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New study warns of Affordable Care Act's billion-dollar misunderstanding

As a consequence of poorly understood factors in the new Affordable Care Act (ACA), millions of employees may willingly switch from an employer plan to a government-subsidized insurance exchange -- even if their employer continues to offer coverage, according to a new Cornell study.

"If you like your plan, you can keep it -- but, if you meet certain income requirements, you may not want to," said Cornell professor of policy analysis and analysis (PAM) Richard Burkhauser, senior author of the study, which was just issued by the Employment Policies Institute. "The cost of that decision for taxpayers would be significant.

"In their original analysis of the health care law, the Congressional Budget Office (CBO) predicted that few income-eligible employees currently insured through their employers would take advantage of the generous subsidies in the insurance exchange," Burkhauser said. "But our study finds the opposite: Not only is it in the interest of millions of employers to adjust their benefit packages so that employees are eligible to enter the exchange, but we predict that large numbers of those employees will freely choose subsidized exchange coverage."

The authors, who also include Cornell graduate student Sean Lyon and former PAM associate professor Kosali Simon (now professor at Indiana University), single out the ACA's "affordable coverage" provision, the meaning of which still isn't well understood more than a year after the law's enactment.

"I suspect the average Congressperson believes the health care law levies a fine if a large employer doesn't provide affordable coverage for employees and their families," Burkhauser added. "I thought the same thing -- until I spoke with the people who analyzed the law's cost."

The authors report that the CBO was instructed by the Joint Committee on Taxation to read the law as requiring employers to make coverage affordable for employees alone. This definition -- and its possible revision -- holds significant implications for workers whose employers provide them (but not their family members) with affordable coverage, since that offer disqualifies their family members from accessing subsidized exchange coverage.

Using the CBO's narrow definition of affordable coverage and assuming employees don't respond to the incentives created by exchange subsidies, the authors find that about 10 percent of private sector workers ages 17-64 (9.8 million people) would receive coverage in the insurance exchange.

But when the authors redo their model so that employers and employees work together to take advantage of exchange subsidies, the number of the employees insured in the exchange rises by 4 million. When the broader definition of affordable coverage is used, the changes are even more dramatic: Employer-sponsored coverage drops to 66 percent from its current level of 75 percent, with more than 21 million people now receiving insurance in the health care exchange.

"Whichever interpretation holds, the consequences for Americans are significant: Either the dependents of millions of workers will be stuck in a no man's land without affordable coverage through the worker's employer or the exchange, or taxpayers will be stuck with as much as $50 billion more in gross subsidy costs than originally projected," Burkhauser said.

A policy brief summarizing all of the study's key findings is available online.

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