150-200 200-250 250-400 >400

Firm Size Distribution o workers

<10 0.166 0.031 0.092 0.091 0.222 0.398

10-24 0.150 0.031 0.092 0.100 0.234 0.394

25-99 0.117 0.031 0.084 0.092 0.236 0.439

100+ 0.090 0.022 0.067 0.078 0.229 0.513

Current Rate o Access to Employer Insurance

<10 0.169 0.307 0.365 0.453 0.609 0.750

10-24 0.224 0.336 0.415 0.583 0.740 0.865

25-99 0.307 0.450 0.565 0.701 0.828 0.916

100+ 0.360 0.527 0.661 0.774 0.878 0.950

Notes: Based on 2008 data from the March CPS of 2009. Fractions add up to 1 in each row in the top segment of the table. Uses sample weights.

covered by employer healh insurance currenly.

Tis does no show wheher people were oered

employer coverage ha hey reused, as he March

CPS does no collec ha. Smaller employers (hosewih ewer han 25 workers) in he lowes income

amilies have very low access o healh insurance

currenly (17 percen and 22 percen), whereas or

he same income caegory, being in a large rm

increases poenial access o employer healh insur-

ance o 36 percen. Even among amilies wih higher

han 400 percen FPL, access o employer healh

insurance is lower in small rms. Te unequal disri-

buion o he uninsured and he low-income workers

across small and large rms are wo acors (com-

bined wih small rms’ emporary subsidies and lack o an employer mandae ne) ha imply small rms

and heir workers sand o experience greaer gains

rom he new law relaive o larger rms.




Endnotes

1 The Patient Protection and Aordable Care Act o 2010, Public Law 111-148,111th Cong., 2nd sess. (March 23, 2010), available at http://rwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=111_cong_bills&docid=:h3590enr.txt.pd and the Health Care and Education Reconciliation Act o 2010,Public Law 111-152, 111th Cong., 2nd sess. (March 30, 2010), available athttp://rwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=111_cong_bills&docid=:h4872enr.txt.pd.

2 The numbers in this paragraph come rom Paul Fronstin, “Sources o HealthInsurance and Characteristics o the Uninsured: Analysis o the March 2009Current Population Survey” (Washington: Employee Benet Research Institute,2009), available at http://www.ebri.org/pd/briespd/EBRI_IB_9-2009_No334_HI-Cvg1.pd.

3 The Congressional Budget Oce Senate bill analysis o November 2009 ore-casts that the exchanges would experience some economies o scale. However,

they are still likely to be less than what large employers receive since contract-ing in the exchanges is done at an individual level. Prior research has ailed touncover substantial economies o scale rom purchasing pools, but were basedon more limited attempts than the planned state-based changes. Elliot K. Wicks,Mark A. Hall, and Jack A. Meyer, “Barriers to Small-Group Purchasing Coopera-tives” (Washington, D.C.: Economic and Social Research Institute, 2000).

4 David Cutler, “Health Reorm Passes the Cost Test” The Wall Street Journal, March9 2010, available at http://online.wsj.com/article/SB10001424052748703936804575108080266520738.html.

5 Agency or Healthcare Research and Quality, “Table I.D.1(2008) Average totalamily premium (in dollars) per enrolled employee at private-sector establish-ments that oer health insurance by rm size and selected characteristics:United States, 2008,” available at http://www.meps.ahrq.gov/mepsweb/data_stats/summ_tables/insr/national/series_1/2008/tid1.htm. AHRQ data i s used oremployer premium growth, and Bureau o Labor Statistics, “Productivity changein the nonarm business sector, 1947-2009,” available at http://www.bls.gov/lpc/prodybar.htmwas used or productivity growth numbers. Bureau o LaborStatistics, “Consumer Price Index-All Urban Consumers,” available at http://data.bls.gov/PDQ/servlet/SurveyOutputServlet?data_tool=latest_numbers&series_id=CUUR0000SA0&output_view=pct_1mth,was used or infation gures.

