October 18, 2019

Today’s Economist: Casey B. Mulligan: Patterns of Health Insurance Changes


Casey B. Mulligan is an economics professor at the University of Chicago. He is the author of “The Redistribution Recession: How Labor Market Distortions Contracted the Economy.”

A number of industries can expect big changes in employee health insurance in the next year or two, while others will continue with business as usual.

Today’s Economist

Perspectives from expert contributors.

Beginning next year, states and the federal government intend to create opportunities for families to purchase health insurance, separate from their employers, through insurance “exchanges” in the states. Insurers and the federal government will heavily advertise the new plans. Most important, middle- and low-income families may qualify for valuable federal subsidies that will serve to reduce premiums and out-of-pocket health costs.

To qualify for subsidized exchange plans, workers cannot be offered affordable insurance by their employers. Paradoxically, employers will create subsidy opportunities for their middle- and low-income employees whenever they fail to offer health insurance.

On the other hand, an employer dropping its health insurance next year will put its high-income employees in a tough spot, because they will have to buy insurance on their own without the tax advantages they had in the past by obtaining health insurance through their employer. As a result, employers with relatively many high-income employees will be under pressure to keep their insurance, whereas an employer of middle- and low-income employees may find them asking for health insurance to be dropped from the employee benefit menu.

Administrative costs, rising premiums and other costs have already made a number of employers lukewarm about health insurance, but they offered it in order to attract employees who do not care to be uninsured or to end up on Medicaid. The new insurance opportunities that become available next year may give their employees enough of an alternative that the lukewarm employers can drop their plans.

Both of these situations are closely correlated across industries, which leaves me to suspect that we can readily predict the industries that will retain employer insurance and predict those that will drop whatever health benefits they currently have. The scatter diagram below displays Bureau of Labor Statistics data on several industries according to the percentage of their employees in families above three times the poverty line (horizontal axis) and the percentage of employers offering health benefits as of March 2012 (vertical axis).

Bureau of Labor Statistics

I measured employees relative to three times the poverty line because that is the family income threshold beyond which the new exchange subsidies are less valuable than the income tax preference for employer-sponsored health insurance.

Industries like colleges, utilities and banking almost always offer health insurance, and about 80 percent of their employees will be getting a better deal on employer health insurance than they would from the exchange plans because their families are above three times the poverty line. For these reasons, I am confident that these industries will continue to offer health insurance to their employees in much the same way that they have in the past.

A couple of industries like “accommodation and food services” (i.e., restaurants), leisure and hospitality, administrative and waste services, and construction already have a mix of employers in terms of their health insurance offerings, so it would not be unusual from an industry perspective for those that currently have health plans to drop them during the next couple of years.

Moreover, the diagram shows how 45 to 60 percent of their employees do not come from families above three times poverty and therefore will have a significant federal health insurance subsidy waiting for them as soon as their employers drop coverage.

Employers that do not offer health insurance may be subject to penalties, but the penalties are not levied based on part-time employees, or levied on small employers, and even the penalties levied will be less than the subsidy opportunities created by an employer of middle- and low-income people that fails to offer health insurance.

For these reasons, I suspect that the stories we will hear about employers dropping insurance will disproportionately come from the industries shown in the lower left part of the scatter diagram, which collectively employ about 25 million people. Some employers in these industries have already discussed such plans.

Article source: http://economix.blogs.nytimes.com/2013/05/15/patterns-of-health-insurance-changes/?partner=rss&emc=rss

Bucks Blog: Monday Reading: Drowsy Drivers Pose Major Risks

January 07

Monday Reading: Drowsy Drivers Pose Major Risks

Drowsy drivers pose major risks, health insurers raise some premiums by double digits, plenty of room on Maine’s ski slopes and other consumer-focused news from The New York Times.

Article source: http://bucks.blogs.nytimes.com/2013/01/07/monday-reading-drowsy-drivers-pose-major-risks/?partner=rss&emc=rss

You’re the Boss Blog: For Small Business, Bad News on Health Care Costs Isn’t as Bad

The Agenda

How small-business issues are shaping politics and policy.

