Kevin Drum is highlighting a point I’ve made before. One of the big reasons for the slow growth in Exchange enrollment is that employer sponsored insurance (ESI) has not collapsed. The Congressional Budget Office had projected for years that millions of people would lose their ESI and go on Exchange. That did not happen:
After four years of private coverage hovering around 61 percent of the population, it jumped up to 66 percent within the space of a single year.
Was this due to the economic recovery? Probably a bit of it. But the economy has been puttering along at about the same pace ever since 2012. The only thing that changed in the fourth quarter of 2013 was the introduction of Obamacare….
This is great news all around since we’d always prefer having people insured by their employer rather than buying through the exchange. It’s better coverage and it costs the taxpayers less. On any measure you can think of, this is a huge and undercovered success story. [emphasis mine]
That is wrong. It is not always preferable to have someone on ESI rather than on an Exchange policy or Medicare or Medicaid or CHIP.
It is politically an easier sell as ESI is seen as part of the background status quo so when Mid-Size Motors switches coverage from Aetna to Cigna to save $2.32 per covered life per month, that is just HR doing their thing. It is less disruptive but it is not uniformly better. If it was uniformly better, the ACA would have just been massive subsidies to employers to provider coverage with a hard employer mandate (see 1993 Clintoncare) and some type of safety net for people out of the work force. We did not go down that route.
There are a couple of major problems with ESI. First, it is good insurance for people who are the least likely to need it. I get good coverage through work for my family. We’re doing well for ourselves and we are healthy. We could afford to come up with the full cost sharing for the year but we are unlikely to need to do so. But that case does not apply to everyone.
Yesterday I spoke with a brand new customer service trainee class. As part of the icebreaker I asked about families and why they chose this job. Most of the trainees were 20 somethings fresh from college or had a year experience elsewhere. ESI is not too important to that group as a class. One was a mid-30’s woman with two kids. She had just finished her associate degree. She was very excited that she would qualify for ESI on the 15th of the month. She had been running naked while her kids were covered with CHIP.
However she is getting a worse deal on ESI than she would have on Exchange. Her salary is a smidgen under 150% FPL. Her ESI premiums are roughly the same as what her Exchange premium for the baseline Silver would have been. However, Mayhew Insurance offers roughly 85% actuarial value coverage to its employees as the default option (there is also a 65% HSA). She would have qualified for cost sharing reduction subsidies that bumped her Exchange policy to 94%. Her ESI is worse coverage than what she would have had on Exchange. It is worse coverage than what her kids were getting on CHIP.
This is not an extreme example. If an employer is offering low wage employees a qualified plan with a $5,000 deductible and Bronze level coverage, almost all of those employees and their families would have been better off on Exchange as their out of pocket premiums would be less than 9.5% of their paycheck and the actuarial value of their coverage would be significantly higher. This is why the CBO thought ESI would have decreased.
The much broader reason why more ESI is not an unmitgated success story on any metric is that ESI is expensive. The biggest problem in American healthcare finance is that we pay a very high cost per unit. ESI (with a few exceptions in behavioral health) tends to pay the highest cost per unit of service. In most areas, the benchmark Silver plan (the #2 Silver) is paying slightly more than Medicare prices for the services its members receive. Medicare tends to be 30% to 50% cheaper on a cost per unit basis than commercial ESI. Shifting more people into high cost ESI instead of lower cost Exchange, Medicare, CHIP or Medicaid policies makes bending the cost curve significantly more difficult. It removes some of the explicit costs off of the federal government’s books, but the total social cost is higher.
There are very few things where it is an unalloyed good by any measure. Increased ESI uptake is not one of them. It is a good in that higher ESI is less disruptive of a change than an ESI dump but it comes at the cost of giving people expensive and potentially not too usable coverage.