6 Only 3.5 percent o rms with 50 or more workers do not oer coverage in 2008;Agency or Healthcare Research and Quality, “Table I.A.2: Percent o private-sector establishments that oer health insurance by rm size and selectedcharacteristics: United States, 2008,” available at http://www.meps.ahrq.gov/mepsweb/data_stats/summ_tables/insr/national/series_1/2008/tia2.htm.The new law applies to rms with more than 50 ull-time equivalent workers,thus since coverage tends to rise with rm size, ewer than 3.5 percent o theserms lack oers o coverage. The very ew large rms that do not providehealth insurance pay a ne o $2,000 per FTE (on all FTEs minus the rst 30) themoment that at least one FT E takes government subsidized coverage in theexchange. Given the generosity o the subsidies, it is very likely that all (o theew) large rms who do not oer health insurance would have at least one FTEwho receives a subsidy. In the extreme, i an employer o 51 FTEs does not oercoverage, but has 50 FTEs who receive coverage through, say, spousal employercoverage, and only one FTE who received subsidized coverage in the exchange,this employer pays an annual ne o $2000*(51-30)=$42,000.

7 Large employers who oer coverage but do not have 100 percent take-up pay

the lesser o: $3,000 or every FTE who receives a subsidy in the exchange, or$2,000 per FTE (minus 30). In most cases, the lesser amount is likely to be the$3,000 per FTE who receives a subsidy in the exchange. Employees o rms thatoer coverage are not allowed to receive a premium or cost-sharing subsidy inthe exchange (and thus trigger nes or their employer) unless their employercoverage does not cover at least 60 percent in actuarial value, or i the employeeco-premium exceeds 9.5 percent o amily income. I the worker is under 400 per-

cent o the FPL, and i the employee premium contribution is between 8 and 9.8percent o income, the employer is required to provide the worker with a voucherequal to the employer contribution towards health insurance, with which theymay shop or unsubsidized coverage. The legislation also contains provisionsrestricting waiting periods or employer coverage to no more than 30 days.

8 Agency or Healthcare Research and Quality, “Table I.B.3.b.(2): Percent o private-sector ull-time employees that are enrolled in health insurance atestablishments that oer health insurance by rm size and selected character-istics: United States, 2008,” available at http://www.meps.ahrq.gov/mepsweb/data_stats/summ_tables/insr/national/series_1/2008/tib3b2.htm. A low-wageemployer is dened by the MEPSIC survey as one who has more than 50percent o their employees earning $11/hr or less, in 2008. (O all private sectoremployers in the U.S. that have 50 or more employees, 35 percent are low-wageemployers (Table I.A.1)). It is unknown how many o the workers who do nottake up coverage in these rms would be using subsidies in the exchange once

the law is enacted, as opposed to, say, receiving coverage elsewhere as a depen-dent or rom Medicaid. MEPSIC data show that in these low-wage large rms,the employee contribution towards a amily policy was on average $3,784 and$1,025 or single coverage. This represents about 13.5 percent and 7.5 percento income, respectively, or amily o our and or an individual, at 135 percent o the FPL -- just beyond Medicaid eligibility under the new law.

9 See research by Bradley Herring and Mark Pauly (““Play or Pay” InsuranceReorms or Employers”, Jan 14 2010. New E ngland Journal o Medicine vol362:93-95.pp1-3) that illustrates how low-wage workers at high-wage rms thatoer coverage are likely to get minimal benets rom the current tax subsidytoo.

10 A summary o the provisions is provided by the Kaiser Family Foundation athttp://www.k.org/healthreorm/8061.cm, and a timeline o implementationsummary is provided at http://www.k.org/healthreorm/8060.cm.

11 All individuals without oers o employer insurance are allowed to purchasenear-community rated coverage rom the exchanges regardless o whether theyqualiy or subsidies or not. These coverage expansions are expected to alleviatesome long-standing concerns regarding employer provided health insurance.Employers and employees stand to benet rom reduced “job lock”—the needor employees to stay with one company because they can not aord to losetheir health insurance-- when health insurance availability outside o employerarrangements improve. A related benet is a reduction in risk that employeesace during periods in between jobs.

