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CBO Sees No 'Sharp Decline' in Employer Insurance Under Health Care Law

By Jane Norman, CQ HealthBeat Associate Editor

March 15, 2012 -- An analysis the Congressional Budget Office (CBO) and the Joint Committee on Taxation (JCT) issued Thursday says that most employers will continue to have an economic reason to offer health insurance to their workers after the health care law is implemented.

It says that a “sharp decline” in employment-based insurance as a result of the law is “unlikely,” and even if it occurred it “would not dramatically increase the cost” to the federal budget.

Whether or not many employers will drop their health insurance plans has been a major point of contention between the law’s supporters and opponents. Some business groups have warned that the costs and complications of the law (PL 111-148, PL 111-152) will cause companies to give up on covering their workers. A widely publicized survey by McKinsey & Co. in 2011 said 30 percent of employers would end their coverage. But that survey was criticized, and other analysts predict a smaller effect.

Also Thursday a new study by the Center for Studying Health System Change (HSC) said the job loss caused by the recession has accelerated a long-term trend of fewer Americans having employment-based health insurance. They cited a 10-percentage-point drop in the number of children and working-age adults with coverage through the workplace from 2007 to 2010.

The CBO issued updated projections earlier this week that said that about 3 million to 5 million fewer people will get health coverage through their employers in 2019 through 2022 compared to current law

“Some observers have expressed surprise that CBO and JCT have not expected a larger reduction in the number of people receiving employment-based health insurance” in light of the subsidies that will be offered under the law to consumers buying insurance through the health benefits exchanges, says the analysis.

The CBO/JCT estimates take account of the subsidies. But it also recognizes that the law leaves in place financial incentives for employers to offer coverage and creates new ones, the analysis says. In addition, even under the health care law’s coverage expansion features, many people will not be eligible for Medicaid, the Children’s Health Insurance Program or subsidies, it says.

However, CBO and JCT also note that despite the care the two forecasting agencies have taken to model possible outcomes, “there is clearly a tremendous amount of uncertainty about how employers and employees will respond” to the law.

The analysis, though, comes down on the side of no big shifts. On the basis of both economic theory and evidence, it’s clear that employers put together their compensation packages to attract the best workers at the lowest cost, the analysis says. The fact that many currently offer health insurance to their workers despite the high cost of premiums and rapid growth in costs “shows that many firms continue to find health insurance coverage to be a worthwhile element of their compensation packages,” the analysis says.

Moreover, wages received by workers are subject to individual and payroll taxes, but health insurance benefits generally are not taxed. And employment-based insurance will continue to receive a significant subsidy through the tax exclusion for employer-paid premiums, as well as tax preferences that allow employees to pay their premiums out of pre-tax income, the analysis says.

Two Republican lawmakers used the analysis as a way to reiterate their opposition to the health overhaul law.

“As nonpartisan analysts made clear today, millions of Americans will soon learn the hard way that Washington’s overreach into their health care decisions will result in sharp disruptions to their coverage and their care,’’ said House Budget Committee Chairman Paul D. Ryan, R-Wisc. And Senate Finance Committee ranking Republican Orrin G. Hatch of Utah said the CBO analysis “exposes more of the real costs of the President’s unconstitutional, deeply-flawed health spending law. . . This law keeps getting worse and worse; it needs to be repealed.”

Jane Norman can be reached at [email protected].

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