Filed Under:Health Insurance, Individual Health

Why would employers keep health benefits?

U.S. Capitol (AP photo/Jacquelyn Martin)
U.S. Capitol (AP photo/Jacquelyn Martin)

A witness who generally supports of the goals of the Patient Protection and Affordable Care Act of 2010 (PPACA) argued today in Washington that most employers that now offer health benefits will continue to do so once PPACA takes full effect.

Linda Blumberg, a health policy specialist at the Urban Institute, rejected the arguments of PPACA critics who contend that the law will burden employers and undermine employer-sponsored health benefits.

Blumberg, who refers to the law as the ACA, said at a hearing on PPACA and jobs organized by the House Energy & Commerce Committee that the law could give many employers some benefits cost relief, by slowing the growth in the underlying health care costs.

"Except for a cost increase to mid-sized employers, due largely to enrollment increases, the ACA benefits rather than burdens small employers who want to provide health insurance," Blumberg said, according to a written version of her testimony posted by the committee.

Urban Institute simulations show that employer premium spending per person insured could hold steady at about $3,650, Blumberg said.

Large employers could end up spending about 4.3 percent more in total, but only because the number of people they cover is likely to increase, Blumberg said.

At small employers, new PPACA health insurance tax credits should help reduce per-person costs by 7.3 percent at employers that choose to offer coverage, and by 1.4 percent all small employers, Blumberg said.

Roughly 5 percent of the employers with 101 to 1,000 employers could end up paying the PPACA penalties to be imposed on "large employers" that fail to provide health benefits, and penalty payments and expanded enrollment could increase health benefits a total of about 9.5 percent at those midsize employers, Blumberg said.

But, even if some employers' health benefits costs increase as a result of PPACA, Urban Institute analysts believe that the key to the effect of PPACA on employer plans will be whether most workers' employers think the employees prefer traditional PPACA plans to the available alternatives created by PPACA, Blumberg said.

PPACA calls for health insurers to sell all new major medical coverage on a guaranteed-issue basis and will tightly restrict insurers' ability to use personal information other than age and location when setting rates.

"Most workers' firms will be dominated by workers who will receive better benefits and, through the tax system, better subsidies through employer-provided coverage than through newly created insurance exchanges," Blumberg said.

Even if some workers would be better off getting individual coverage through the PPACA exchange system or through the individual health insurance market outside of the exchange system, in most cases, "a competitive labor market will not allow employers to save money by dropping employer-sponsored coverage," Blumberg said. 

"Employers pay workers a combination of wages and benefits at a level equal to the  employee’s value to the firm," Blumberg said. "The market will keep compensation at that level, whether  employers pay a worker’s value only in wages or in some combination of wages and benefits. If, in total, an employer compensates workers less than their value, that employer will lose  those workers to competitors who offer them more. If, alternatively, an employer pays  workers more than their value, the firm will lose money. That means, plain and simple, that in  a competitive market, employers cannot 'come out ahead' by dropping coverage and at the  same time reducing compensation."

PPACA could even help employer plans by, for example, changing Medicare provider reimbursement rules in ways that make hospitals and other providers more efficient, Blumberg said.

PPACA provisions requiring Medicare to experiment with new approaches to paying providers, such as setting up accountable care organizations, also could lead to overall health system changes  that will help hold down employer plan costs, Blumberg said.

Diana Furchtgott-Roth, a health policy specialist at the Manhattan Institute, testified that she believes PPACA will hold down job growth, by increasing costs per employee by as much as 4 percent, and by rewarding employers that convert full-time jobs into part-time jobs with much lower labor costs.

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