12 The Congressional Budget Oce orecasts that employers would still coverabout ve sixths o the total non-elderly health insurance market ater reorm,using the November 2009 version o the legislation. An Analysis o Health Insur-ance Premiums Under the Patient Protection and Aordable Care Act. Letterrom Doug Elmendor to Evan Bayh, November 30, 2009, available at http://www.cbo.gov/tpdocs/107xx/doc10781/11-30-Premiums.pd .

13 Letter rom Doug Elmendor to Nancy Pelosi, March 20, 2010, available at http://www.cbo.gov/doc.cm?index=11379.

14 Note that employers with workers who take advantage o the Medicaidexpansion are not penalized; this “anti-crowd-out” eature that was part o dratlegislation is not included in the nal version. However, i at least one FTE takesa subsidy, the ne is paid on all FTEs minus 30.

15 The rm size threshold and the nes are both higher than in the Massachusettsreorm enacted in 2006 (which used 11 workers as the threshold or dening alarge rm and $295 per ull time employee as the ne). See http://www.mass.gov/legis/summary.pd or a summary o the provisions.

16 See ootnote 6 and related discussion.

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17 Larry Summers, “Some Simple Economics o Mandated Benets,” AmericanEconomic Review 79 (2) (1989):177-183.

18 Agency or Healthcare Research and Quality, “Table I.A.2.c(2008) Percent o private-sector establishments that oer health insurance that oer at least onehealth insurance plan that required no contribution rom the employee oramily coverage by rm size and selected characteristics: United States, 2008,”available at http://www.meps.ahrq.gov/mepsweb/data_stats/summ_tables/insr/national/series_1/2008/tia2c.htm.

19 Agency or Healthcare Research and Quality, “Table I.B.3.b.(2)(2008) Percento private-sector ull-time employees that are enrolled in health i nsurance atestablishments that oer health insurance by rm size and selected character-

istics: United States, 2008,”available at http://www.meps.ahrq.gov/mepsweb/data_stats/summ_tables/insr/national/series_1/2008/tib3b2.htm Low wagedened at more than 50% o employees earning at or below $11/hr in 2008.

20 Among large, low-wage employers who oer coverage, 76.8 percent o FTEswere eligible or health insurance. Agency or Healthcare Research and Quality,“Table I.B.3.b.(1)(2008) Percent o private-sector ull-time employees eligibleor health insurance at establishments that oer health insurance by rm sizeand selected charac teristics: United States, 2008,” available at http://www.meps.ahrq.gov/mepsweb/data_stats/summ_tables/insr/national/series_1/2008/tib3b1.htm.

21 Katherine Baicker, “Focus on ‘Pay or Play’ Mandates in Health Insurance Reorm,”Risk Management and Insurance Review 11(1) (2008): 49-50.

22 Katherine Baicker, and H. Levy, “Employer Health Insurance Mandates and theRisk o Unemployment,” Risk Management and Insurance Review 11 (1) (2008):109-132.

23 Bernstein, J. and E. Gold, “Comments on Employer Health Insurance Mandates

and the Risk o Unemployment” Risk Management and Insurance Review 11 (1)(2008): 133-139.

24 Agency or Healthcare Research and Quality, “Table I.A.2(2008) Percent o private-sector establishments that oer health insurance by rm size andselected characteristics: United States, 2008,” available at http://www.meps.ahrq.gov/mepsweb/data_stats/summ_tables/insr/national/series_1/2008/tia2.htm.

25 Roger Feldman and others, “The Eects o Premiums on the Small Firm’sDecision to Oer Health Insurance,” Journal o Human Resources 32 (4) (1997):635-658.

26 Kaiser Family Foundation and Health Research & Educational Trust, “EmployerHealth Benets 2009 Annual Survey” (2009).

27 Jonathan Gruber and Michael Lettau, “How elastic is the rm’s demand orhealth insurance?” Journal o Public Economics 88 (7-8) (2004): 1273-1293.

