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PPACA Exchanges Could Spur Health Coverage: Rand

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Creation of health exchanges through the new healthcare reform law will result in a net increase in the number of employers who offer health insurance coverage, a new study by the RAND Corp. predicts.

The nature of employer-sponsored coverage may change substantially, however, after the exchange component of the law, the Patient Protection and Affordable Care Act (PPACA) is put in effect in 2014, according to the report from RAND, Santa Monica, Calif.

One of these changes is an increase in the number of workers offered coverage through the exchanges, the report said.

The number of large employers who decide to offer coverage through the exchanges will be linked to the rules established by states for the exchanges, the report notes. For example, states have the option to allow firms with more than 100 workers to offer coverage through the exchange.

“If large employers are allowed to participate in exchanges, we predict that many–both current and new insurance offerers–will elect to do so,” the report said. “Many employers will find that offering coverage through the exchanges is an attractive option, owing to wider risk pooling, low administrative costs, and expanded choices.”

The report said that the number of people with health insurance will increase significantly as a result of PPACA, partly because the law provides subsidies and other incentives for small businesses to offer insurance.

This is consistent with the findings of a Commonwealth Fund report issued Sept. 2.

According to RAND, the number of workers offered coverage will increase from 84.6% of the approximately 136 million U.S. workers 115.1 million to 94.6%, after the reform.

“This increase is not driven by penalties levied on employers with more than 50 workers,” the report said. In fact, the probability of being offered coverage increases proportionately more for workers at small firms than it does for workers at large firms, even though small firms are not subject to penalties.

Currently, only about 60% of workers at businesses with 50 or fewer employees have an offer of coverage. The proportion is projected to increase to around 86% after the reform, the authors said.

“The large increase in offers provided by small businesses is driven primarily by two factors: greater demand for coverage by workers due to individual penalties for being uninsured and the availability of new, often lower-cost insurance options (because of administrative savings, for example) for small businesses that offer coverage on the exchanges,” the authors said.

After the reform, the authors predict, “nearly three of four workers offered coverage by small businesses will receive that offer through the exchanges.” the report said. The reforms will have a lesser effect on large employers, since most already offer insurance coverage to their workers.

Of the 13.6 million workers newly offered coverage, RAND expects only 3.2 million will be employed by firms large enough to be subject to employer penalties.

The report’s conclusion that employer-provided insurance may not decline sharply once the exchanges go into effect contradicts predictions of critics of PPACA, who insist the new law will act as a disincentive for employers to provide coverage. These critics cite the financial penalties levied on employers of more than 50 who decide not to provide coverage, increased Medicaid eligibility and subsidies for low-income individuals without employer coverage as disincentives for employers.

The RAND report, however, is confident that employer-sponsored insurance will remain an important source of coverage.

They note that this prediction is consistent with evidence from Massachusetts, where the rate of insurance offers by employers increased after the 2006 state health care reform.

“The tax-advantaged treatment of employer-sponsored coverage helps to sustain the employer-based system,” they said.

The RAND report, “The Effects of the Affordable Care Act on Workers’ Health Insurance Coverage, appeared in the September edition of the New England Journal of Medicine. It was written by Christine Eibner, Peter S. Hussey, and Federico Girosi.


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