As indicated in our previous post, the Congressional Budget Office and the Joint Committee on Taxation have been examining the impact of the Patient Protection and Affordable Care Act (“Affordable Care Act” or “Obamacare”) on employer-provided health insurance, and the impact of that upon the costs of the Act.  They have now released a summary of their study, which finds that the more employers dump their employees into the Exchanges, the less costly the Act will be in terms of adding to the federal deficit.  The reason is that the study assumed that all the employers who stop providing insurance would add the equivalent amount to employee pay.  Therefore, the employers would pay more payroll tax and the employees would pay more payroll tax and more income tax, thus overcoming the increase in subsidies provided through the exchange.

The report summary states the key conclusions as follows:

CBO and JCT’s Key Findings

• CBO and JCT continue to expect that the ACA will lead to a small reduction in employment-based health insurance. That projection arises from the agencies’ modeling of the many changes in opportunities and incentives facing employers and employees under the ACA, and it is consistent with the findings of other analysts who have carefully modeled the nation’s health insurance system.
• 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.

The “small reduction” in employees provided with employer-based coverage is 3 to 5 million.  In some scenarios modeled, the reduction was a total loss of employer-based coverage of 20 million people.  Again, the assumptions in the study were that the lost benefit costs would be replaced by salaries and wages:

If a firm chose not to
offer insurance coverage under the ACA, some of its workers and their families might enroll in Medicaid or CHIP or be eligible to receive subsidies through the insurance exchanges; as a result, the cost of those programs would increase. At
the same time, the reduction in that firm’s compensation to workers that was
provided in the form of health benefits would generally be offset by an increase in
the compensation it provided in the form of wages and salaries. Because health benefits are generally not taxed but wages and salaries are, that shift in the
composition of compensation would raise federal revenues. In addition, the federal government would generally receive penalty payments from the employer and from any employees who ended up without health insurance.

It is also worth noting that the issue for this study is the effect upon the deficit, not the cost of the provision of coverage.  It is arguable that there could be deficit offsets in the form of increased taxes, but there can be no dispute that having billions of premium dollars of coverage no longer paid by employers and then provided through the exchanges, with subsidies, will affect the cost of the Affordable Care Act.  Even as to the deficit, if employers (especially small employers not subject to employer penalties) simply get out of the health care business without increasing their pay rates the anticipated offsets for higher income and payroll taxes simply will not occur and the deficit will increase.