28 Sharon K. Long and Karen Stokley, “Massachusetts Health Reorm: EmployerCoverage rom Employees’ Perspective,” Health Aairs Web Exclusive, 28 (6):

w1079.

29 Large employers are generally not experience-rated, because their health carecost averages tend to be predictable rom year to year. Underw riting practicesin the non-group market, which is subject to a larger degree o cost variabilityand adverse selection, include denying coverage based on pre-existence o certain medical conditions, use o experience rating in setting premiums,and rescission o coverage (which was banned in the 1997 Health InsurancePortability and Accountability Act). All o these practices are banned underthe PPACA. For recent data on rescission, see http://www.naic.org/documents/committees_b_regulatory_ramework_rescission_data_call_report.pd.

30 Mark Pauly, “Avoiding Side Eects In Implementing Health Insurance Reorm,”New England Journal o Medicine 362 (8) (2010): 671-673.

31 Simon, K. “What Have We Learned From Research on Small-group InsuranceReorms?” in Alan C Monheit and Joel Cantor eds. State Health Insurance MarketReorm (New York: Routledge, 2004).

32 Losasso, A. and I. Lurie. “Community Rating and the Market or Private Non-

group Health Insurance,” Journal o Public Economics 93 (1-2) (2009): 264-279.

33 However, it is unclear how Medicaid covered workers are treated in the calcula-tion o nes or rms that have at least one worker receiving subsidies in theexchange.

34 Congressional Budget Oce, “The State Children’s Health Insurance Program”(2007), available at http://www.cbo.gov/tpdocs/80xx/doc8092/05-10-SCHIP.pd.

35 Author’s calculations based on Current Population Survey or March 2009.

36 Melinda Beeuwkes Buntin and David Cutler, “The Two Trillion Dollar Solution:Saving money by modernizing the health care system” (Washington: Centeror American Progress, 2009), available at http://www.americanprogress.org/issues/2009/06/pd/2trillion_solution.pd.

37 Letter rom Doug Elmendor to Evan Bayh, November 30, 2009.

38 The history o the employer health insurance system is documented by standardhealth economics text authors such as Sherman Folland, Allen C. Goodman,and Miron Stano, The Economics o Health and Health Care, 5th Edition (NewYork: Prentice Hall, 2006). and in Janet Currie and Brigitte Madrian, “Health,

Health Insurance, and the Labor Market,” in Orly Ashenelter and David Card,eds., Handbook o Labor Economics, Edition 1, Volume 3 (Mar yland Heights, MO:Elsevier, 1999).

39 E.g. Internal Revenue Service, 2010. Employer’s Tax Guide to Fringe Benets in2010. Available at http://www.irs.gov/pub/irs-pd/p15b.pd

40 Gerald Goldstein and Mark Pauly. “Group Health Insurance as a Local PublicGood.” In Richard Rosett, ed., The Role o Health Insurance in the Health Ser vicesSector (Cambridge, MA: National Bureau o Economic Research, 1974).

41 Michael Collins. “A Primer on the Sel-Insured Health Plan NondiscriminationRules,” Journal o Pension Planning and Compliance 25 (2) (1999): 1-15. Collinsexplains that since 1978, except or the period 1986 to 1989, the nondiscrimina-tion statues applied only to sel-insured rms. From 1986 to 1989 it applied tosel-insured and commercially insured plans alike.

42 Phillip Cooper, Kosali Simon, and Jessica Vistnes, “A Closer Look at the ManagedCare Backlash,” Medical Care 44 (5) (2006): 1-11.

43 In thinking about the generosity o the health insurance contract, rather thanjust thinking o the dollars to be spent on a policy, one can think o it as being avariable k(x), which is the raction o medical expenses that will be covered bythe policy. The choice o k will depend on characteristics x like age o workers,income and education. Under perect sorting o workers, the workers will behomogenous within a rm, thus “x” s will all be the same within the rm.

