The RAND Corporation has simulated the effects of the Affordable Care Act to predict how and why health insurance markets are likely to change after 2014 when the law is in full effect. The conclusion RAND researchers came to is that the law will result in more small and medium-size companies offering health insurance coverage to their employees and that the number of workers offered coverage through employers (large, medium, and small) will increase from 84.6% to 94.6%.
Using algorithms instead of ideology, the RAND simulation model allowed employers to drop coverage in response to the new rules, and the outcome was that the health care reform law will result in a large net increase in employer-sponsored insurance coverage.
The report says that in 2010 many small firms don’t offer insurance coverage because of “high administrative costs, low bargaining power to negotiate benefit design and premiums, and a small number of enrollees for risk pooling”. In 2014, when small businesses will participate in insurance exchanges, they will be part of a bigger risk pool resulting in more bargaining power, lower premiums, and lower administrative costs per employee.
According to the RAND report, currently only 60.4% of workers at businesses with 50 or fewer employees have employer-sponsored health insurance. The RAND model estimates this number to increase to 85.9% after the reform.
The RAND study concluded that:
The large increase in health insurance coverage provided by small businesses is driven primarily by two factors: greater demand for coverage by workers due to individual penalties for being uninsured, and the availability of new, often lower-cost insurance options (because of administrative savings, for example) for small businesses that offer coverage on the exchanges.
Firms making decisions on the basis of costs and benefits of their insurance options, including new subsidies and penalties, will frequently choose to offer insurance rather than to drop coverage and allow their workers to buy individual coverage. This prediction is consistent with evidence from Massachusetts, where the rate of insurance offers by employers increased after the 2006 state health care reform. The tax-advantaged treatment of employer-sponsored coverage helps to sustain the employer-based system. However, the nature of employer-sponsored coverage may change substantially after implementation of the Affordable Care Act , with an increase in the number of workers offered coverage through the health insurance exchanges. Many employers will find that offering coverage through the exchanges is an attractive option, owing to wider risk pooling, low administrative costs, and expanded choices.