Employer-Sponsored Insurance Under Health Reform

Some have argued that the Patient Protection and Affordable Care Act (ACA) would erode employer-sponsored insurance (ESI) by providing incentives for employers to stop offering coverage. Others have claimed that most businesses would face increased costs as a result of reform, or even that the uncertainties surrounding the impact of health reform are hampering the economic recovery. A new study, however, finds that the effects on employer coverage and employer health care spending would actually be small.

The paper, funded by the Robert Wood Johnson Foundation and prepared by Urban Institute researchers using their Health Insurance Policy Simulation Model, estimates how the ACA would affect ESI and employer costs. To investigate the effects of health reform on ESI, they simulate the ACA as if fully implemented in 2010 and contrast the results with the pre-reform baseline estimates for the year.

Among the researchers’ findings:

  • Overall ESI coverage under the ACA would not differ significantly from what coverage would be without reform.
  • Total employer spending on premium contributions, assessments and vouchers would be 0.6 percent lower under the ACA than without reform. Total spending by small firms would be 8.7 percent lower, mainly due to cost savings from the new exchanges. Spending by medium-sized firms would increase by 11.8 percent, because some would offer new coverage and others would be required to pay assessments. Large firms’ spending would be largely unaffected.
  • The average employer contribution per person covered by ESI would decrease by 7.9 percent for small firms, 1.1 percent for medium-sized firms and 3.1 percent for large firms.
  • In the absence of health reform, ESI coverage would fall by 2.6 percentage points in five years, assuming 5 percent annual growth in private premiums, and by 7.6 percentage points with 8 percent annual growth in premiums. Provisions of the ACA could moderate this long-term trend.

The brief’s finding that the ACA will have little overall effect on ESI coverage is similar to the findings of the Congressional Budget Office and runs counter to some predictions of a major decline in ESI because of the ACA.