44 Goldstein and Pauly make a distinction between an employer decision versusa union decision. In the end, both are refecting preerences o workers, but itcould be that the workers whose voice is heard the most is dierent. This is atheme echoed in later work on unions (Freeman and Medo, 1984), that unionsrefect the voice o older more established workers while the employer wouldotherwise cater to the wishes o the employees who are most likely to leave i their wishes are not met-younger, less established workers. This also means thatas retiree health insurance in particular has become very expensive, unions mayconcentrate more o their eorts in that area rather than health insurance orthe non-elderly given the age prole o union voices.

45 Other work in this area include M. Kate Bundor, “Employee demand or healthinsurance and employer health plan choices,” Journal o Health Economics 21 (1)(2002): 65-88.

46 Jon R. Gabel, Heidi Whitmore, Jeremy Pickrin, Christine C. Ferguson, Anjali Jain,Shova KC and Hilary Scherer, “Obesity in the Workplace: Current Programs andAttitudes among Employers and Employees,” Health Aairs, 28(1) (2009): 45-56.

47 Sean Nicholson, Mark V. Pauly, Daniel Polsky, Catherine M. Baase, Gary M. Billotti,Ronald J. Ozminkowski, Marc L. Berger and Claire E. Sharda, “How to Present theBusiness Case or Helathcare Quality to Employers,” Applied Health Economicsand Health Policy, 4(4) (2005): 209-218.

48 Early papers on the compensating wage dierential or health insurance arereviewed in Kosali Simon, “Displaced Workers and Employer-Provided HealthInsurance: Evidence o a Wage/Fringe Benet Tradeo?” International Journal o Health Care Finance and Economics 1 (3-4) (2001): 249-271.

49 Paul B. Ginsburg. “High and Rising Health Care Costs” (Princeton: Robert WoodJohnson Foundation, 2008), available at http://www.rwj.org/pr/product.jsp?id=35368#content.

50 Craig Olson, “Do Workers Accept Lower Wages in Exchange or Health Benets?”

Journal o Labor Economics 20 (2) (2002): 91-114.

51 Jonathan Gruber, “The Incidence o Mandated Maternity Benets,” AmericanEconomic Review 84 (3) (1994): 622-641; Louise Sheiner, “Health Care Costs,Wages, and Aging” (Washington: The Federal Reserve, 1999); Other work inthis area includes A nne B. Royalty, “Estimating workers’ marginal valuation o employer health benets: Would insured workers preer more health insuranceor higher wages?” Journal o Health Economics 27 (1) (2008): 89-105, available athttp://ssrn.com/abstract=165530.

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52 Brigitte Madrian, “Employment-Based Health Insurance and Job Mobility: IsThere Evidence o Job-Lock? “ The Quarterly Journal o Economics 109 (1)(1994): 27-54; Jonathan Gruber and Brigitte Madrian, “Health Insurance and JobMobility: The Eects o Public Policy on Job-Lock,” Industrial and Labor RelationsReview 48 (1) (1994): 86-102.

53 Kanika Kapur, “The Impact o Health on Job Mobility: A Measure o Job Lock,”Industrial and Labor Relations Review 51 (2) (1998): 282-219.

54 David M. Blau and Donna B. Gilleskie, “Retiree Health Inusrnace and the LaborForce Behavior o Older Men i n the 1990s,” The Review o Economics and Statis-tics, 83(1) (2001): 64-80.

55 There is a literature that shows productivity eects o better health (R. Kesslerand P. Stang (ed) 2006. Health and Work Productivity. Chicago. University o Chicago Press.) For a review o papers on whether health insurance increasesproductivity, see E. O’Brien. 2003. “Employer Benets rom Workers’ HealthInsurance”. The Milbank Quarterly. Vol 81 (1)pp.5-43. Employers may try to elicitinormation about workers by oering health insurance even absent any otherbenet to the rm (see theory by A. Marino and J. Zabojnik, 2008.”A Rent Extrac-tion View o Employee Discounts and Benets”. Journal o Labor Economics, vol26 (3). Pp.486-518)

56 R. Topel and M. Ward, “Job Mobility and Careers o Young Men,” Quarte rly Journalo Economics 107 (2) (2002): 439-479.

57 Roger Feldman and others, “The Eect o Premiums on the Small Firm’s Decisionto Oer Health Insurance,” Journal o Human Resources 32 (4) (1994): 635-658;Jon Gabel and Gail Jensen, “The Price o State Mandated Benets,” Inquiry 26 (4)(1989): 419-431; Kosali Simon, “Adverse Selection in Health Insurance Markets:Evidence rom State Small-Group Health Insurance Reorms,” Journal o PublicEconomics 89 (9-10) (2005): 1865-1877.

