Employers’ changing economic incentives to offer health insurance under the affordable care act

The employer’s decision to offer health insurance depends on how much workers value insurance relative to wages, and that value is likely to vary, given the composition of the establishment’s workforce and economic incentives such as the preferential tax treatment of premiums for employer-sponsored insurance (ESI). Using the 2008-10 MEPS Insurance Component augmented with information from other sources, we generate new estimates of employers’ price-sensitivity of offering insurance. Our results suggest that small and medium-size employers are sensitive to changes in the tax price of insurance, with small employers exhibiting the largest price-sensitivity. Workforce composition and local labor market conditions also influence employer offers. With these model estimates, we predict how provisions of the Affordable Care Act (ACA)—including the employer shared-responsibility requirement, premiumtax credits for exchange-based coverage, and the individual mandate—affect the probability of offering ESI. Findings from this study can inform policy discussions about the implications of ACA provisions as well as subsequent reforms focused on the tax-exempt status of ESI premiums.