There’s bad news from the workplace: as The New York Times reported on Tuesday, the cost of health insurance rose sharply in 2011 after several years of relatively slow growth. According to the Kaiser Family Foundation’s annual survey on employer health benefits, the average premium to insure a family of four grew 9 percent, to just over $15,073. For single coverage, premiums rose 8 percent, to $5,429.

But for small firms, those with fewer than 200 employees, the news was not quite so dire. Yes, the cost of coverage grew more sharply than in 2010, but the increase was lower than that for large companies, or overall. Average premiums rose only 6 percent for family plans, to $14,098. For single coverage, the average cost at small companies was $5,326, again up about 6 percent.

It may seem counter-intuitive that smaller companies have lower premiums than large companies, which presumably have more buying power and lower administrative costs. But the Kaiser research suggests a couple of explanations that will resonate with small-business owners. First, high-deductible health plans, which are cheaper than plans with lower deductibles, claim nearly a quarter of the small-group market, a larger share than at big companies. And small-group plans are less generous than plans at big companies. One striking difference is the size of the deductible the worker must pay before insurance kicks in. At large companies, the average deductible for so-called “preferred provider organization” plans (the most common type of plan at both big and small companies) is $505. At small companies, it is $1,202.

So far, small employers have resisted passing on too much of the increase to their workers. The share of premiums paid by the employer has held fairly constant over the last decade — in 2011, small companies paid, on average, 85 percent of the premium for single coverage and 64 percent for family plans. That’s a higher share than big companies pay for single plans, but a much lower share for family plans.

Kaiser researchers have also found over the last decade that small companies offering coverage are much more likely to shoulder the entire premium cost than large companies — perhaps surprising, given that the burden health care costs place on small businesses in particular is a staple of the health-care reform discourse. Thirty-five percent of small-company workers with single-person plans pay no premium at all. But that number has fallen steadily since 2002, when it was 45 percent. (The comparable figure for employees with family coverage is 14 percent, compared with 18 percent in 2002.)

And fewer small companies even offer health insurance these days. The drop is steepest among the smallest businesses, those with fewer than 10 workers. After a spike in offerings last year that surprised Kaiser researchers, the share of companies that offer health insurance fell to just 48 percent, better than in some recent years but down from 58 percent in 2002. At the same time, the number of employees eligible for insurance who actually accept the offer has fallen, too. Only 78 percent of small-business employees who were offered coverage took it in 2011.

Article source: http://feeds.nytimes.com/click.phdo?i=56e7b1cc47674f739d7170f87ee5319f

You’re the Boss: The Math on Health Insurance

The Agenda

How small-business issues are shaping politics and policy.

Our post last month on the McKinsey Company study that suggested — but absolutely did not predict — that up to 30 percent of employers would shed the health insurance plans they now provide workers in 2014, when the Patient Protection and Affordable Care Act largely takes effect, drew some readers into an interesting discussion. After one reader wondered what prevents those companies from dropping health insurance now, another, adam of Washington, wrote a thoughtful response that is worth reprinting at length. The premium calculator he describes was developed by the Kaiser Family Foundation and allows users to enter demographic data and generate an estimate for how much insurance will cost when purchased on the exchanges created by the health care overhaul. Here’s what adam wrote:

The employee’s desire for health insurance is what’s stopping them from dropping coverage now. Employees don’t want to be left to the individual market with its high premiums, pre-existing conditions limits, after tax premium payments, etc. Employers don’t want to lose good employees because their compensation packages aren’t competitive. But PPACA completely changes that calculation since it gets rid of the disadvantages in the individual market. In fact, the individual market will be the better option for many people. Say that in 2014 your employer offered you a raise that was equal to the employer’s cost to provide you with family plan minus the $2,000 penalty*, in exchange for giving up your employer provided health insurance. Since it’s 2014, there would now be an exchange for you to buy health insurance. Would you take that deal?

