Patient Protection and Affordable Care Act: Estimates of the Effect on the Prevalence of Employer-Sponsored Health Coverage
Released: 2012-08-24T00:00:00


Highlights: section_title: Why GAO Did This Study
paragraphs: The share of employers offering health coverage has generally declined in the last decade. Researchers believe that certain provisions of PPACA could affect employers’ future willingness to offer health coverage, such as the availability of subsidized coverage through new health insurance marketplaces called “exchanges” and an “individual mandate,” which will require most people to obtain health coverage or pay a tax penalty. Certain PPACA provisions are scheduled to take effect in 2014. Researchers have provided various estimates of the effect PPACA may have on employer-sponsored coverage.

GAO was asked to review the research on this topic. GAO examined (1) estimates of the effect of PPACA on the extent of employer-sponsored coverage; (2) factors that may contribute to the variation in estimates; and (3) how estimates of coverage vary by the types of employers and employees that may be affected, as well as other changes employers may be considering to the health benefits they offer. GAO reviewed studies published from January 1, 2009, through March 30, 2012 containing an original numerical estimate of the prevalence of employer-sponsored coverage at the national level. These included 5 microsimulation models and 19 employer surveys. Microsimulation models can systematically estimate the combined effects of multiple PPACA provisions in terms of both gains and losses of coverage; their results are based on multiple data sets and assumptions. Surveys reflect employer perspectives; they have limits as a predictive tool in part based on varied survey methodologies and respondent knowledge of PPACA.

section_title: What GAO Found
paragraphs: The five studies GAO reviewed that used microsimulation models to estimate the effects of the Patient Protection and Affordable Care Act (PPACA) on employer-sponsored coverage generally predicted little change in prevalence in the near term, while results of employer surveys varied more widely. The five microsimulation study estimates ranged from a net decrease of 2.5 percent to a net increase of 2.7 percent in the total number of individuals with employer-sponsored coverage within the first 2 years of implementation of key PPACA provisions, affecting up to about 4 million individuals. Two of these studies also indicated that the majority of individuals losing employer-sponsored coverage would transition to other sources of coverage. In contrast to the microsimulation studies, which estimate the net effect on individuals, most employer surveys measure the percentage of employers that may drop coverage in response to PPACA. Among the 19 surveys, 16 reported estimates of employers dropping coverage for all employee types. Among these 16, 11 indicated that 10 percent or fewer employers were likely to drop coverage in the near term, but estimates ranged from 2 to 20 percent. Most surveys were of employers currently offering coverage and therefore did not also address whether other employers may begin to offer coverage in response to PPACA; however, 3 that did found that between 1 and 28 percent would begin offering coverage as a result of PPACA. Longer-term predictions of prevalence of employer-sponsored coverage were fewer and more uncertain, and four microsimulation studies estimated that from about 2 million to 6 million fewer individuals would have employer-sponsored coverage in the absence of the individual mandate compared to with the mandate.

Differences in key assumptions and consideration of PPACA provisions likely contributed to some variation among estimates from the five microsimulation studies and the 16 employer surveys. Variation among the microsimulation studies may have stemmed from differences in assumptions about employer and employee decision making, the time frames of the estimates, and assessments of potential compliance with the individual mandate. Variation among the employer surveys may be related to differences in survey sampling techniques, the number and types of employer respondents, and the framing of survey questions. For example, some surveys used a random sampling methodology, allowing their results to be generalized across all employers, while others did not. Also, some referred to specific PPACA provisions or provided specific information about provisions to respondents, while others did not.

Some of the 19 employer surveys indicated that PPACA may have a larger effect on small employers and certain populations and may prompt some employers to change benefit designs. For example, 4 surveys found that smaller employers were more likely than other employers to stop offering health coverage in response to PPACA, and 5 found that employers in general were more likely to drop coverage for retirees than for all employees. Nine surveys also indicated that employers are considering key changes to benefit design, some of which may result in greater employee cost for health coverage.

GAO provided a draft of this report to two researchers with expertise in employee health benefits issues. The experts agreed with GAO’s report and provided technical comments, which were incorporated as appropriate.

section_title: Letter
paragraphs: Employer-sponsored health coverage is the leading source of health  coverage in the United States and was provided to more than 156 million  Americans under age 65 (about 59 percent) in 2010. Nearly all large  employers and more than half of small employers offer health coverage to  their employees, in part as a means of recruiting and retaining  employees. Most employees participate in employer-sponsored  coverage when it is available, in part because employers typically  subsidize a large share of employees’ premiums, these premium  contributions are generally excluded from taxable income, and employees  may lack other affordable health coverage options. The proportion of  employers offering health coverage has declined in the last decade—from  68 percent of all employers in 2001 to 60 percent in 2011, with most of  the decline occurring by 2005.

The Patient Protection and Affordable Care Act (PPACA), enacted in  March 2010, employer-sponsored health coverage indicate may affect employers’  willingness to offer health coverage to their employees. Researchers  believe some provisions—such as financial penalties that certain  employers with at least 50 full-time equivalent employees may face if they  do not offer health coverage or if they offer coverage that does not meet  certain minimum requirements, and an “individual mandate,” which will  require most people to obtain health coverage or pay a tax penalty—may  encourage employers to continue offering or newly offer health coverage.  However, some researchers believe certain PPACA provisions that result  in coverage from other sources—such as an expanded Medicaid program  and subsidized coverage for certain individuals who purchase coverage  through new health insurance marketplaces called “exchanges”—may  discourage employers from offering coverage. Recent studies have  predicted employers’ responses to PPACA in terms of offering coverage  once key PPACA provisions are in effect. You requested that we review  existing research on the potential effect of PPACA on the prevalence of  employer-sponsored coverage. Based on this request, we examined   contains a number of provisions that some researchers of  1.  estimates of the effect of PPACA on the prevalence of employer- sponsored health coverage, including the number of individuals  with employer-sponsored coverage and the proportion of  employers that would offer coverage to their employees;  2.  the factors that may contribute to varying estimates; and  3.  how estimates vary by the types of employers and employees that  may be affected, as well as other changes employers may be  considering to the health benefits they offer.

