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Employer-Sponsored Insurance and Health Reform: Doing the Math

After Health Reform Implementation in 2014, Employer Economic Incentives to Offer Insurance Remain Strong for Most Workers Now Offered Coverage

News Release
Dec. 19, 2012

Alwyn Cassil (202) 264-3484 or

WASHINGTON , DC—Amid concerns that health reform might hasten the ongoing decline of employer health coverage, the calculus of offering coverage will continue to make economic sense for businesses employing most workers (81%) now offered insurance, according to a new national study for the nonpartisan, nonprofit National Institute for Health Care Reform (NIHCR).

The study, conducted by University of Minnesota researchers working with the Center for Studying Health System Change (HSC), calculates the economic incentive—expressed as a per-employee dollar amount—employers face to offer coverage to active workers before and after health reform implementation in 2014. Jean Abraham, Ph.D., and colleagues at the University of Minnesota, used data from the nationally representative 2008-2010 Medical Expenditure Panel Survey for the analysis.

“The findings indicate that the economic incentives to offer coverage will remain strong under health reform for many businesses, especially larger, higher-wage firms, but will weaken for small and low-wage employers—the very establishments that already were most likely to drop coverage because of rising costs, ” Abraham said.

Pre-reform, all businesses have an economic incentive to offer health insurance—though not all do—because of the preferential tax treatment of both employer and employee premium contributions. Post-reform, employer premium contributions remain tax exempt, and two new policies take effect in 2014: a penalty on larger employers that do not offer affordable health insurance and premium tax credits for lower-income people to purchase insurance in new state exchanges if they lack access to affordable employer coverage.

The economic incentive or disincentive is calculated by adding the dollar value of the employer-sponsored insurance tax subsidy and the value of avoiding the penalty for not offering insurance, and then subtracting the value of the premium tax credits that eligible workers could use in an exchange if their employer does not offer coverage. Behind the analysis is the assumption that employers act as their employees’ agents and consider what is in workers’ best economic interest when deciding to offer health insurance.

In the pre-reform period, the economic incentives of employers to offer health insurance are all positive and increase with firm size. After reform implementation in 2014, the largest firms—500 or more workers—continue to have a strong economic incentive, with an average incentive of $2,503 per employee. However, the smallest firms—fewer than 50 workers—will face lower economic incentives—$990 on average—in the post-reform period, in large part because these employers will be exempt from the penalty.

The economic incentive also varies by industry. In the pre-reform period, establishments in professional services and manufacturing and mining have the highest incentive per employee—$3,384 and $3,300, respectively—while those in accommodation, food services, entertainment and recreation have the lowest—$1,644. This pattern reflects industry differences in earnings and thus employees’ tax rates.

Following reform implementation, the economic incentive to offer insurance remains positive for workers in many industries. The exceptions are workers in accommodation, food services, entertainment and recreation; as well as agriculture, forestry, fishing and unknown industries (-$23 and -$580, respectively), because of the greater eligibility of these workers for exchange subsidies.

Workers in establishments with a union presence will continue to have a large economic incentive to offer coverage—$3,081—after 2014. The change for these workers is considerably smaller than for workers in other establishments. The primary reason is the greater eligibility for exchange subsidies among workers in establishments without a union presence, given lower average family incomes.

The study’s findings are detailed in a new NIHCR Research Brief—Employer-Sponsored Insurance and Health Reform: Doing the Math—available online at

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The Center for Studying Health System Change is a nonpartisan policy research organization committed to providing objective and timely research on the nation’s changing health system to help inform policy makers and contribute to better health care policy. HSC, based in Washington, D.C., is affiliated with Mathematica Policy Research.



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The Center for Studying Health System Change Ceased operation on Dec. 31, 2013.