Employer penalties do not drive coverage
On Tuesday, the Obama administration announced a 1-year delay in the implementation of employer penalties associated with large employers (50 or more workers) who do not offer affordable coverage to their full-time workers (30 or more hours per week). Our prior analyses show these penalties are not the driving force behind the ACA’s coverage expansions. Nor are the penalties a significant source of federal revenue. Contrary to some initial reactions, the employer responsibility requirement is not a critical factor in meeting the goals of the law.
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 coverage 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.
Cubicles photo from Flickr user Adam Fagen (CC BY-NC-SA 2.0).