Pub. L. No. 111-148, 124 Stat. 119 (2010), as amended by the Health Care and  Education Reconciliation Act of 2010 (HCERA), Pub. L. No. 111-152, 124 Stat. 1029. For  purposes of this report, references to PPACA include the amendments made by HCERA.

To conduct this work, we identified and reviewed 27 studies, published  from January 1, 2009, through March 30, 2012, which fell into three  broad study types—5 based on microsimulation models, 3 based on  other analytic approaches, and 19 based on employer surveys. We  included in our report only those studies from our review that provided an  original numerical estimate at the national level of the likely prevalence of,  or changes to, rates of employer-sponsored health coverage as a result  of PPACA. To identify these studies, we conducted a review of research  databases using relevant search terms. We also identified studies  available online from research organizations, consulting firms, and other  relevant websites. In addition, we included studies that met our criteria  from a June 2011 report by Avalere Health, a health care consulting firm.  This report provided a comprehensive review of studies published by that  time, comparing estimates of the effect of PPACA on employer-  We also reviewed the bibliographies of the  sponsored health coverage.selected studies for additional studies that met our criteria. (See app. I for  a complete list of these studies.)

To examine estimates of the effect of PPACA on the prevalence of  employer-sponsored health coverage, we summarized information from  our review of studies. From the microsimulation studies and studies using  other analytic approaches, we summarized estimates of net changes in  the number of individuals who may be affected by employers dropping, as  well as newly offering, coverage as a result of PPACA. We did not  summarize other changes employers may make to employee  compensation packages to remain competitive in the labor force, such as  providing compensation for lost coverage to enable employees to  purchase coverage elsewhere. From employer surveys, we summarized  the percentage of surveyed employers likely to drop employer-sponsored  coverage as a result of PPACA. To examine the factors that could  account for varying estimates, we reviewed the key assumptions and  methods used in the studies we identified. In particular, to evaluate the  studies based on microsimulation models and other analytic approaches,  we examined underlying key assumptions that the studies used when  modeling employer and employee behavior in making decisions about  health coverage, as well as assumptions about the effectiveness of  relevant PPACA provisions and how the provisions might be  implemented. We examined the authors’ own assessments of their study  methods as well as publicly available assessments by other researchers.  To evaluate the employer surveys, we used publicly available information  about the survey instrument, methodology, sample size, and the  response rate. Information on employer response rates—which can be an  important measure of the ability to generalize survey results beyond the  employers surveyed—was not publicly available for most surveys. We did  not interview the study authors. To examine how estimates varied by the  types of employers and employees that may be affected, we summarized  information from the employer surveys that provided estimates by the  type of employer and employees. We also summarized other predicted  changes in employer-sponsored coverage, such as changes in benefit  design.

We conducted this performance audit from February 2012 through July  2012 in accordance with generally accepted government auditing  standards. Those standards require that we plan and perform the audit to  obtain sufficient, appropriate evidence to provide a reasonable basis for  our findings and conclusions based on our audit objectives. We believe  that the evidence obtained provides a reasonable basis for our findings  and conclusions based on our audit objectives.
subsections: section_title: Background
paragraphs: Employer-sponsored health coverage is the leading source of health  coverage in the United States. In 2010, 59 percent of Americans under  age 65 received health coverage through employer-sponsored group  health plans, and an additional 7 percent received coverage through  health coverage purchased directly from health insurers in the individual  market. Employers may provide coverage either by purchasing  coverage from a health insurer (fully insured plans) or by funding their  own health coverage (self-insured plans). Small employers typically offer  fully insured plans, while large employers are more likely to be self- insured. Small employers are also less likely to offer their employees  health coverage compared to large employers, citing the cost of coverage  as a key reason. Additionally, firms with more high-wage workers are  more likely to offer coverage to their employees than those with more low- wage workers. Rates of employer-sponsored health coverage have  declined in the last decade—from 68 percent in 2001 to 60 percent in  2011. Most of this decline occurred by 2005 and was driven primarily by a  decline in the number of very small employers with three to nine  employees offering health coverage. In addition, employee participation in  employer-sponsored coverage has also decreased—from 70 percent in  2001 to 65 percent in 2011, in part because of a decline in employee  eligibility for the coverage. Further, employees’ share of the cost of  coverage is increasing faster than employers’ share—the employee  contribution to the average annual premium for family coverage increased  131 percent from 2001 to 2011 compared to a 108 percent increase in the  employer contribution for the same time period.

PPACA contains a number of provisions that may affect whether  employers offer health coverage. These provisions include an “individual mandate,” or the requirement that individuals—subject  to certain exceptions—obtain minimum essential health coverage or  pay a tax penalty starting in 2014; the establishment of health insurance exchanges in 2014— essentially, health insurance marketplaces in which individuals and  small businesses can compare, select, and purchase health coverage  from among participating carriers; health insurance market reforms including a requirement that prevents  health plans and insurers in the individual and small group markets  from denying coverage or charging higher premiums because of pre- existing conditions or medical history, and that limits the extent to  which premiums may vary; premium subsidies—which provide sliding scale tax credits starting in  2014 to limit premium costs for individuals and families with incomes  up to 400 percent of the federal poverty level—for purchasing  individual coverage through an exchange; penalties for certain large employers that do not offer qualified health  coverage and have at least one full-time employee receiving a  subsidy (in the form of a premium tax credit or cost-sharing reduction)  in a plan offered through an exchange starting in 2014, or for certain  large employers that provide access to coverage but do not meet  certain requirements for affordability;  tax credits for certain small businesses toward a share of their  employee health coverage beginning in 2010; a 40 percent excise tax on certain employer-sponsored health plans  whose costs exceed a certain threshold in 2018; a state Medicaid expansion effective in 2014 for individuals who are  under 65 years old, have incomes at or below 133 percent of the  federal poverty level, and meet other specified criteria.