Let’s put some real world numbers on it. I’m using this calculator: http://healthreform.kff.org/subsidycalculator.aspx. Say you are 50, married with two kids, make $70,000 annually, and in a medium cost region. Your employer plan costs $16,858 per year, of which your employer pays a fairly typical 75 percent, or $12,643, so your premium share is $4,214. You net $65,786. So your employer says he’ll give you a raise of $10,000 if you forgo employer provided health insurance. The employer pays the $2,000 penalty and pockets the $643 difference. Now you have to get health insurance. You now have salary of $80,000 thanks to that raise. You go to your health insurance exchange and find out that you’re eligible for a premium tax credit of $9,258, so you pay $7,600. You net $72,400. So thanks to the PPACA, your employer can drop insurance, and he’ll be $643 better off and you’ll be $6,614 better off.

That’s why employers won’t drop insurance now, but will in 2014.

If only things were that simple. Permit The Agenda to introduce a few complications.

First, adam has ignored the impact of taxes. Thanks to a quirk of tax law, when an employer pays insurance premiums for an employee, the employee pays no taxes on the benefit. But if the employee were given the cash equivalent of the employer’s premium obligation, that would be taxed as income. So to use adam’s example, the employee who trades his insurance for a $10,000 raise will have to surrender 35 to 40 percent of that in taxes (25 percent federal tax, 7.5 percent for Social Security and Medicare, plus state and perhaps local taxes). So now, that $10,000 is worth only $6,250, and the employee is only up $2,864. Meanwhile, the employer is actually worse off — the extra $10,000 in salary will cost $750 in Social Security and Medicare, so instead of being up $643, it’s down $107.

If our hypothetical employer wanted to come out ahead by $500 (which would save a company with 100 employees $50,000), he’d have to limit the raise to $9,435. This would be worth $5,897 to the employee, who would now be better off by $2,511.

That’s hardly a windfall, but it’s still a pretty good deal, no? Well, maybe, but maybe not. In his comment, adam supposes that the premium costs for insurance purchased on the exchange for any given individual (as estimated by the Kaiser calculator) will be about the same as the premium cost for employer-sponsored insurance. That could well be true, said Gary Claxton, a Kaiser Family Foundation vice president who helped design the calculator, but it depends on how the government interprets one nuance in the law.

The Affordable Care Act requires that insurance purchased on the exchange deliver certain minimum benefits, but it is silent about whether large employer plans will have to meet the same standards, according to Mr. Claxton. The government, he said, will have to address this in the regulations that flesh out the law. If the requirements for exchange plans are more stringent than those for employer plans, they will probably cost more, which would make it harder for the raise an employer offers in place of coverage to meet the cost of buying coverage on the exchange.

Finally, a cash deal that looks good in the first year may turn out to be less generous in succeeding years, according to Mark Combs, a consultant with Gallagher Benefit Services in Mount Pleasant, S.C. That’s because the cost of health care is increasing faster than inflation. “The financial reality is that the costs are still there and are still going up,” said Mr. Combs. “Let’s say you get a 10-percent increase — that’s the rough health care trend right now — then for that person the premium will go up $1,600. And the employer has washed their hands of it — they’re out of the business.”

Few employers seem willing to wash their hands of it yet, said Jody Amodeo, a health care consultant with Thomson Reuters, which advises around 300 large employers on the issue. “Of our clients, none of them have alluded to dropping coverage,” she said. “We’re not seeing 30 percent. We’re not even seeing five percent. We have not heard that from one client.”

“People shouldn’t pretend that they know what’s going to happen with any real degree of certainty, until some of the parameters have been established,” said Mr. Claxton. “The alternative market we’re talking about just doesn’t exist anywhere yet, so we don’t know what it looks like. And we don’t know how much confidence people will have in it.”

*Note from The Agenda: The Affordable Care Act levies a penalty on companies with more than 50 full-time employees if any of those employees receive a government subsidy to buy health insurance on the exchange. The penalty is the lesser of either $3,000 for each employee subsidized by the government or $2,000 for all full-time employees, minus a 30-employee discount.
A second consideration: People with employer-sponsored insurance can pay their share of their insurance premiums with pretax income, by using their flexible spending account. Those who purchase individual insurance have no such option.

Article source: http://feeds.nytimes.com/click.phdo?i=e022829b08ad6e80f9c652ba0076c1a1