58 Economic Research Initiative on the Uninsured “On my mind: Conversations withEconomists. Simon: Nation’s Big Uninsurance Problem Revolves Around SmallFirms” (2008), available at http://eriu.sph.umich.edu/orthemedia/conversations.html.

59 Kaiser Family Foundation and Health Research & Educational Trust, “EmployerHealth Benets 2007 Annual Survey” (2007), available at http://www.k.org/insurance/7672/.

60 Senate Health, Education, Labor and Pensions Committee, Increasing HealthCosts Facing Small Businesses, 111th Cong., 1st sess., 2009. http://help.senate.gov/Hearings/2009_11_03/2009_11_03.htmlAccessed January 2010.

61 J.M. Abraham, T. Deleire, and A. Beeson Royalty, “Access to Health Insuranceat Small Establishments: What Can We Learn rom Analyzing Other FringeBenets?” Inquiry 46(3) (2009): 253-73.

62 Kaiser Family Foundation and Health Research & Educational Trust, “EmployerHealth Benets 2007 Annual Sur vey.”

63 Nationally, about 31 percent o part-time employees are eligible or health

insurance, in rms that oer health insurance. Agency or Healthcare Researchand Quality, “Table I.B.4.b.(1),” available at http://www.meps.ahrq.gov/mep-sweb/data_stats/summ_tables/insr/national/series_1/2006/tib4b1.htm.

64 Michael Collins, “A Primer on the Sel-Insured Health Plan NondiscriminationRules,” Journal o Pension Planning and Compliance 25 (2) (1999): 1-15.

65 As an example, employers are legally able to treat retirees under 65 dierentlyin health insurance than retirees over age 65 because o Medicare eligibility at65, a move or which employers needed EEOC approval since it would otherwisehave violated age discrimination laws. (see Blue Cross Blue Shield Association.“EEOC Allows Health Benets Shit at 65” (2007), avalilable at http://www.bcbs.com/news/national/eeoc-allows-health-benets-shit-at-65.html.)

66 See, or example, Mark A. Hall and Stephen S. Rich, “Laws Restricting HealthInsurers’ Use o Genetic Inormation: Impact on Genetic Discrimination,” Ameri-can Journal o Human Genetics 66 (1) (2000): 293–307.

67 For data on which states enacted which types o mandates, see Health PolicyTracking Service, “Major Health Care Policies, 50 State Proles” (Various years)

and Victoria Craig Bunce, JP. Wieske, and Vlatsa Prikazsky, “Health InsuranceMandates in The States in 2007” (Alexandria, VA: The Council or AordableHealth Insurance, 2007)

68 Phillip Cooper, Kosali Simon, and Jessica Vistnes, “A Closer Look at the ManagedCare Backlash,” Medical Care 44 (5) (2006): 1-11.

69 Kaiser Family Foundation and Health Research & Educational Trust, “EmployerHealth Benets 2009 Annual Survey” (2009), available at http://ehbs.k.org/?CFID=583758&CFTOKEN=74705268&jsessionid=6030796b705a8246ec732b3b81a73673a4a4.

70 Phillip Cooper, Jessica Vistnes and Gregory Vistnes, “Employer ContributionMethods and Health Insurance Premiums: Does Managed Competition Work?”The International Journal o Health Care Finance and Economics 1 (2) (2001):159-187.

