The Employer’s Decision to Provide Health Insurance under the Health Reform Law

Abstract

We consider the employer’s decision to continue or to drop health insurance coverage for its workers under the provisions of the 2010 health reform law, on the presumption that the primary influence on that decision is what will produce a higher worker standard-of-living during working years and retirement. We incorporate the most recent empirical estimates of health care costs into our long-horizon optimal savings-consumption model for workers. Workers are assessed if they purchase health insurance on the new exchanges or alternatively are covered by employer-sponsored health plans. Federal subsidies for insurance premiums are intended to help some households but are highly variable over the demographic and economic life cycles of workers. The results show that the employer sponsorship of health plans is valuable for maintaining a consistent and higher living standard over the life cycle for middle- and upper-income households considered here, whereas exchange-purchased-and-subsidized-coverage is more beneficial for lower-income households (roughly 4-6% of our illustrative single workers and 15-22% of working families).

Keywords: Defined Contribution (DC), Health Reform, Savings and Replacement Rates, Living Standard, Retirement

JEL Classification: J26, D91, D14, I15, I18