President’s Proposal. Under current law, the tax exclusion for employer-sponsored health benefits effectively reduces the cost of insurance to workers. Creating a tax deduction of an equal amount for both employer and non-group coverage eliminates the relative tax advantage of providing coverage through the employer, resulting in a shift of people away from ESI to private non-group coverage. With the elimination of the relative tax advantage of ESI, some employers are expected to discontinue their coverage, particularly in cases where their workforces can obtain individual coverage for less than what their employer would have to pay in the small group market. This would typically occur among small firms with younger and healthier workers in states where insurers are permitted to provide greater discounts for age and health status in the individual market than are permitted in the small group market.12
Under current-law we projected there would be about 158.1 million workers and dependents with ESI in 2009.13 Using the assumptions discussed above, we estimate that about 12.3 million covered workers and dependents would be in firms that discontinue health insurance benefits. This would be partly offset by approximately 0.3 million people in firms where the employer is stimulated to start to offer coverage.14 Also, we estimate that there are about 0.7 million workers and dependents that have declined the coverage offered to them at work who would now take ESI in cases where the value of the tax deduction is greater than the value of the existing tax exclusion.15 Thus, we estimate a net reduction in ESI enrollment of approximately 11.3 million.
Of the 12.3 million that would lose their ESI, about 2.2 million (18 percent) would become uninsured. We also expect about 0.5 million people who lose ESI coverage to enroll in Affordable Choices and about 1.1 million to be covered under Medicaid. The vast majority would take individual coverage (8.5 million) with the tax deduction.
The number of people with individual coverage nearly triples under the proposal from approximately 10 million to 27.7 million. Along with the 8.5 million who would lose their ESI coverage, an additional 9.3 million would remain in non-group coverage and 9.9 previously uninsured would take-up coverage as the tax deduction makes insurance coverage more affordable.
Congressional Tax Credit Proposal. Similar to the tax deduction described above, creating a tax credit of an equal amount for both employer and non-group coverage and removing the tax exclusion for employer sponsored insurance eliminates the relative tax advantage of providing coverage through the employer, resulting in a shift of people away from ESI to private non-group coverage.
Under the tax credit proposal, we estimate that about 12.6 million covered workers and dependents would be in firms that discontinue health insurance benefits. This would be partly offset by approximately 0.7 million people in firms where the employer is simulated to start to offer coverage.16 Also, we estimate that there are about 2.1 million workers and dependents that have declined the coverage offered to them at work who would now take ESI in cases where the value of the tax credit is greater than the value of the existing tax exclusion. Thus, we estimate a net reduction in ESI enrollment of approximately 9.8 million.
Of the 12.6 million that would lose their ESI, about 1.6 million (13 percent) would become uninsured. We expect about 0.4 million to be covered under Medicaid or SCHIP. The vast majority would take individual coverage (10.6 million).
The increase in the number of people with individual coverage is even greater for the Congressional proposal in comparison to the President’s proposal, as coverage reaches approximately 40.4 million. In this case, along with the 10.6 million who would lose their ESI coverage, an additional 10.0 million would remain in non-group coverage and 19.9 previously uninsured would take-up coverage as the tax credit makes insurance coverage more affordable.
Figure 14 displays the changes in the employer-sponsored and individual insurance markets by State under each proposal.
|Current Insured||Change Under President's Proposal||Change Under the Congressional Tax Credit Proposal|
|State||ESI||Non-Group||Total Private||ESI||Non-Group||Net Change Private||ESI||Non-Group||Net Change
|Current Insured||Change Under President's Proposal||Change under the Congressional Tax Credit Proposal|
|State||ESI||Non-Group||Total Private||ESI||Non-Group||Net Change Private||ESI||Non-Group||Net Change Private|
NA – Estimates are not included for Massachusetts due to the transitioning of their reform plan.
Source: Lewin Group estimates using the Health Benefits simulation model (HBSM).