71 U.S. Census Bureau, “Household Income Rises, Poverty Rate Unchanged, Numbero Uninsured Down,” Press release, August 26, 2008, available at http://www.census.gov/Press-Release/www/releases/archives/income_wealth/012528.html. Note that this number does not dierentiate between those who have versusdo not have employer provided amily health insurance. The median amily inthe US is oered health insurance rom an employer who pays on average 73percent o the cost o the health insurance policy, thus the median amily is pay-ing only about $3,267 (6.5 percent) out o their amily income as the employee

portion o health insurance.

72 David Helms, Anne Gauthier, and Daniel Campion, “Mending the faws in thesmall group market,” Health Aairs 11 (2) (1992): 7-40.

73 Jonathan Gruber and Michael Lettau, “How elastic is the rm’s demand orhealth insurance?” Journal o Public Economics 88 (7-8) (2004): 1273-1293.

Jonathan Gruber and Ebonya Washington, “Subsidies to employee health insur-ance premiums and the health insurance market,” Journal o Health Economics24 (2) (2005): 253-276.

74 Katherine Baicker and Amitabh Chandra, “The Labor Market Eects o RisingHealth Insurance Premiums,” Journal o Labor Economics. 24 (3) (2006): 609-634.

75 David M. Cutler and Brigitte C. Madrian, “Labor Market Responses to RisingHealth Insurance Costs: Evidence on Hours Worked,” The RAND Journal o Economics 29 (3) (1998): 509-530.

76 Jonathan Gruber, “State-Mandated Benets and Employer-Provided Health

Insurance,” Journal o Public Economics 55 (3) (1994): 433-64.

77 Agency or Healthcare Research and Quality, “Medical Expenditure Panel Survey(MEPs)” (2009), available at http://www.meps.ahrq.gov/mepsweb/data_stats/MEPSnetIC.jsp.

78 Accessed online September 2008. http://prnewswire.com/cgi-bin/stories.pl?ACCT=104&STORY=/www/story/04-22-2008/0004797216&EDATE=

79 Ron Z. Goetzel and others, “The Health and Productivity Cost Burden o the ‘Top10’ Physical and Mental Health Conditions Aecting Six Large U.S. Employers in1999,” Journal o Occupational and Environmental Medicine 45 (1) (2003): 5-14

Ron Z. Goetzel and R.J. Ozminkowski, “The health and cost benets o work site health-promotion programs,” Annual Review o Public Health 29 (2008):303-323.

Ron Z. Goetzel and others, “Health, Absence, Disability, and Presenteeism:Cost Estimates o Certain Physical and Mental Health Conditions Aecting U.S.Employers,” Journal o Occupational & Environmental Medicine 46 (4) (2004):398-412.

Ron Z. Goetzel and others, “The Relationship Between Modiable Health Risksand Health Care Expenditures: An Analysis o the Multi-Employer HERO HealthRisk and Cost Database,” Journal o Occupational & Environmental Medicine 40(10) (1998): 843-854.

80 Kenneth Pelletier, “A Review and Analysis o the Health and Cost-eectiveOutcome Studies o Comprehensive Health Promotion and Disease PreventionPrograms at the Worksite: 1993-1995 update,” American Journal o HealthPromotion 10 (5) (1996): 380-388.

Kenneth Pelletier, “A Review and Analysis o the Clinical and Cost-eectivenessStudies o Comprehensive Health Promotion and Disease ManagementPrograms at the Worksite: 1995-1998 update (IV),” American Journal o HealthPromotion 13 (6) (1999): 333-345, iii.

Kenneth Pelletier, “A Review and Analysis o the Clinical and Cost-eectivenessStudies o Comprehensive Health Promotion and Disease ManagementPrograms at the Worksite: 1998-2000 update,” American Journal o HealthPromotion 16 (2) (2001): 107-116.

Kenneth Pelletier, “A Review and Analysis o the Clinical and Cost-eectivenessStudies o Comprehensive Health Promotion and Disease ManagementPrograms at the Worksite: update VI 2000-2004,” Journal o Occupational andEnvironmental Medicine 47 (10) (2005): 1051-1058.

