ACA Impact on Business

A report from the Urban Institute looks at the effect of the federal health reform law on business.   (Urban Institute Report)   In examining the report, keep in mind that the Urban Institute was a supporter of the law and that the analysis is done using a “model”, always a dangerous method of analysis since it is difficult to check the accuracy of assumptions and inputs.  In any event, the report looked at what the effect on employment-based health care coverage and associated costs would have been in 2012 if all the law’s mandates, penalties, subsidies, taxes and credits were in place.  According to the model, total employer-sponsored health coverage would have increased from 151.5 million to 155.6 million people, or 2.7%, with the largest increase in small firms with under 100 employees.  Employer spending on coverage would have grown at a similar rate, 2.2%, from $553.4 billion to $565.8 billion.  It is unclear, however, what assumptions the model is making about insurance premiums and self-insurance costs, particularly in regard to provider price increases, which tend to drive those premiums and costs higher.

For small businesses with less than 50 workers there are no penalties, but for these businesses and other small businesses up to 100 employees there are premium tax credits.  The report’s analysis shows that for these businesses, costs per person of coverage would decline by 7.3% and spending for the group as a whole by 1.4%, largely driven by “efficiencies” in the insurance market and tax credits.  Not sure what efficiencies they are referring to, since the most efficient thing about the small group market is the way brokers and agents take commissions out of it.  For large business, those with more than 1000 employees, costs per person are largely unchanged, although total spending would increase by 4.3%, largely accounted for by enrollment increases.  Those mid-sized employers in between these two groups would see the greatest effect, about a 9% overall cost increase, largely due to penalties or expanding coverage for currently uncovered workers.  With all due respect to the authors, the odds that this report reflects what will really happen to employers’ costs when the law is fully implemented in 2014 are about zero, largely because premiums are likely to soon rise more rapidly again as providers continue to consolidate and raise prices.