Researchers have used various types of studies to predict the effect of  PPACA on employer-sponsored health insurance, including  microsimulation models, other analytic approaches, and employer  surveys. Microsimulation models—commonly used statistical models— generally use published survey data to construct a base data set of  individuals, families, and employers, and then attempt to predict  responses to public policy changes by drawing from the best available  evidence in health economics literature and, in some cases, existing  empirical evidence from related or smaller-scale policy changes (such as  prior changes in Medicaid eligibility and state insurance reform efforts).  The models systematically estimate the combined effect of multiple  provisions in legislation, such as PPACA, based on this previous research  and empirical data. For example, with respect to PPACA, models can  provide an estimate of employer-sponsored coverage that considers both  the number of employers that may discontinue offering coverage and the  number that may begin to offer coverage. Models can also incorporate  into their analyses estimates of the number of employees who may take  up or refuse offers of such coverage. Model limitations include their  dependence upon multiple types of data from multiple sources of varying  quality and that they must rely on many assumptions. The impact of  past policy changes also may not necessarily be predictive of the impact  of future changes, and there is little information available with which to  assess the validity of their projections.analytic approaches to model behavior in response to policy changes   Studies we reviewed using other  varied in their methods, ranging from a cost-benefit comparison to an  analysis that used survey data and economic theory to predict behavior.

Employer surveys have also been cited to illustrate the potential impact of  PPACA on employer health benefits. Unlike microsimulation models,  surveys have the advantage of reflecting the actual, current perspectives  of employers, and they can also assess how employers’ behavior may be  affected by the actions of other employers of similar size and industry.  However, they have limitations as a predictive tool. For example, most  surveys relating to PPACA asked respondents about employers’  likelihood of dropping coverage, rather than the likelihood of newly  offering coverage as a result of PPACA or the number of employees that  may take up or refuse such coverage. Thus, they may not illustrate the  net effect of PPACA on employer-sponsored coverage. Further, the  validity of their results may be limited by the knowledge of survey  respondents. Experts have noted that employer surveys tend to be  answered by human resource officials with varying levels of knowledge  about PPACA. In addition, researchers note that survey responses do not  require careful analysis or extensive deliberation and have no  consequences for the responders. Therefore, surveys are more limited in  their ability to systematically assess the combined effect of multiple  PPACA provisions—that is, they cannot ensure that respondents consider  (or have the ability to consider) all of the relevant provisions when  deciding how to respond. Moreover, the results of the sample of  employers surveyed may not always be generalizable to all employers,  depending on the number of respondents and other aspects of the survey  methodology.

section_title: Microsimulation Models Predicted Little Near-Term Change in Employer- Sponsored Coverage, but Other Studies and Employer Surveys Varied More Widely
paragraphs: Microsimulation studies generally predicted little change in employer- sponsored health coverage in the near term, but results of studies using  other analytic approaches and employer surveys varied more widely. Few  studies provided longer-term predictions of the prevalence of employer- sponsored coverage, and those that did so expressed uncertainty about  their estimates. Microsimulation studies that examined the effect of the  individual mandate estimated that more people would have employer- sponsored coverage with the mandate in place compared to without the  mandate.
subsections: section_title: Microsimulation Studies Predicted Small Near-Term Changes to Employer- Sponsored Coverage
paragraphs: Among the five microsimulation studies we reviewed, estimates of  PPACA’s net effect on changes in the rates of employer-sponsored  coverage ranged in the near term from a decrease of 2.5 percent to an   In  increase of 2.7 percent in the number of individuals with coverage.particular, three projected an increase in the number of individuals with  coverage. The Centers for Medicare & Medicaid (CMS) estimated a net  increase of about 0.1 percent (200,000 individuals), and the studies by  the RAND Corporation (RAND) and the Urban Institute/Robert Wood  Johnson Foundation (RWJF) each projected a net increase of 2.7 percent  affecting about 4 million individuals. The remaining two studies projected  a decrease: the Congressional Budget Office (CBO) projected a   2.5 percent net decrease affecting about 4 million individuals, while The  Lewin Group projected a net decrease of 1.6 percent affecting about   2 million individuals. (See fig. 1.)

Two of the studies also indicated that the majority of individuals who lose  employer-sponsored coverage would transition to other sources of  coverage. For example, the RAND study indicated that out of the   6.5 million individuals it projected to lose employer-sponsored coverage  after implementation of PPACA, 1.9 million would enroll in individual  coverage through an exchange and 3.5 million would enroll in Medicaid.  The remaining 1.1 million individuals would become uninsured.

section_title: Estimates from Studies Using Other Analytic Approaches Varied More Widely
paragraphs: Estimates from the three studies we reviewed that used other analytic  approaches varied more widely than those from the microsimulation  models. Two of the three studies predicted small near-term changes in  the number of individuals with employer-sponsored coverage. One of the  studies, published by the Employment Policies Institute (EPI), used a  modeling approach that predicted behavioral responses of all workers   in a nationally representative sample to three main provisions of PPACA.  This study projected a net increase of about 6 percent, or 4 million, in the  number of individuals with employer-sponsored coverage. Another  study by Booz & Company Inc. that used a combination of surveys,  interviews, focus groups, and modeling projected a net decrease of 2 to 3  percent, or from 3 million to 4 million individuals. The third study,  conducted by the American Action Forum, used a decision-making model  based on cost-benefit comparisons to project a larger decrease of up to  35 million in the number of people with employer-sponsored coverage.

However, this study did not consider whether employers may newly offer  coverage or estimate the number of individuals that would be newly  covered as a result.

section_title: Employer Surveys Varied Widely in Their Estimates of PPACA’s Effect on Employer-Sponsored Coverage
paragraphs: Employer surveys varied widely in their estimates of employers’  responses to PPACA. Sixteen of the 19 surveys we reviewed reported  estimates of employers dropping coverage for employees in general  (rather than only for certain types of employees). Among these   16 surveys, 11 indicated that 10 percent or fewer of employers were likely  to drop coverage in the near term, and 5 indicated that from 11 to   20 percent were likely to drop coverage in the near term. The estimates  ranged from 2 to 20 percent across these 16 surveys. (See table 1.)  Because these surveys were typically of employers currently offering  coverage, most did not reflect the number of employers that may be likely  to begin offering coverage under PPACA.

