Sunday, May 12, 2013

Substitution between Exchange Plans and Employer Plans

I received this question:

Do you believe the incentive effects related to the ACA will be more limited since: (i) they are more difficult to value/understand as compared to an unemployment check and (ii) the impact is less direct and comprehensive.

My reply:

You have hit on a key, and so far uncertain, economic force in the ACA. At one extreme, people may perceive the exchanges [the method of ACA subsidy delivery] to be something like Medicaid -- far inferior from the coverage they get from an employer. At the other extreme, they may view the coverage as quite similar, and then it becomes a question of which approach saves them money.

Note that U.S. Senators and Congressman will be using the exchange plans, so perhaps they will be pretty nice plans, which is why I am inclined to expect the latter case. But I am examining the former case too because (a) it makes more economic sense for Obamacare to be run that way (see also and (b) Massachusetts ran their reform that way.

RE difficulty to value and understand, note that employer insurance is complicated, but employers already have HR personnel in place to assist employees in choosing plans, getting enrolled, and getting reimbursed. When employers drop their insurance, I expect that they will use these personnel to assist their employees with the exchanges too. Moreover, the federal government is devoting advertising dollars and enrollment assistance, so that the exchanges may ultimately enjoy a competitive advantage over employer plans.

Also note that the ACA’s employer and individual penalties are economic equivalents of unemployment assistance from a labor supply point of view, regardless of how people perceive exchange plans, because workers will be subject to the penalties but unemployed people will not.

With that said, I expect a transition period during which time the exchange plans are perceived to be inferior and the labor market impacts of the ACA are muted.

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