Are CBO Estimates on the Future of Employment-Based Coverage Under PPACA Moving Toward the Herd Mentality?
Trends in employment-based coverage start with small numbers.
The Congressional Budget Office (CBO) recently reported that it had revised its estimates on the net number of people with employment-based health coverage downward in 2016. In March 2011, CBO reported that about 1 million fewer people would have employment-based health coverage due to enactment of the Patient Protection and Affordable Care Act (PPACA), but in March 2012 it revised that number to about 4 million. CBO also estimates there will be about 2 million fewer estimated enrollees in insurance exchanges, which are to take effect in 2014.
The net reduction in the number of people with employment-based coverage—about 2 percent of the total health insurance market—is actually a function of total gains and losses in coverage. As the CBO notes in a footnote for its 2019 estimates, as a result of PPACA, about 14 million fewer people are expected to have employment-based coverage (about 11 million individuals will lose access to employment-based coverage, and another 3 million will decline employment-based coverage and enroll in health insurance from a different source), while about 9 million will newly enroll in employment-based coverage under PPACA.
The Herd Mentality
A report from Avalere assessed the validity of differing estimates of the effect of PPACA on employment-based coverage. Its analysis concluded that the employment-based market will be fairly stable after 2014, when key PPACA coverage provisions go into effect. However, the most important statement in the report may be the following:
“While near-term changes in aggregate ESI [employer-sponsored insurance] rates are unlikely, longer-term erosion—over 10 to 20 years—is possible under certain circumstances. … if a few [emphasis added] large employers drop coverage after 2014, others could follow in a “me too” effect. Both of these scenarios are difficult to model, but should be considered.”
Various surveys suggest that a significant number of employers will follow the market:
- In a June 2010 survey, Fidelity found that 26 percent of small employers and 36 percent of large employers would seriously consider eliminating health care if other employers did.
- In September 2010, HR Policy Association reported that 80 percent of chief human resource officers surveyed said that other companies moving away from health coverage would influence their decision to offer coverage.
- A June 2011 survey of very large self-insured employers by the Benfield Group found that 21 percent were highly likely and 49 percent somewhat likely to drop coverage if their industry competitors stopped offering health benefits.
The
trend in sentiment in these surveys may be reflected in a recent Towers
Watson/National Business Group on Health Employer Survey that found
that between 2007 and 2011, the percentage of employers reporting that
they were highly confident that they would be offering health benefits a
decade later fell from 70 percent to 23 percent.
The CBO seems to capture such a dynamic in its sensitivity analysis. CBO indicates that variation of estimates in employment-based coverage ranges from a net loss of 20 million to a net gain of 3 million by 2019. In fact, a number of surveys have also found that a small number of employers plan to drop coverage in 2014 or thereafter (see “Understanding Employer Surveys That Address the Future of Employment-Based Health Coverage,” online here.
As noted earlier, the most important take-away from this may be a reminder that trends in employment-based coverage start with small numbers. The movement away from defined benefit pension plans to defined contribution (401(k)-type) retirement plans did not happen overnight: It began with a mere 1 percentage point drop, between 1980–1981. Neither did the movement to managed care, to consumer-driven health benefits, nor the movement away from providing retiree health benefits.
These changes took years, some would say decades, to play out. There is no reason to believe that 2014 will look much different from 2013 or 2011 in terms of whether or not employers offer health coverage.
What may be more important is the percentage of employers offering health coverage in 2020, or 2025.