81 Ron Loeppke and others, “The Impact o an Integrated Population Health En-hancement and Disease Management Program on Employee Health Risk, HealthConditions and Productivity.” Working paper (Ithaca: Cornell University, 2008).

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82 Robert S. Galvin and others , “Has The Leaprog Group Had An Impact OnThe Health Care Market?” Health Afairs 24 (1) (2005): 228-233.

83 Employee Benet Research Institute, “History o Health Insurance Ben-ets” (2002), available at http://www.ebri.org/publications/acts/index.cm?a=0302act.

84 Jon B. Christianson, Paul B. Ginsburg, and Debra A. Draper. 2008. “The TransitionFrom Managed Care To Consumerism: A Community-Level Status Report,” HealthAairs 27 (5) (2008): 1362-1370.

85 United Benet Advisors (an employee benet advisory rm) Health Plan Surveysurveys over 18,000 health plans o 12,860 employers, shows that 11.2 percent

i employees nationwide are enrolled in CDHPs in 2008 (a doubling rom2007), and that 13 percent o all plans oered by employers now are CDHPs, anincrease o more than 40 percent rom 2007. About 63 percent o employees arein PPOs, and about 13 percent in HMOs. Available at http://unitedbenetadvi-sors.com/.

86 Melinda Beeuwkes Buntin and others, “Consumer-Directed Health Care:Early Evidence About Eects On Cost And Quality,” Health Aairs 25 (6) (2006):w516-w530.

87 Jessica Greene and others, “The Impact O Consumer-Directed Health Plans OnPrescription Drug Use,” Health Aairs 27 (4) (2008): 1111-1119.

88 John W. Rowe and others, “The Eect O Consumer-Directed Health Plans OnThe Use O Preventive And Chronic Illness Services,” Health Aairs 27 (1) (2008):113-120.

89 David K. Dranove, Kathryn Spier, and L. Baker. 2000. “Competition’ among em-ployers oering health insurance,” Journal o Health Economics 19(1): 121-140.

90 Employers were allowed to deduct the entire costs rom taxes (including thepart paid by the government), a provision that the current law reversed.

91 Jon R. Gabel, Heidi Whitmore, Jeremy Pickreign, Will Sellheim, KC Shova, andValerie Bassett, “Ater The Mandates: Massachusetts Employers Continue ToSupport Health Reorm As More Firms Oer Coverage,” Health Afairs, 27(6)

(2008), w566-w575.

92 Kosali Simon and W. White. “Inorming Health Care Reorm Options or New York State.” Working paper (Ithaca: Cornell University, 2008).

93 Caliornia Healthcare Foundation. “Employer Opinions about Responsibilityor Health Coverage” (2007), available at http://calhealthreorm.org/content/view/62.

94 Agency or Healthcare Research and Quality, “Table I.B.1(2008) Number o private-sector employees by rm size and selected characteristics: UnitedStates, 2008,” available at http://www.meps.ahrq.gov/mepsweb/data_stats/summ_tables/insr/national/series_1/2008/tib1.pd

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About the author

Kosali Simon is an associae proessor in he Deparmen o Policy Analysis and

Managemen a Cornell Universiy, and a research associae o he Naional Bureau o

Economic Analysis.

Acknowledgements

Te auhor hanks (in alphabeical order) Kae Bundor, ichard Burkhauser, Karen

Davenpor, Brad Herring and Ed Paisley or helpul commens. Financial suppor rom

he Cener or American Progress is graeully acknowledged. All errors and opinions are

my own. Tis work does no necessarily reec he opinions o Cornell Universiy or he

Cener or American Progress.



The Center or American Progress is a nonpartisan research and educational institute

dedicated to promoting a strong, just and ree America that ensures opportunity

or all. We believe that Americans are bound together by a common commitment to

these values and we aspire to ensure that our national policies relect these values.

We work to ind progressive and pragmatic solutions to signiicant domestic and

international problems and develop policy proposals that oster a government that

is “o the people, by the people, and or the people.”

implications of health care reform for employers

Documents