CBO: Big Drop in Employer Provided Insurance Could Decrease the Deficit
The Congressional Budget Office has looked at the potential impact of companies choosing to drop their employee provide health insurance as a result of the Affordable Care Act. According to its analysis if a large number of companies stop providing health insurance benefits it should cause the ACA on net to decrease the deficit even further. From the CBO:
Significant changes in some of the key assumptions underlying the estimates lead to somewhat higher or lower projections of the change in employment-based health insurance and the budgetary impact of the ACA. However, differences in the projected change in employment-based health insurance tend to have limited effects on the projected budgetary impact of the law because changes in the availability and take-up of such insurance affect the federal budget through several channels that are partly offsetting. Indeed, one scenario examined here shows that larger reductions in employment-based health insurance than expected by CBO and JCT might lower rather than raise the cost of the insurance coverage provisions of the ACA.
In CBO and JCT’s judgment, a sharp decline in employment-based health insurance as a result of the ACA is unlikely and, if it occurred, would not dramatically increase the cost of the ACA.
In contrast, the scenario with the largest reduction in employment-based coverage actually lowers the cost of the ACA to the federal government relative to the baseline projections because the extra costs for Medicaid and exchange subsidies are more than offset by the increased revenues resulting from higher taxable compensation among workers who receive higher wages in lieu of health benefits.
It is the conclusion of the CBO that even though having companies dropping insurance coverage would result in the government spend a lot more on Medicaid and exchange subsidies, the government would likely generate even more money in new tax revenue.
I personally have some problems with the basic assumptions underlying this analysis, mainly the claim that every dollar provided to employees as a health insurance benefits results in an equal value reduction in salary. This is though the position of the CBO and this position has been baked into every CBO report about the health care law.
The important thing for policy decision going forward is that the CBO consider have a very large number of employers dropping health care coverage as result of the ACA to be a possible deficit reducer and the CBO is seen as the ultimate arbiter in Washington. Given Congress’s selective obsession with the deficit, this conclusion could have some real implications for potential changes to health care policy in the future.