Small increases to employer premiums could shift millions of people to the exchanges and add billions to federal outlays

Abstract

The Affordable Care Act will expand insurance coverage to more than twenty-five million Americans, partly through subsidized private insurance available from newly created health insurance exchanges for people with incomes of 133-400 percent of the federal poverty level. The act will alter the financial incentive structure for employers and influence their decisions on whether or not to offer their employees coverage. These decisions, in turn, will affect federal outlays and revenues through several mechanisms. We model the sensitivity of federal costs for the insurance exchange coverage provision of the Affordable Care Act using the nationally representative Medical Expenditure Panel Survey data set. We assess revenues and subsidy outlays for premiums and cost sharing for individuals purchasing private insurance through exchanges. Our findings show that changing theoretical premium contribution levels by just $100 could induce 2.25 million individuals to transition to exchanges and increase federal outlays by $6.7 billion. Policy makers and analysts should pay especially careful attention to participation rates as the act's implementation continues.

Keywords: Employer-Based System; Financing Health Care; Health Reform; Health Spending.