President Joe Biden’s plans for reshaping health-care coverage could have conflicting consequences for employers—reducing costs by lowering the Medicare age yet potentially undermining company health plans if younger, healthier employees leave for cheaper, subsidized Obamacare coverage.
Biden on Wednesday unveiled his plan for health care and other measures. The plan includes $200 billion in expanded tax credits to permanently subsidize health insurance purchased on the Affordable Care Act exchanges. It leaves out any reduction in the Medicare age, although the White House indicated it would address that separately.
Biden’s proposal builds on the American Rescue Plan Act , which he signed into law March 11. That law includes expanded ACA subsidies for a two-year period, limiting the amount enrollees must pay for premiums to no more than 8.5% of income, and it lowered out-of-pocket costs for low-income people. Companies worry that expanded subsidies for Obamacare plans could draw some employees away from company plans, especially lower-income workers.
If the subsidies were made permanent, as Biden proposes, marketplace enrollment would rise by 5.1 million people, or 60% in 2022, according to an analysis by the Urban Institute.
The Washington-based think tank also found the number of uninsured Americans would drop by an estimated 4.2 million, or 14% in 2022, if “consumers, employers, and insurers responded to the new subsidy schedule as if it were fully phased in.” That estimate is more than three times larger than the Congressional Budget Office’s estimate of the reduction in uninsured people if the subsidies were only temporary, the researchers noted.
Fear the Coverage ‘Firewall’
Employers, which cover about 150 million Americans, are trying to determine how Biden’s proposal affects their costs and plan viability, and they are particularly concerned that making the increased Obamacare subsidies permanent will breach the “firewall” between employer plans and the ACA exchanges.
The ACA creates a “firewall” intended to stop employers from moving employees to Obamacare by imposing substantial fines on companies with at least 51 full-time workers that don’t provide affordable, qualified coverage to individual workers. If an individual worker has access to such plans, neither they nor their family qualifies for subsidies in the ACA marketplaces.
“There is a strong sentiment in the employer community that eliminating the firewall could lead to adverse risk for the employer risk pool,” James Gelfand, senior vice president of health policy for the ERISA Industry Committee, said in an interview. ERIC represents large employers that provide self-insured health plans for employees.
“Younger, healthier people are likely to then go into an exchange where they can get a very cheap, bare-bones, highly subsidized plan,” Gelfand said. “That leaves only older, and presumably less healthy people in the employer plans, thus raising the price of those plans, which becomes kind of a vicious cycle.”
“When a premium goes up, some percentage of people drop out,” which leads to further premium increases, Gelfand said. The ACA firewall helps protect employer plans so that they stay viable, he said.
Gelfand says the problem of providing affordable family coverage could be solved by expanding Obamacare subsidies to cover family members.
According to the Commonwealth Fund, the problem, dubbed the “family glitch,” results in 5.1 million to 6 million people being ineligible for subsidies.
“I personally don’t think that the Biden administration really wants to disrupt the employer market,” Gelfand said. “They’re trying to increase coverage numbers, and the best way to do that is to keep people covered the way that they are, but to find people who aren’t covered and get them coverage.”
Saving Employers Money
Employers and health policy analysts are also keeping a close eye on proposals to reduce the age at which individuals become eligible for Medicare.
While Biden’s plan doesn’t include lowering the Medicare age, which he called for during his campaign, congressional Democrats are pushing for it. Lowering the Medicare age could save employers as much as 30% and reduce what beneficiaries pay, but costs would shift to taxpayers, according to an analysis released Tuesday by the Kaiser Family Foundation.
“For employers, there could be kind of net savings,” Karen Pollitz, a senior fellow with the KFF, said in an interview.
The KFF analysis found that lowering the Medicare age to 60 could reduce costs for employer health plans as much as 15% if all eligible employees shifted to Medicare. Costs for employer plans could drop as much as 30% if everyone 55 and over were no longer in employer-sponsored insurance.
Overall health-care costs in the U.S. could also decline since Medicare payments to hospitals and doctors are significantly lower than rates paid by employer-sponsored commercial plans.
The outcome for employers of shifting older, more expensive workers to Medicare would depend on a number of variables, Pollitz said.
“The decisions that people would make are based on a number of more complicated factors,” she said. “If they get family coverage through work, they might not move, because Medicare doesn’t offer family coverage.”
In addition, “Medicare’s kind of in pieces,” Pollitz said. Coverage for hospitalization (Part A), doctor’s visits (Part B), and drug coverage (Part D) are under separate plans. But premiums are on average for all of the plans combined are less than $200 a month per person, she said. “There’s a lot of other subsidies kind of baked in there, the way the program is so heavily tax-financed.”
—With assistance from Tony Pugh