A higher proportion of employers indicated that they were “somewhat  likely” to drop coverage, among the 6 surveys that also provided this  response option. Among these surveys, 2 (the National Federation of  Independent Businesses (NFIB) and Towers Watson) indicated that   10 percent or fewer of employers were “somewhat likely” to drop  coverage, 2 surveys (Willis and Mercer) indicated that 11 to 20 percent of  employers had such plans, and the remaining 2 surveys (McKinsey & Co.  (McKinsey) and PricewaterhouseCoopers) indicated that over 20 percent  had such plans. In addition, two surveys asked respondents how their  decisions to drop or offer coverage may be affected by other employers’  actions. In one survey 78 percent of employers indicated that they were  planning to follow the lead of other employers. In the other survey   25 percent of employers indicated that it would have a “major impact” on  their decision if “one or a few large, bellwether employers” or one of their  major competitors dropped coverage for a majority or all of their  employees.

Three of the 16 surveys that also examined employer plans to newly offer  coverage as a result of PPACA indicated that from 1 and 28 percent of  employers were likely to do so. The NFIB survey indicated that about   1 percent of the employers surveyed were likely to begin offering  coverage as a result of PPACA; the McKinsey survey indicated that   13 percent of employers with 2 to 49 employees, and 14 percent of  employers with 50 to 499 employees, were likely to begin offering  coverage. In addition, the Kaiser Family Foundation/Health Research &  Educational Trust survey that examined employer plans to only newly  offer (but not drop) coverage indicated that 15 percent of small employers  (fewer than 50 employees) that did not offer health coverage and were  aware of the small business tax credit were planning to add coverage as  a result of it; and the Market Strategies International survey indicated  that 28 percent of employers not offering health coverage would begin to  do so.

section_title: Estimates of Longer-Term Effects of PPACA on Employer-Sponsored Coverage Were Fewer and Less Certain
paragraphs: Among the studies we reviewed, only two microsimulation studies  examined the longer-term effects of PPACA on employer-sponsored  coverage. CMS projected that the number of individuals with employer- sponsored coverage would decrease by approximately 1 percent relative  to estimates without PPACA in each year from 2017 through 2019, and  that this annual gap would accelerate after that as a result of the high- cost plan excise tax. CBO projected a drop of about 3 percent, slightly  larger than its near-term estimate, in employer-sponsored coverage in  each year from 2017 through 2019, relative to estimates without PPACA  in each year, and projected that this annual gap would decrease  thereafter. The studies also noted that there is a large amount of  uncertainty regarding how employers and employees will respond to  policy changes as sweeping and complex as those included in PPACA,  and some researchers indicated that long-term predictions of the effects  of PPACA are particularly uncertain.

section_title: Studies Predicted Larger Decreases in Employer- Sponsored Coverage without the Individual Mandate
paragraphs: Four of the five microsimulation studies examined the effect of the  individual mandate and predicted that fewer individuals would have  employer-sponsored coverage without the mandate as compared to with  the mandate. These studies separately estimated the effect of PPACA  both with and without the individual mandate. The estimates ranged from  about 2 million to 6 million fewer people covered without the mandate  compared to with the mandate. (See fig. 2.)

section_title: Differences in Key Assumptions and Consideration of PPACA Provisions Likely Contributed to Variation in Estimates among Studies Using Similar Techniques
paragraphs: Certain differences in key assumptions may have contributed to some  variation in the estimates from the microsimulation studies we reviewed.  Variation in estimates from the studies that used other analytic  approaches was likely caused in part by differences in their  methodologies and the extent of their incorporation of PPACA provisions  into their analyses. Variation in estimates from the employer surveys was  likely due in part to differences in survey methods, respondents, and the  manner in which PPACA provisions were referenced throughout the  survey.
subsections: section_title: Differences in Assumptions, Time Frames of Projections, and Assessment of the Individual Mandate Likely Contributed to Small Variation in Estimates from Microsimulation Studies
paragraphs: Certain differences in factors, such as underlying assumptions about  employer and employee decision making, may have contributed to some  variation in the estimates, although the five microsimulation studies we  reviewed shared methodological similarities and therefore generated  relatively similar estimates of changes to employer-sponsored coverage.  The studies generally used similar modeling techniques and many of the  same data sets to calculate their estimates. Specifically, to construct  baseline distributions of coverage in the United States and “synthetic”  firms intended to reflect the demographics of employees in actual firms,  the studies relied on data sets such as the Medical Expenditure Panel  Survey (MEPS), the Current Population Survey (CPS), and the Survey of  Income and Program Participation (SIPP). The studies also made  certain common assumptions. For instance, most assumed, as illustrated  by evidence in the literature, that employers electing to drop coverage for  their employees would increase wages in order to compensate for the  loss of health benefits, and certain studies noted that the increased  wages would factor in the tax exclusion of health benefits.

However,  another researcher has noted that employers’ decisions to increase  employees’ wages in lieu of offering health coverage will depend on a  number of factors—most important the strength of the economy and the  labor market. Further, most studies assumed that employers generally  make decisions about health coverage based on their entire workforce  and would not offer health benefits to some, but not all, employees. For  example, CBO noted that there are legal and economic obstacles to  offering health benefits to only certain employees, including a prohibition  on discrimination in favor of highly compensated individuals. Such  similar assumptions likely contributed to the consistency of the studies’  estimates, which suggested that PPACA would result in relatively small  changes to employer-sponsored coverage in the near term.

However, differences in underlying assumptions about employer and  employee responses to PPACA, the time frames of projections, and  assessment of the effectiveness of PPACA’s individual mandate likely  contributed to some variation in the estimates.

Modeling employer and employee responses to PPACA: The  studies generally used one of two different approaches to model  employer and employee responses to PPACA. The CBO study drew  from available evidence in health economics literature about historical  responses to premium changes in order to model the future decisions  of employers and employees in response to PPACA. The RAND  and Urban Institute/RWJF studies assumed that employers and  employees would make optimal choices by weighing the financial  costs and benefits of available options, taking into account factors  such as the PPACA-imposed individual and employer penalties for not  obtaining or offering coverage. The Lewin Group study used a  combination of the two approaches.

Time frames of the estimates: While each microsimulation model  estimated the effects of PPACA in a certain year as compared to  coverage without PPACA in a given year, the models varied in their  time frame of focus. The Lewin Group and Urban Institute/RWJF  studies we reviewed simulated the effects of PPACA in 2011  (assuming implementation of key PPACA provisions). However, the  RAND study simulated the effects of PPACA in 2016, and the CBO  and CMS studies simulated the effects of PPACA over a range of  years (2012 through 2022 and 2010 through 2019, respectively).

