The reason why Bosses Won’t End Offering Health Care Coverage

Critics of the Economical Care Act argue that the law really encourages
businesses to quit providing health insurance coverage by imposing a
penalty on large employers whose workers receive tax-payer subsidies
within the state-based exchanges. Considering that the penalty is lower
compared to cost of providing benefits, bosses could have an incentive
to dump their personnel into the exchanges, increasing the costs to
taxpayers, the critics say.
But other health economists have long said that this kind of evaluation
— advanced by Douglas Holtz-Eakin and others — misses the complexities
involved in employer decision making and today Linda Blumberg, Matthew
Buettgens, Judy Feder and John Holahan of the Urban Institute are out
with a new review describing why companies would be discouraged to dump
their workers:
The bottom line is that many workers' firms will be dominated by workers
who'll get greater benefits and, through the tax system, better
financial aid through employer provided coverage than through newly
created insurance exchanges. The strength of employee choices may be
difficult to read in the short term, and some employers may find quick
profit in benefit reduction as markets adapt to new circumstances. But
over time, protection cutbacks inevitably would make the workers that
employers most prefer to keep worse off, and if those workers desired
employment elsewhere as a result then the firm could be worse off as
well. It is therefore unlikely that many employers currently providing
insurance coverage will change their decisions to offer it.
[...]
In general, if an employer drops coverage, better-paid workers will be
worse off. Even if they receive higher cash wages to offset the loss,
they will face taxes on these wages which, keeping overall compensation
at the level of their value to the firm, will not be offset. Exchange
benefits will also be unattractive, relative to employer provided
benefits, for better-off earners. Exchange-based subsidies are limited
to plans with an actuarial value no greater than 70 percent, a value
much lower than provided by the typical ESI plan (85 percent).
The whole report is worth reading here. Generally, my take is that we've
seen fluctuation in the employer health insurance market before reform
and will continue to see changes as we move through implementation. But
employers, who are very interested in controlling their health care
costs, will likely continue to offer insurance for the forseeable future
and when they don't, Americans will have a sensible and affordable
options to fall back on.