Thursday, November 7, 2013

People on the group market to lose coverage

There's been a lot of news about people losing their individual coverage as a consequence of the ACA. But the bigger news coming will be people losing group coverage through their employer.

The ACA pays for much of the health costs of people (under 400 percent of the federal poverty line, which is about half of America) who will get insurance through the ACA's exchanges, but ONLY if their employer (or family member's employer) is not offering them affordable coverage. It's like paying employees to work somewhere that does not offer coverage.

Because employers cannot cherry pick which employees are offered coverage, you might say that poses a dilemma for employers:
  • drop coverage to help their employees below 400% FPL get the subsidies,
  • or keep it to help their higher income employees keep their employer coverage (and the tax advantages that go with it) and to avoid the ACA's employer mandate penalty.
Competitive markets create compensating differentials to eliminate such dilemmas, but let's ignore the economics for today.

There are massive loopholes in the ACA so that coverage can be retained for employees who want employer coverage, and dropped for those who do not:

  • Put early retirees on the exchanges. Former employees do not have to be offered the same coverage as current employees (the offer of coverage might not even be that relevant because I don't think that the ACA premium tax credits obligate people to accept coverage from a former employer). Early retirees many times have little or no wages after they retire, which can help keep their income below 400% FPL. Earlier retirees are older than most of the workforce, so the subsidy they'd get is large compared to other families with the same income. As of 2011, there were about 2 million early retirees on their former employer's plan and below 400% FPL. More would adjust the timing of their income to get below 400% FPL if they were paid to do so, as they will be next year. Including their dependents, here alone we get roughly 3 million people who could lose employer coverage this way.
  • Implement waiting periods. New hires do not have to be offered coverage right away. It has to be offered within 90 days plus any other eligibility hurdles the employer has (e.g., complete a training program). New hires tend to be lower income people, plus the eligibility hurdles do not have to be uniform by occupation, so in this way employers can have people who are both on the payroll and getting subsidies on the exchanges, yet nonetheless no employer penalty accrues and higher income people can be covered by the employer from day one. At any point in time, JOLTS says that 12+ million people have been hired in the last 90 days. Their propensity to have employer coverage is probably lower than the average worker (a significant majority of employees can get coverage fromt their employer), but still there easily could be 3 million workers here, plus another 3 million dependents, at a point in time during which the ACA is fully operational, who would have been covered by the employer if it weren't for the ACA.
  • Require employees -- or even invite them at their option -- to work part time without employer coverage rather than working full time with it. In many cases, employees can make more working part-time. In other cases, they would make just a little less, while working a lot less. 3 million workers is a conservative estimate of how many people will be moved in this way from jobs with coverage to jobs without coverage. Add 2 or 3 million dependents to get 5+ million people moved off of employer coverage this way.  A combination of the part-time and waiting-period options is to declare a new employee as "variable time," so that he has to be employed through the end of the calendar year before it is determined whether he is a full-time employee and thereby eligible for employer coverage.
  • Drop spouses from employer plans.  I'm not sure how common this will be, and how many of the dropped spouses will be able to get coverage from their own employer (would that count as "losing your coverage"?)
  • Adjust the affordability of coverage. Require employees to pay most of the premium (with pretax dollars) for employer coverage and compensate them with additional salary. This approach will free the low-income employees to receive exchange subsidies, although for large employers it will generate a $3,000 penalty for each such employee-year. Burkhauser and coauthors estimate that a couple million workers, plus dependents, would lose affordable coverage that way (they would still have coverage, but it would not be affordable by the ACA's definition).
  • Unemployed people who use the exchanges rather than COBRA.  More than a million unemployed workers are on their former employers health plan and have incomes below 400% of the federal povertly line.  People who could use COBRA are still eligible for exchange subsidies.  Including dependents, that's about 2 million people who could move from employer coverage to exchange plans, although technically they wouldn't be "losing" their coverage.

As far as I can tell, the CBO has not considered all of these adjustments, let alone considered the additional economic adjustments I left out here, yet even they admit that 8-9 million people at a point in time will not have any employer coverage as a consequence of a fully-implemented ACA.

I am still working on my own estimate, but the real number has to be in the 20+ million range, plus 2 million or so people who would have chosen to stay on an employer plan through COBRA.

Of course, the American taxpayer - regardless of whether he has employer coverage -- will pay for these group coverage loses that were promised to not occur. Moreover, this is not an issue of the adequacy of the group coverage that's lost (although there are millions of separate and additional instances where group coverage will be lost because it is supposedly inadequate), it simply that the ACA induces market participants to tolerate coverage loses in order to, at taxpayer expense, reduce the monetary loses they experience as a consequence of the law.

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