Compliance with the individual mandate: Models varied in their  assessment of the degree of compliance with PPACA’s individual  mandate. The CMS and Urban Institute/RWJF studies assumed  compliance would be driven by both the financial incentive of a  penalty as well as the desire to obey a statutory mandate. Similarly,  the CBO study assumed that compliance with the mandate would be  high, even among individuals exempt from penalties, because of a  natural preference for complying with the law. CBO also assumed that  the penalties for noncompliance may be imperfectly enforced.  However, the RAND study assumed that penalties for noncompliance  would be perfectly enforced, but did not assume that the mandate  would increase compliance among individuals exempt from penalties.  Similarly The Lewin Group also assumed a lower compliance with the  individual mandate than CBO, in part because there are no legal  consequences to going without coverage beyond the penalty.

section_title: Differences in Study Methodologies and Consideration of PPACA Provisions Likely Led to Wider Variation in Estimates from Studies Using Other Analytic Approaches
paragraphs: Estimates from the three studies that used other analytic approaches  varied more widely likely in part because of differences in the studies’  methodologies as well as their consideration of PPACA provisions. For  example, the EPI study, which predicted a net increase of 4 million in the  number of individuals with employer-sponsored coverage, incorporated  some of the statistical modeling techniques and underlying theory of  employer and employee behavior used by the microsimulation models,  and was therefore able to more systematically examine the combined  effects of PPACA’s provisions. The American Action Forum study,  which predicted that up to 35 million individuals may lose employer- sponsored coverage, used a cost-benefit comparison, examining  individual employers’ financial trade-offs between offering coverage and  dropping coverage for employees of different income levels and paying  the employer penalties and increasing employees’ wages to compensate.  The study suggested that PPACA provides strong financial incentives for  employers to drop coverage for many of their low-income employees, but  that there are few incentives to drop coverage for higher-income  employees. Certain researchers have noted key limitations of the study,  including that it did not take into account the impact of PPACA’s individual  mandate, the nonfederal tax advantage of employer-sponsored coverage,  the cost of single health coverage plans, and the nondiscrimination rules  that may prevent employers from dropping coverage for some, but not all,  employees.measure the net effect of PPACA on employer health coverage, thus   Additionally, unlike the other two studies, this study did not  addressing only those that may drop coverage but not those that may  newly offer it. Finally, the Booz and Company Inc. study, which predicted  a net decrease of 3 to 4 million in the number of individuals with  employer-sponsored coverage, used a combination of interviews, focus  groups, surveys, and statistical modeling to derive its estimates. The  study estimated the change in employer-sponsored coverage between   2 years—2009 and 2016—but did not separate the effects of PPACA  from any changes to employer-sponsored coverage that may occur  between these years because of factors unrelated to PPACA, such as a  continuation of the overall declining rates of employer-sponsored  coverage since the last decade.

section_title: Variation in Estimates from Employer Surveys Was Likely Due to Differences in Survey Methods and Assumptions about Respondent Knowledge of PPACA Provisions
paragraphs: Varying estimates from the 16 employer surveys of the extent to which  employers were likely to drop health coverage may have stemmed from  differences in sampling techniques, the response rates and number of  respondents, the types of employers surveyed, the framing of survey  questions, and the manner in which PPACA provisions were referenced  throughout the survey.

Sampling techniques and number of respondents: Surveys varied  in the methodology used to draw their sample of respondents. Some,  such as the Mercer survey, sampled randomly within the national  employer population, which helped ensure that results were  generalizable to all nonsurveyed employers with similar  characteristics. Others, such as the International Foundation of  Employee Benefit Plans (IFEBP) survey, used nonrandom sampling  techniques, which limited the generalizability of their results. In  addition, the number of survey respondents ranged widely, from 104  in the Benfield Research survey to about 2,840 in the Mercer survey,  which also could have implications for the generalizability of results.The surveys generally did not publicly disclose their response rates.

Employer respondent type: Surveys varied in the type of employers  surveyed. Some, such as those conducted by trade groups, were  limited to members of the surveying organization. Others were limited  to only small or only large employers, or employers within a particular  industry, or included a broader mix of small, midsize, and large  employers across all types of industries. For example, the NFIB  survey included only small employers with 50 or fewer employees,  while the majority of respondents to the HighRoads survey were from  hospitals and other health care systems. The Mercer and Willis  surveys included a wider range of employer sizes and industries.  Some surveys, such as the Benfield Research survey, included only  self-insured employers, and others, such as the McKinsey survey,  included only private sector employers.

Framing of the survey questions: Surveys varied in the manner in  which they asked whether employers were planning to drop health  coverage in response to PPACA. For example, the Fidelity  Investments (Fidelity) survey reported whether respondents were  “seriously thinking about no longer offering health care coverage,” the  HR Policy Association survey asked if respondents were giving  “serious consideration to discontinuing providing health benefits,” and  the NFIB survey asked if employers were “not at all likely” or “not too  likely” to “have an employee insurance plan 12 months from now.” In  addition, some surveys reported specifically about active employee  health plans, while others did not distinguish between active  employees and retirees. For example, the Towers Watson survey  reported whether respondents planned to “replace health care plans  for active employees working 30+ hours per week with a financial  subsidy” while the GfK Custom Research North America survey  reported whether employers were “very or somewhat likely to drop  coverage” without specifying whether this was for active employees or  retirees.

