Employer-Sponsored Insurance under Health Reform: Reports of Its Demise Are Premature

Abstract

Some have argued that the Patient Protection and Affordable Care Act 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. A new study finds that overall ESI coverage under the ACA would not differ significantly from what coverage would be without reform. The average employer contribution per person covered by ESI would decrease by nearly 8 percent for small firms and would decrease slightly for larger firms. Total employer health care spending would be 0.6 percent lower under the ACA.

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Introduction

Since the enactment of the Patient Protection and Affordable Care Act in March 2010, many people, particularly in the business media and advocacy groups opposed to the ACA, have argued that health reform would erode employersponsored insurance by providing incentives for many employers to stop offering coverage. Using the Urban Institute's Health Insurance Policy Simulation Model, we estimate how the Affordable Care Act would affect employer-sponsored insurance and employer health care costs. We separate the effects on businesses of different sizes. Small businesses are defined here as those employing 100 or fewer workers. These employers would be eligible for new employer-sponsored insurance exchanges (or SHOP exchanges) under the ACA. Medium businesses are those employing 101 to 1,000 workers, and large businesses are those employing more than 1,000 workers.

To investigate the effects of health reform on ESI, we simulate the ACA as if it were fully implemented in 2010 and contrast the results with the prereform HIPSM baseline results for 2010. We also present HIPSM estimates on how ESI coverage would have changed over time without health reform, given changes in economic conditions and long-term health care cost growth.

Some have claimed that the ACA will greatly increase health care costs for employers and that many employers would drop ESI coverage as a result. Our results show the opposite— the ACA has little effect on overall ESI coverage and overall employer spending on health care would be slightly lower under the ACA. We discuss the arguments for why some employers might stop offering ESI after reform and provide reasons why we believe claims that ACA would cause major declines in ESI coverage are exaggerated.

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