The Future of Employment-Based Health Insurance after the Patient Protection and Affordable Care Act
39 Pages Posted: 31 Aug 2011
Date Written: August 1, 2011
In the United States, unlike in all other advanced industrial states, health care is financed principally through employment-based health insurance. In 2009, more than 156 million individuals under the age of sixty-five, or 59% of that population, were covered by employment-based health insurance.
On March 21, 2010, President Obama signed the Patient Protection and Affordable Care Act (PPACA). Described as seminal as the enactment of the Employee Retirement Income Security Act (ERISA), PPACA fundamentally reforms the American health care system. PPACA, however, does not eliminate the system’s reliance on employment-based health insurance. Instead, it builds on, and arguably strengthens, the employment-based system. This Article discusses how PPACA is likely to affect employers’ willingness to sponsor employment-based health insurance.
The Article begins by providing a brief history of employment-based health insurance in the United States. It then discusses the advantages and disadvantages of this system. In doing so, it focuses on four separate aspects of employment-based health insurance: (1) its favorable tax treatment, (2) its cost, (3) the fact that the employer acts as an agent for its employees when it purchases health insurance, and (4) the labor incentives it creates. The Article then turns to the three incentives PPACA creates with respect to the provision of employment-based health insurance: (1) the large employer “pay-or-play” mandate, (2) the small employer tax credit, and (3) the excise tax on so-called “Cadillac” plans. It describes and discusses how each of these incentives is likely to affect employers’ willingness to offer employment-based health insurance. It concludes that, at least in the short run, PPACA is unlikely to change the American health care system’s reliance on employment-based health insurance.
Keywords: health care reform, employee benefits
JEL Classification: I18, K32
Suggested Citation: Suggested Citation