Referencing of PPACA provisions: Surveys varied in their  assumptions of respondent knowledge of PPACA provisions. For  example, 11 surveys assumed a certain level of respondent  awareness of key PPACA provisions and did not specifically refer to  the provisions in the phrasing of their questions about plans to drop  coverage. However, other surveys phrased their questions in the  context of specific PPACA provisions or explicitly asked respondents  about their knowledge of the provisions. For example, the  PricewaterhouseCoopers survey asked how likely respondents were  to “cover employees through state-run health insurance exchange  pools,” and the Willis survey asked how likely respondents were to  “drop coverage to trigger migration of employees to state-based  exchanges.” The McKinsey survey also phrased its questions about  discontinuing health coverage in the context of select PPACA  provisions and provided additional information to respondents to  inform them about the provisions.

section_title: Employer Surveys Suggest That PPACA May Have a Larger Effect on Small Employers and Certain Employee Populations and Prompt Some Employers to Change Benefit Designs
paragraphs: PPACA may affect certain types of employers or employers with certain  employee populations more than all employers or employees. Some  employers were considering benefit design changes.
subsections: section_title: PPACA May Affect Small Employers and Certain Types of Employees More Than Others
paragraphs: Four of five surveys that examined changes in the prevalence of  employer-sponsored coverage by employer size indicated that a greater  share of small employers (from 5 to 22 percent) were considering  dropping coverage compared to large employers (from 2 to 14 percent) in  these surveys. These surveys included Fidelity (22 percent and   14 percent for small and large employers, respectively), McKinsey   (9 percent and 5 percent for small and large employers, respectively), and  Mercer (5 percent and 2 percent for small and large employers,  respectively). One survey (Willis) did not indicate any differences between  small and large employers.

Surveys that examined changes in the prevalence of employer-sponsored  coverage for certain types of beneficiaries indicated that these individuals  could be more affected than others. Five of the nine surveys that  considered the effect on retirees indicated that a higher proportion of  employers were considering dropping coverage for retirees compared to  all employees in these surveys—between 9 and 20 percent compared to  4 percent and 9 percent, respectively. For example, Mercer  indicated that 17 percent and 5 percent of employers were considering  dropping coverage for new retirees and all employees, respectively, and  Willis indicated that 9 percent and 5 percent of employers were  considering dropping coverage for retirees and all employees,  respectively. Two of the four remaining surveys  (PricewaterhouseCoopers and IFEBP) indicated no differences between  rates of employers dropping coverage for retirees and for all employees,  and the remaining two only examined the effect of PPACA on subsets of  employees, but not all employees. In addition, two surveys that examined  the effect of PPACA on spouses and dependents indicated that between  12 and 15 percent of employers were considering dropping health  coverage for spouses and dependents compared to a lower proportion for  all employees. For example, McKinsey indicated that 15 percent and   9 percent of employers were definitely considering dropping coverage for  spouses/dependents and all employees, respectively.

section_title: PPACA May Also Prompt Employers to Change Health Plan Benefit Design
paragraphs: Several of the 19 employer surveys that we reviewed also indicated that  PPACA may prompt employers to consider key changes to benefit  designs that will generally result in greater employee cost for health  insurance.

Increased employee cost sharing: The 9 surveys that examined  benefit design changes indicated that from 16 to 73 percent of  employers were considering increasing employees’ share of the cost  of coverage, for example, through increased premiums, deductibles,  or co-payments. For example, the IFEBP survey indicated that about  40 percent of employers had increased or were planning to increase  employee premium sharing, and about 29 percent had increased or  planned on increasing in-network deductibles. Similarly, the  PricewaterhouseCoopers survey indicated that 61 percent planned to  increase employee premium sharing, and 57 percent planned to  increase employee cost sharing through other benefit design  changes.

In addition, the 7 surveys that examined employer responses to the  high-cost excise tax effective under PPACA in 2018 indicated that  from 11 to 88 percent of employers had plans to take steps to avoid  paying the tax; in 5 of these surveys, employers planned to redesign  benefits and in 2 surveys employers had not identified specific  strategies but planned to take steps. For example, the Aon-Hewitt  survey indicated that 25 percent of employers anticipated changing  their benefits to reduce plan cost, while the Willis survey indicated that  22 percent planned to increase deductibles or co-payments to avoid  the tax.

Use of account-based plans: The 9 surveys that examined employer  plans to offer account based plans, such as high-deductible health  plans (HDHP), consumer-directed health plans (CDHP), or health  savings accounts indicated that from 17 to 73 percent of employers  either had plans to offer such plans or saw the plans as attractive  options for providing health coverage. For example, the Benfield  Research survey indicated that about two-thirds of employers planned  to offer a CDHP by 2015, and the Towers Watson survey indicated  that 17 percent planned to start offering HDHPs in 2013 or 2014,  bringing the total share of employers with HDHPs up to 74 percent.

Move to self-insurance: Two of the 3 surveys that examined  employers potentially becoming self-insured in response to PPACA  indicated that from 12 to 52 percent were considering doing so, and  the remaining survey indicated that 13 percent of employers reported  increasing their consideration of such a move in response to  PPACA. For example, the IFEBP survey indicated that about   52 percent of employers were considering such a move, compared to  only about 6 percent in a prior year’s survey.

section_title: External Comments
paragraphs: We provided a draft of this report to two researchers with expertise in  employee health benefits issues. They agreed with our report and  provided suggestions and technical comments, which we incorporated as  appropriate.

As agreed with your office, unless you publicly announce the contents of  this report earlier, we plan no further distribution until 30 days from the  report date. At that time, we will send a copy to the Secretary of Health  and Human Services. In addition, the report will be available at no charge  on the GAO website at http://www.gao.gov.

If you or your staff have any questions about this report, please contact  me at (202) 512-7114 or dickenj@gao.gov. Contact points for our Offices  of Congressional Relations and Public Affairs may be found on the last  page of this report. GAO staff who made key contributions to this report  are listed in appendix II.

section_title: Appendix I: Studies Reviewed by GAO
paragraphs: We reviewed the 27 studies listed below that contained original numerical  estimates of the effect of the Patient Protection and Affordable Care Act  (PPACA) on the prevalence of employer-sponsored coverage—5 based  on microsimulation models, 3 based on other analytic approaches, and  19 based on employer surveys.
subsections: section_title: Microsimulation Models
paragraphs: 1.  Centers for Medicare & Medicaid Services.

Foster, R. S., Centers for Medicare & Medicaid Services Office of the  Actuary. Estimated Financial Effects of the “Patient Protection and  Affordable Care Act,” as Amended. Baltimore, Md.: April 2010.  2.  Congressional Budget Office (CBO).

CBO and JCT’s Estimates of the Effects of the Affordable Care Act on  the Number of People Obtaining Employment-Based Health  Insurance. Washington, D.C.: March 2012.

