The Slow-Motion Unraveling of the ACA

Yuval Levin warns that the Obama administration’s recent moves to delay or relax reporting requirements for employers and individuals under the Affordable Care Act will greatly increase the risk of fraud. He also suggests that the Obama administration is taking a calculated risk to prevent a nightmare scenario in which the exchanges are too small to constitute stable insurance pools: 

Opening the door wide open to fraud could well increase the number of people in the exchanges, but it will also make that number far less meaningful—casting a shadow over whatever is achieved by the enrollment effort set to launch in the fall. It will also, needless to say, increase the cost of the exchange subsidies. The administration is clearly worried enough about enrollment to take that risk and bear that cost. It seems to be operating under the assumption that the way to secure Obamacare’s future is to get as many people as possible into the system and receiving subsidies. Maybe they’re right, and maybe they’re wrong, but they certainly seem increasingly desperate.

The strongest counterargument that comes to mind is that the threat of future enforcement will contain the number of fraudulent claims, but this is hardly a guarantee. And last week employer mandate and income verification announcements aren’t the only signs that the ACA is on shaky ground, as Peter Suderman reports. I’m obviously inclined to agree with Yuval and Peter, so I was struck by a more optimistic take on the employer mandate delay from Linda Blumberg, John Holahan, and Judy Feder of the Urban Institute, released before the income verification announcement:

As we have explained elsewhere, there is very little in the ACA that changes the incentives facing employers that already offer coverage to their workers, and fully 96 percent of employers with 50 or more workers already offer today. Competition for labor, the fact that most employees get greater value from the tax exclusion for employer sponsored insurance than they would from exchange-based subsidies, and the introduction of a requirement for individuals to obtain coverage or pay a penalty themselves, are the major factors that will keep the lion’s share of employers continuing to do just what they do today with no requirements in place to do so.

Lessons from the Massachusetts health reform experience are instructive here as well. The Massachusetts law has substantially lower penalties for non-offering employers than does the ACA – the Massachusetts Fair Share Requirements is a maximum of $295 per worker, compared to a potential ACA maximum of $2,000 per worker. However, nominal as those assessments are, employer-sponsored insurance actually increased post-reform, as our analyses done prior to implementation predicted. This increase in employer based coverage was the consequence of individuals facing a new requirement to obtain insurance coverage and deciding their preferred source of coverage if they had to get it was their employer.

Throughout the development and the implementation of the ACA, there has been more worry than warranted that employers will drop insurance coverage. The current furor over the delay of the employer penalties appears to be more of the same. With or without the penalties, most people will still get coverage through their employers; the fundamental structure of the law will remain intact.

One reason employer-sponsored insurance might increase is that the mandate might lead some non-trivial number of employees who have decided to waive employer-sponsored insurance to ask for it. So perhaps Yuval, Peter, et al. are needlessly concerned. It is worth noting, however, that while 95.7 percent of private employers with 50 or more workers offer health insurance today, it’s unclear if the insurance that is currently offered by these firms would be considered acceptable under the guidelines established under the Affordable Care Act. The share of private employers that offer private insurance increases with the number of workers — 0-10 workers (28.3 percent), 10-24 (58.4 percent), 25-99 (78.1 percent), 100-999 (93.3 percent), and 1000+ (99.5 percent). The 25-99 category seems to be most salient, as it captures firms crossing from 49 to 50 employees.

Firms with more than 50 workers that rely heavily on part-time employers are much less likely to offer health insurance than those that rely primarily on full-time employees — less than 25 percent full-time (82.7 percent), 75 percent or more full-time (97.4 percent). And among firms with more than 50 workers that employ 50 percent or more low-wage employees, 91.5 percent offer health insurance as compared to 98.1 percent of firms that employ 50 percent or fewer. I was most struck by the age of firm numbers. While 97.7 percent of firms with more than 50 workers that have existed for 20 years or more offer health insurance, the same is true of only 70.1 percent of firms with more than 50 workers that are less than five years old. The fact that young firms are much less likely to offer health insurance than old firms suggests that there is a cultural shift taking place, and that as younger firms replace older firms through churn and attrition, employer-sponsored insurance will fade with it. The salient question is whether enforcement of the employer mandate would make a difference. Back in May, Christopher Weaver and Anna Wilde Mathews reported in the Wall Street Journal that at least some firms were embracing so-called “skinny” health plans as a way to avoid having to pay the penalty under the employer mandate. The article also raises so-called “mini-meds”:

Firms now offering low-cost policies known as mini-meds, generally plans that cap benefits at low levels, could favor the tactic. Companies sought federal health department waivers to cover nearly four million with mini-meds and other similar plans, which will be barred next year. Some employers are “thinking of this as a replacement for the mini-med plan,” said Tracy Watts, national leader for health-care reform at Mercer, a consulting unit of Marsh & McLennan Cos. [Emphasis added]

Blumberg, Holahan, and Feder cite data concerning the share of employers with more than 50 workers that offer health insurance, but it’s not clear that these firms offer health insurance to all of their employees, including part-time and low-wage employees, nor is it clear how many of them offer mini-med plans that will be barred under the Affordable Care Act. This is all salient information. Moreover, while most employees might get greater value from the tax exclusion for ESI than they would from the exchange-based subsidies, this isn’t true of low-wage employees with low levels of federal income tax liability. All that said, I hope Blumberg, Holahan, and Feder are right and that recent decisions made by the Obama administration won’t greatly increase the cost of the ACA. 

I have further thoughts on the new ACA news in my new Reuters Opinion column.

P.S. In December of last year, Nirmita Panchal, Matthew Rae and Gary Claxton provide helpful information regarding employer-provided coverage across firms:

In addition to the percentage of firms that offer benefits, an important component of coverage is the percentage of workers at those firms who are covered by benefits. Either because some workers are not eligible or they choose not to accept the coverage, a portion of workers at firms which offer health benefits are not covered by health benefits. While the percentage of covered workers at firms offering benefits is similar between small and large firms (61% and 62%, respectively), the lower offer rate at small firms means a smaller percentage of workers are covered. Forty-seven percent of workers at both offering and non-offering firms are covered by health benefits at small firms compared to 62% at large firms.

In addition to lower offer and coverage rates, small firms are also less likely to offer health benefits to part-time workers than are large firms (28% vs. 45%). A similar pattern is seen for temporary workers (2% in small firms vs. 6% in large firms). There is a great variability in the number of services covered by health plans across firms. In regards to separate dental and vision benefits, small firms are far less likely to offer or contribute to such plans compared to large firms. For example, 89% of large firms offer dental benefits compared to 53% of small firms. Likewise, sixty-two percent of large firms offer vision benefits, while only 27% of small firms do so. [Emphasis added]

These numbers suggest that the employer mandate, coupled with ACA regulations concerning what constitutes an acceptable affordable insurance option, might have a very significant impact on the labor market.

Reihan Salam — Reihan Salam is executive editor of National Review and a National Review Institute policy fellow.

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