New Study Warns of Affordable Care Act’s Billion-Dollar Misunderstanding

Research Finds Millions More Could Be Insured in “Exchanges”—Even if Employers Don’t Drop Coverage
  • Publication Date: July 2011

  • Topics: Health Care

Today, the Employment Policies Institute (EPI) released a new study of the Affordable Care Act (ACA), by Richard V. Burkhauser (Cornell University), Sean Lyons (Cornell University) and Kosali Simon (Indiana University). The authors find that, as a consequence of poorly-understood factors in the new law, millions of employees may willingly switch from an employer plan to a government subsidized insurance exchange–even if their employer continues to offer coverage.

“If you like your plan, you can keep it—but, if you meet certain income requirements, you may not want to,” said Cornell University economist Richard Burkhauser. “The cost of that decision for taxpayers would be significant.”

A policy brief summarizing all of the study’s key findings is available here: http://epionline.org/downloads/110715_EPI_AnOfferYouCantRefuse_PolicyBrief_Final.pdf.

“In their original analysis of the healthcare law, the Congressional Budget Office (CBO) predicted that few income-eligible employees currently insured through their employers would take advantage of the generous subsidies in the insurance exchange,” Dr. Burkhauser continued. “But our study finds the opposite: not only is it in the interest of millions of employers to adjust their benefit packages so that employees are eligible to enter the exchange, but we predict that large numbers of those employees will freely chose subsidized exchange coverage.”

The authors also single out the ACA’s “affordable coverage” provision, the meaning of which still isn’t well understood more than a year after the law’s enactment.

“I suspect the average Congressperson believes the healthcare law levies a fine if a large employer doesn’t provide affordable coverage for employees and their families,” Dr. Burkhauser continued. “I thought the same thing—until I spoke with the people who analyzed the law’s cost.”

The authors report that the Congressional Budget Office (CBO) and the Joint Committee on Taxation read the law as requiring employers to make coverage affordable for employees alone. This definition – and its possible revision – holds significant implications for workers whose employers provide them (but not their family members) with affordable coverage, since that offer disqualifies their family members from accessing subsidized exchange coverage.

Using the CBO’s narrow definition of affordable coverage, and assuming employees don’t respond to the incentives created by exchange subsidies, the authors find that approximately ten percent of private sector workers ages 17-64 (9.8 million people) would receive coverage in the insurance exchange.

But when the authors redo their model so that employers and employees work together to take advantage of exchange subsidies, the number of the employees insured in the exchange rises by 4 million. When the broader definition of affordable coverage is used, the changes are even more dramatic: employer-sponsored coverage drops to 66 percent from its current level of 75 percent, with over 21 million people now receiving insurance in the health care exchange.

Dr. Burkhauser concluded; “Whichever interpretation holds, the consequences for Americans are significant: Either the dependents of millions of workers will be stuck in a no-man’s-land without affordable coverage through the worker’s employer or the exchange, or taxpayers will be stuck with as much as $50 billion more in gross subsidy costs than originally projected.”