Updated Estimates for the Insurance Coverage Provisions of the  Affordable Care Act. Washington, D.C.: March 2012.

Banthin, J. Effects of Eliminating the Individual Mandate to Obtain  Health Insurance. Presentation at Bloomberg Government/Rand  Corporation event. Washington, D.C.: March 2012.

Elmendorf, D. W. CBO’s Analysis of the Major Health Care Legislation  Enacted in March 2010. Testimony before the Subcommittee on  Health, Committee on Energy and Commerce, House of  Representatives. Washington, D.C.: March 2011.

H.R. 4872, Reconciliation Act of 2010 (Final Health Care Legislation).  Washington, D.C.: March 2010.  3.  The Lewin Group.

Sheils, J. F. and R. Haught. “Without the Individual Mandate, the  Affordable Care Act Would Still Cover 23 Million; Premiums Would  Rise Less Than Predicted.” Health Affairs, vol. 30, no. 11 (2011).

Patient Protection and Affordable Care Act (PPACA): Long Term  Costs for Governments, Employers, Families and Providers. Staff  Working Paper # 11. Falls Church, Va.: 2010.  4.  RAND Corporation.

Eibner, C. and C. C. Price. The Effect of the Affordable Care Act on  Enrollment and Premiums, With and Without the Individual Mandate.  Santa Monica, Calif.: 2012.

Eibner, C. et al. Establishing State Health Insurance Exchanges:  Implications for Health Insurance Enrollment, Spending, and Small  Business. Santa Monica, Calif.: 2010.  5.  The Urban Institute/Robert Wood Johnson Foundation.

Buettgens, M. and C. Carroll. Eliminating the Individual Mandate:  Effects on Premiums Coverage, and Uncompensated Care.  Washington, D.C., and Princeton, N.J.: January 2012.

Garrett, B. and M. Buettgens. Employer-Sponsored Insurance under  Health Reform: Reports of Its Demise Are Premature. Washington,  D.C., and Princeton, N.J.: January 2011.

section_title: Other Analytic Approaches
paragraphs: 6.  Ahlquist, G. D., P. F. Borromeo, and S. B. Saxena. The Future of  Health Insurance: Demise of Employer-Sponsored Coverage Greatly  Exaggerated. Booz & Company Inc. 2011.  7.  Burkhauser, R. V., S. Lyons, and K. Simon. An Offer You Can’t  Refuse: Estimating the Coverage Efffects of the 2010 Affordable Care  Act. Washington, D.C.: Employment Policies Institute, July 2011.

Burkhauser, R. V., S. Lyons, and K. Simon. The Importance of the  Meaning and Measurement of “Affordable” in the Affordable Care Act.  Working Paper # 17279, National Bureau of Economic Research.  Cambridge, Mass.: August 2011.  8.  Holtz-Eakin, D. and C. Smith. Labor Markets and Health Care Reform:  New Results. American Action Forum. Washington, D.C.: May 2010.

section_title: Employer Surveys
paragraphs: 9.  Aon Hewitt. Employer Reaction to Health Care Reform: Retiree  Strategy Survey. Lincolnshire, Ill.: 2011.  10. Benfield Research. Special Report: Employer Market Healthcare  Reform Research Summary. St. Louis, Mo.: 2011.  11. Ceridian Health Care Compass. “Health Care Reform Presents New  Challenges, Choices to U.S. Employers.” Issue 21. Cites findings from  Ceridian’s Health Care Compass reader poll, July 2011. Accessed  February 1, 2012.  http://www.ceridian.com/employee_benefits_article/1,6266,15766- 79463,00.html.  12. Fidelity Investments. Fidelity Investments Survey Finds Majority of  Employers Rethinking Health Care Strategy Post Health Care Reform.  Boston, Mass.: July 2010. Accessed March 6, 2012.  http://www.fidelity.com/inside-fidelity/employer-services/fidelity- survey-finds-majority-of-employers-rethinking-health-care-strategy- post-health-care-reform.  13. GfK Custom Research North America. Employers Skeptical of Health  Reform, But Few Project Dropping Health Insurance Coverage.” New  York, N.Y.: December 2011. Accessed March 29, 2012.  http://www.gfkamerica.com/newsroom/press_releases/single_sites/00 9103/index.en.html.  14. HighRoads. “HighRoads Study Shows Employers Will Not Eliminate  Benefits Coverage Due to Health Care Reform.” December 2011.  Accessed February 1, 2012. http://newsroom.highroads.com/hr- compliance-connection/highroads-study-shows-employers-will-not- eliminate-benefits-coverage-due-to-health-care-reform.  15. HR Policy Association.  2011 Annual Chief Human Resource Officer Survey. Washington,  D.C.  2010 Summer Chief Human Resource Officer Survey: Questions on  the New Health Care Law. Washington, D.C.  16. International Foundation of Employee Benefit Plans.

Health Care Reform: Employer Actions One Year Later; Survey  Results: May 2011. Brookfield, Wis.: 2011.

Health Care Reform: What Employers Are Considering; Survey  Results: May 2010. Brookfield, Wis.: 2010.  17. Kaiser Family Foundation and Health Research & Education Trust.  Employer Health Benefits 2011 Annual Survey. Menlo Park, Calif.,  and Chicago, Ill.: September 2011.  18. Lockton Companies, LLC. Employer Health Reform Survey Results,  June 2011. Kansas City, Mo.: 2011.  19. Market Strategies International. Many Companies Intend to Drop  Employer Coverage in 2014 as Health Care Reform Takes Full Effect.  Livonia, Mich.: January 2011. Accessed May 1, 2012.  http://www.marketstrategies.com/news/1902/1/Many-Companies- Intend-to-Drop-Employee-Coverage-in-2014-as-Health-Care-Reform- Takes-Full-Effect.aspx.  20. McKinsey & Company. How US Health Care Reform Will Affect  Employee Benefits. 2011.

21. Mercer, LLC.

National Survey of Employer-Sponsored Health Plans: 2011 Survey  Report. New York, N.Y.: 2012.

