Why Employers Are Likely to Drop Health Insurance – A Simplified View


All else equal, employers ‘compete’ for employees with compensation packages of wage + benefits, the primary benefit typically being health coverage

Logically, employers will seek to produce compensation packages of net wage and health coverage as efficiently as possible; and, will choose between ESI- and HIE-based approaches based largely on which approach delivers a given level of wage and health coverage at the lowest cost

For employees with household incomes in the range eligible for subsides on the HIEs (133% – 400% FPL), employers’ total cost (including tax effects, penalties, and any added wage given to employees to cover their added premium costs) of delivering family and ‘single + one’ health coverage is lowered (relative to traditional ESI) by shifting employees to HIEs

The exception is the market for single coverage, where ESI-based compensation packages are more efficient across the majority of subsidy-eligible income ranges

We conclude that HIE-based packages are the most efficient choice for employers with subsidy-eligible employees that desire family coverage, ‘single + one’ coverage, or no coverage. These groups encompass roughly 62% of employees, 53% of enrollees, and 73% of premiums paid

The preceding assumes that employees are indifferent to HIE v. ESI at a given level of net (of taxes and health premiums) wage and actuarial value (AV) of health coverage; in fact we believe that all else equal employees should prefer HIE-based compensation packages, as these packages offer a far greater variety of coverage options (in terms of both the source and generosity of coverage). Younger / healthier employees in particular should prefer HIE-based packages, as these groups are likely to place greater relative value on the opportunity to purchase less generous (or even no) coverage than is typical of ESI-based compensation packages, freeing net wage for other uses

We further conclude that, absent substantial (and presently unforeseen) changes to either PPACA or the federal tax code, employers with large populations of subsidy-eligible employees will shift these employees onto the HIEs

A large-scale ESI to HIE shift implies lower overall levels of coverage (as former ESI recipients choose less generous or no coverage on the HIE) than would be expected if ESI were ‘stable’. 2014+ expectations for system-wide volume gains may not be met; and, 2014 may bring less relief than expected to hospitals’ uncompensated care burden. Federal budgets for HIE subsidies are too low

We favor HMOs on the belief that near-term increases in MLRs are unlikely; though we recognize that an ESI to HIE shift in 2014 may mean fewer contracts and lower average contract sizes than expected, as well as operating margin pressure as enrollee mix shifts from large groups under ESI to individuals on the HIEs

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