Study Indicates that Health Care Law Will Result in Fewer Employees Covered by Employer-Sponsored Plans

A new report (pdf) issued by an actuary for the Centers for Medicare & Medicaid Services (CMS) estimates that as a result of the Patient Protection and Affordable Care Act (PPACA), the new health care overhaul bill signed into law last month, the number of individuals with employer-sponsored health coverage will drop by about 14 million by 2019. This number is slightly higher than the number of employees estimated to obtain coverage through existing and new employer plans as a result of PPACA. The net result, the report concludes, is that by 2019, one million fewer people will be covered by employer-sponsored health plans than if PPACA had not been enacted.

In essence, the report explains that while employers will continue to be the largest source of insurance coverage in the country, some will choose to stop offering coverage because of a number of factors. Small employers that are not subject to penalties for failure to provide adequate coverage, for instance, might chose to terminate the coverage they already offer. Larger employers subject to the per-worker penalties may decide that the relatively low fines are less expensive than the increasing cost of health care benefits. Additionally, the report notes that “companies with low average salaries might find it to their – and their employees’ – advantage to end their plans, thereby allowing their workers to qualify for heavily subsidized coverage through the [health insurance] Exchanges.”

On the other hand, an additional 13 million workers and their families will become newly covered, according to the report, because some employers will begin to offer coverage; a greater portion of workers will become enrolled in their employers’ plans, and dependent coverage will soon extend to age 26.

In terms of health care costs, the report notes that the excise tax on high cost “Cadillac” employer-sponsored plans – which is scheduled to take effect in 2018 – will cause employers to reduce the scope of their health benefits. Because, the report claims, plan benefit values will generally increase faster than the threshold amounts for qualifying a plan as “high cost,” additional plans will become subject to the excise tax over time, thereby prompting more employers to scale back coverage. The end result could have a “moderate impact on the overall growth of expenditures for employer-sponsored insurance.”

Overall, the report predicts that the number of individuals insured under the new law will increase by 34 million, and that PPACA will cost $251 billion over the next decade. The cost estimate, however, does not take into consideration changes to the tax code – including the 40% excise tax on Cadillac plans – that have yet to be enacted. The report also lists a number of caveats and limitations to the estimates provided, including the fact that “responses of individuals, employers, insurance companies, and Exchange administrators to the new coverage mandates, Exchange options, and insurance reforms could differ significantly from the assumptions underlying the estimates presented here.”

This entry was written by Ilyse Schuman.

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