National Survey of Employer-Sponsored Health Plans: 2010 Survey  Report. New York, N.Y.: 2011.  22. Midwest Business Group on Health. Financial Impact of Health  Reform on Employer Benefits Not as Significant as Anticipated.  Chicago, Ill.: March 2012. Accessed March 29, 2012.  http://www.mbgh.org/mbgh/news/2012pressreleases/go.aspx?navigati onkey=a4956928-cca2-495a-94fc-ed56ce991fcd.  23. National Business Group on Health.

Large Employers’ 2011 Health Plan Design Changes. Washington,  D.C.: 2010.

Majority of Employers Revamping Health Benefit Programs for 2012,  National Business Group on Health Survey Finds. Washington, D.C.:  August 2011. Accessed January 1, 2012.  http://www.wbgh.org/pressrelease.cfm?ID=179.  24. National Federation of Independent Business. Small Business and  Health Insurance: One Year After Enactment of PPACA. Washington,  D.C.: 2011.  25. PricewaterhouseCoopers LLP. Health and Well-Being Touchstone  Survey Results, May 2011. New York, N.Y.: May 2011.  26. Towers Watson.

Health Care Changes Ahead: Survey Report. New York, N.Y.:  October 2011.

Health Care Reform: Looming Fears Mask Unprecedented Employer  Opportunities To Mitigate Costs, Risk, and Reset Total Rewards. New  York, N.Y.: May 2010.  27. Willis Group Holdings plc.

Willis. The Health Care Reform Survey, 2011-2012. New York, N.Y.:  2011-2012.

Diamond Management Technology Consultants and Willis North  America. The Health Care Reform Survey, 2010. New York, N.Y.:  2010.

section_title: Appendix II: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact

section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, Randy DiRosa (Assistant  Director), Iola D’Souza, Yesook Merrill, Laurie Pachter, and Priyanka  Sethi made key contributions to this report.


Question-summary annotations: questions: question: What did the GAO conclude from their studies of the PPACA?
answer: The five studies GAO reviewed that used microsimulation models to estimate the effects of the Patient Protection and Affordable Care Act (PPACA) on employer-sponsored coverage generally predicted little change in prevalence in the near term, while results of employer surveys varied more widely.
child_questions: question: What estimates did the study provide about people being impacted by employee sponsored coverage?
answer: The five microsimulation study estimates ranged from a net decrease of 2.5 percent to a net increase of 2.7 percent in the total number of individuals with employer-sponsored coverage within the first 2 years of implementation of key PPACA provisions, affecting up to about 4 million individuals.

question: Based on the studies, what is the expected drop of coverage by employers?
answer: Among the 19 surveys, 16 reported estimates of employers dropping coverage for all employee types. Among these 16, 11 indicated that 10 percent or fewer employers were likely to drop coverage in the near term, but estimates ranged from 2 to 20 percent.
child_questions: question: What did two of the studies indicate regarding individuals who lose employer-sponsored coverage?
answer: Two of these studies also indicated that the majority of individuals losing employer-sponsored coverage would transition to other sources of coverage.

question: What long term predictions of prevalence of employer sponsored coverage was made?
answer: Longer-term predictions of prevalence of employer-sponsored coverage were fewer and more uncertain, and four microsimulation studies estimated that from about 2 million to 6 million fewer individuals would have employer-sponsored coverage in the absence of the individual mandate compared to with the mandate.

question: How are the employer surveys different in their results from the microsimulation studies?
answer: In contrast to the microsimulation studies, which estimate the net effect on individuals, most employer surveys measure the percentage of employers that may drop coverage in response to PPACA.

questions: question: What likely causes variation in estimations from the five different studies?
answer: Differences in key assumptions and consideration of PPACA provisions likely contributed to some variation among estimates from the five microsimulation studies and the 16 employer surveys.
child_questions: question: What caused the variations in the studies?
answer: Variation among the microsimulation studies may have stemmed from differences in assumptions about employer and employee decision making, the time frames of the estimates, and assessments of potential compliance with the individual mandate.

question: What caused the variations in the surveys?
answer: Variation among the employer surveys may be related to differences in survey sampling techniques, the number and types of employer respondents, and the framing of survey questions.
child_questions: question: How did references to PPACA cause variation?
answer: Also, some referred to specific PPACA provisions or provided specific information about provisions to respondents, while others did not.

questions: question: What did the surveys indicate about the effect of small employers?
answer: Some of the 19 employer surveys indicated that PPACA may have a larger effect on small employers and certain populations and may prompt some employers to change benefit designs.
child_questions: question: How were small employers likely to react to PPACA?
answer: For example, 4 surveys found that smaller employers were more likely than other employers to stop offering health coverage in response to PPACA, and 5 found that employers in general were more likely to drop coverage for retirees than for all employees.
child_questions: question: What other changes were predicted?
answer: Nine surveys also indicated that employers are considering key changes to benefit design, some of which may result in greater employee cost for health coverage.

questions: question: How has employer health coverage changed in the past decade?
answer: The share of employers offering health coverage has generally declined in the last decade.

question: How will PPACA influence employers willingness to offer coverage?
answer: Researchers believe that certain provisions of PPACA could affect employers’ future willingness to offer health coverage, such as the availability of subsidized coverage through new health insurance marketplaces called “exchanges” and an “individual mandate,” which will require most people to obtain health coverage or pay a tax penalty.
child_questions: question: What research is being done to assess this?
answer: Researchers have provided various estimates of the effect PPACA may have on employer-sponsored coverage.

questions: question: What did GAO review?
answer: GAO examined (1) estimates of the effect of PPACA on the extent of employer-sponsored coverage; (2) factors that may contribute to the variation in estimates; and (3) how estimates of coverage vary by the types of employers and employees that may be affected, as well as other changes employers may be considering to the health benefits they offer.
child_questions: question: How did the GAO conduct these reviews?
answer: GAO reviewed studies published from January 1, 2009, through March 30, 2012 containing an original numerical estimate of the prevalence of employer-sponsored coverage at the national level.

question: What is the use of microsimulation models?
answer: Microsimulation models can systematically estimate the combined effects of multiple PPACA provisions in terms of both gains and losses of coverage; their results are based on multiple data sets and assumptions.

question: What information is being drawn from surveys?
answer: Surveys reflect employer perspectives; they have limits as a predictive tool in part based on varied survey methodologies and respondent knowledge of PPACA.