The Importance of the Meaning and Measurement of "Affordable" in the Affordable Care Act

41 Pages Posted: 8 Aug 2011 Last revised: 20 Mar 2022

See all articles by Richard V. Burkhauser

Richard V. Burkhauser

Cornell University - Department of Policy Analysis & Management (PAM); University of Melbourne, Melbourne Institute

Sean Lyons

Government of the United States of America - Congressional Budget Office (CBO)

Sean Lyons

Cornell University

Kosali Ilayperuma Simon

Indiana University

Date Written: August 2011

Abstract

This paper focuses on the practical importance of a critical but under-explored interpretation of a provision in the Affordable Care Act (ACA): whether "affordable" refers to the cost of single coverage alone, or to family or single coverage as applicable to the worker, in determining the employer's mandated coverage requirement and workers' (and their dependents') access to subsidized exchange coverage. Since the average annual total premium for family coverage is substantially higher than that for single coverage (on average $12,298 vs. $4,386 in 2008) this is a non-trivial distinction.Using data on workers from the Current Population Survey merged with estimates of employer and exchange policy premiums, we investigate the impact of the affordability decision on the fraction of workers who could then access exchange coverage subsidies and on the correspondingly lower employer sponsored insurance (ESI) coverage rates. We do via a series of calculations for each worker that first shows the financial incentives at stake in deciding between ESI and subsidized exchange coverage. We then show how many of those who stand to gain from exchange coverage could do so under the two different affordability rules and different levels of employee contributions. Finally, we show the extent to which a single affordability rule would cause low-income workers with families to fall into a "no-man's land" with no source of affordable family coverage. We estimate that choosing a family affordability rule could initially lead to as many as 1.3 million more workers accessing exchange subsidies for themselves and their families than under a single affordability rule. If employees pay 50 percent of the premiums in the future, this number increases to 6 million. Increased use of exchange subsidies would be accompanied by reductions in ESI coverage and increased costs to taxpayers. Alternatively, choosing a single affordability rule would initially result in close to 4 million dependents of workers with affordable single coverage not having affordable health insurance. This would grow to close to 13 million if employees pay 50 percent of the premium.

Suggested Citation

Burkhauser, Richard V. and Lyons, Sean and Lyons, Sean and Simon, Kosali Ilayperuma, The Importance of the Meaning and Measurement of "Affordable" in the Affordable Care Act (August 2011). NBER Working Paper No. w17279, Available at SSRN: https://ssrn.com/abstract=1906213

Richard V. Burkhauser (Contact Author)

Cornell University - Department of Policy Analysis & Management (PAM) ( email )

120 Martha Van Rensselaer Hall
Ithaca, NY 14853
United States

University of Melbourne, Melbourne Institute ( email )

Level 5, FBE Building, 111 Barry Street
161 Barry Street
Carlton, VIC 3053
Australia

Sean Lyons

Government of the United States of America - Congressional Budget Office (CBO) ( email )

Ford House Office Building
2nd & D Streets, SW
Washington, DC 20515-6925
United States

Sean Lyons

Cornell University ( email )

Ithaca, NY 14853
United States

Kosali Ilayperuma Simon

Indiana University ( email )

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