Cost and Coverage Impacts of the President’s Health Care Reform Proposal and a Congressional Tax Credit Proposal. Changes in Private Insurance Coverage

05/19/2008

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. 

Figure 14. Changes in the employer-sponsored and individual insurance markets by State under the President’s Proposal and Congressional tax credit 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
Private
Alabama 2,401 106 2,506 -209 261 52 -187 469 283
Alaska 331 18 350 -29 35 6 -26 65 39
Arizona 2,792 188 2,980 -241 614 373 -221 497 276
Arkansas 1,331 101 1,431 -113 176 63 -97 328 231
California 18,278 1,803 20,081 -1,606 2,126 520 -1,492 4,255 2,763
Colorado 2,623 223 2,847 -231 355 125 -211 603 393
Connecticut 2,130 111 2,241 -180 222 42 -172 342 169
Delaware 483 17 500 -42 49 8 -39 74 35
Florida 8,261 656 8,917 -731 1,368 637 -631 2,332 1,701
Georgia 4,751 226 4,976 -418 671 253 -363 1,123 760
Hawaii 745 30 775 -71 75 5 -70 115 45
Idaho 770 74 844 4 79 83 18 130 148
Illinois 7,315 368 7,683 -640 780 140 -598 1,326 728
Indiana 3,596 223 3,819 -296 368 71 -271 643 372
Iowa 1,738 146 1,884 -152 161 9 -145 286 141
Kansas 1,589 122 1,711 -143 149 6 -136 271 134
Kentucky 2,175 107 2,281 -187 224 37 -172 415 243
Louisiana 2,097 147 2,244 -190 274 84 -159 525 366
Maine 681 33 713 2 16 18 10 38 48
Maryland 3,330 148 3,479 -291 370 79 -271 590 319
Massachusetts NA NA NA NA NA NA NA NA NA
Michigan 5,946 239 6,184 -504 602 98 -482 946 464
Minnesota 3,346 243 3,589 -295 395 100 -288 569 281
Mississippi 1,359 87 1,445 -115 163 48 -97 313 216
Missouri 3,222 208 3,430 -279 330 51 -267 518 251
Montana 424 57 481 -45 55 11 -40 112 72
Nebraska 1,041 109 1,150 -91 96 5 -86 175 89
Nevada 1,329 73 1,402 -107 157 50 -97 283 186
New Hampshire 851 36 887 -75 92 17 -72 137 65
New Jersey 5,377 191 5,568 24 370 393 111 625 736
New Mexico 835 46 880 -72 108 35 -68 184 115
New York 10,206 497 10,703 37 560 597 176 1,060 1,236
North Carolina 4,320 326 4,646 -380 533 153 -335 979 643
North Dakota 356 45 400 -35 28 -8 -34 56 22
Ohio 6,693 264 6,957 -557 732 175 -517 1,208 691
Oklahoma 1,704 101 1,805 -153 255 101 -133 453 320

 

Figure 14. Changes in the employer-sponsored and individual insurance markets by State under the President’s Proposal and Congressional tax credit proposal (cont’d)
  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
Oregon 1,894 129 2,023 8 176 184 38 276 314
Pennsylvania 6,886 456 7,342 -593 722 129 -554 1,228 674
Rhode Island 617 26 643 -54 65 11 -51 101 50
South Carolina 2,108 131 2,239 -182 244 62 -157 444 287
South Dakota 403 53 456 -37 35 -2 -34 70 35
Tennessee 3,071 224 3,295 -255 325 71 -229 590 361
Texas 10,852 613 11,465 -889 1,493 605 -754 3,024 2,270
Utah 1,466 88 1,554 -129 178 48 -122 303 181
Vermont 344 19 362 1 16 17 4 28 33
Virginia 4,387 253 4,639 -379 489 110 -353 810 457
Washington 3,481 241 3,723 13 274 287 71 487 557
West Virginia 819 39 857 -70 92 22 -61 175 114
Wisconsin 3,332 189 3,521 -286 303 16 -275 508 233
Wyoming 267 25 293 -27 30 3 -25 54 29

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).

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